no wish to hurt youeither. You may feel joy on a sunny day, when a gentle wind pushes yoursailboat where you want it to go. You may feel panic on a stormy day whenthe ocean pushes your boat toward the rocks. Your feelings about the oceanexist only in your mind. They threaten your survival when you let your feel-ings rather than intellect control your behavior.
A sailor cannot control the ocean, but he can control himself. He studiescurrents and weather patterns. He learns safe sailing techniques and gainsexperience. He knows when to sail and when to stay in the harbor. A suc-cessful sailor uses his intelligence.
An ocean can be useful— you can fish in it and use its surface to get toother islands. An ocean can be dangerous— you can drown in it. The morerational your approach, the more likely you are to get-what you want. Whenyou act out your emotions, you cannot focus on the reality of the ocean.
A trader has to study trends and reversals in the market the way a sailorstudies the ocean. He must trade on a small scale while learning to handlehimself in the market. You can never control the market but you can learn tocontrol yourself.
A beginner who has a string of profitable trades often feels he can walk onwater. He starts taking wild risks and blows up his account. On the other hand,an amateur who takes several losses in a row often feels so demoralized that hecannot place an order even when his system gives him a strong signal to buy orsell. If trading makes you feel elated or frightened, you cannot fully use yourintellect. When joy sweeps you off your feet, you will make irrational tradesand lose. When fear grips you, you’ll miss profitable trades.
A professional trader uses his head and stays calm. Only amateursbecome excited or depressed because of their trades. Emotional reactions area luxury that you cannot afford in the markets.
Emotional Trading
Most people crave excitement and entertainment. Singers, actors, and profes-sional athletes command much higher incomes in our society than do suchmundane workmen as physicians, pilots, or college professors. People loveto have their nerves tickled—they buy lottery tickets, fly to Las Vegas, andslow down to gawk at road accidents.40 INDIVIDUAL PSYCHOLOGY
Trading is a heady experience and can be very addictive. Losers who dropmoney in the markets receive a tremendous entertainment value.
The market is among the most entertaining places on the face of the Earth.It is a spectator sport and a participant sport rolled into one. Imagine going toa major-league ball game in which you are not confined to the bleachers, Fora few hundred dollars you can run onto the field and join the game. If you hitthe ball right, you will get paid like a professional.
You would probably think twice before running onto the field the first fewtimes. This cautious attitude is responsible for the well-known “beginner’sluck.” Once a beginner hits the ball well a few times and collects his pay, heis likely to get the idea that he is better than the pros and could make a goodliving at it. Greedy amateurs start running out onto the field too often, evenwhen there are no good playing opportunities. Before they know what hitthem, a short string of losses destroys their careers.
Emotional decisions are lethal in the markets. You can see a good modelof emotional trading by going to a racetrack, turning around, and watchingthe humans instead of the horses. Gamblers stomp their feet, jump up anddown, and yell at horses and jockeys. Thousands of people act out their emo-tions. Winners embrace and losers tear up their tickets in disgust. The joy,the pain, and the intensity of wishful thinking are caricatures of what hap-pens in the markets. A cool handicapper who tries to make a living at thetrack does not get excited, yell, or bet the bulk of his roll on any race.
Casinos love drunk patrons. They pour gamblers free drinks becausedrunks are more emotional and gamble more. Casinos try to throw out intel-ligent card-counters. There is less freé liquor on Wall Street than in a casino,but at least here they do not throw you out of the game for being a goodtrader.
In Charge of Your Life
When a monkey hurts its foot on a tree stump, he flies into a rage andkicks the piece of wood. You laugh at a monkey, but do you laugh at your-self when you act like him? If the market drops while you are long, youmay double up on your losing trade or else go short, trying to get even.You act emotionally instead of using your intellect. What is the differencebetween a trader trying to get back at the market and a monkey kicking atree stump? Acting out of anger, fear, or elation destroys your chance of11. WINNERS AND LOSERS 4
success. You have to analyze your behavior in the market instead of actingout your feelings.
We get angry at the market, we become afraid of it, we develop sillysuperstitions. All the while, the market keeps cycling through its rallies anddeclines like an ocean going through its storms and calm periods. MarkDouglas writes in The Disciplined Trader that in the market, “There is nobeginning, middle, or end—only what you create in your own mind. Rarelydo any of us grow up learning to operate in an arena that allows for completefreedom of creative expression, with no external structure to restrict it in anyway.”
We try to cajole or manipulate the market, acting like the ancient emperorXerxes, who ordered his soldiers to horsewhip the sea for sinking his fleet.Most of us are not aware how manipulative we are, how we bargain, how weact out our feelings in the market. Most of us consider ourselves the center ofthe universe and expect every person or group to be either good or bad to us.This does not work in the market which is completely impersonal.
Leston Havens, a Harvard University psychiatrist, writes: “Cannibalismand slavery are probably the oldest manifestations of human predation andsubmission. Although both are now discouraged, their continued existence inpsychological forms demonstrates that civilization has achieved great suc-cess in moving from the concrete and physical to the abstract and psycholog-ical, while persisting in the same purposes.” Parents threaten their children,bullies hit them, teachers try to bend their will in school. Little wonder thatmost of us grow up either hiding in a shell or learning how to manipulateothers in self-defense. Acting independently does not feel natural to us— butthat is the only way to succeed in the market.
Douglas wams, “If the market’s behavior seems mysterious to you, it’sbecause your own behavior is mysterious and unmanageable. You can’treally determine what the market is likely to do next when you don’t evenknow what you’ll do next.” Ultimately, “the one thing you can control isyourself. As a trader, you have the power either to give yourself money or togive your money to other traders.” He adds, “The traders who can makemoney consistently . . . approach trading from the perspective of a mentaldiscipline.”
Each trader has his own demons to exorcise on the journey to becoming asuccessful professional. Here are several rules that worked for me as I grewfrom a wild amateur into an erratic semiprofessional and finally into a pro-fessional trader. You may change this list to suit your personality.42
INDIVIDUAL PSYCHOLOGY
- Decide that you are in the market for the long haul —that is, you want
to be a trader even 20 years from now.
. Learn as much as you can. Read and listen to experts, but keep a
degree of healthy skepticism about everything. Ask questions, and donot accept experts at their word.
- Do not get greedy and rush to trade — take your time to learn. The mar-
kets will be there with more good opportunities in the months andyears ahead.
. Develop a method for analyzing the market—that is, “If A happens,
then B is likely to happen.” Markets have many dimensions — use sev-eral analytic methods to confirm trades. Test everything on historicaldata and then in the markets, using real money. Markets keep chang-ing —you need different tools for trading bull and bear markets andtransitional periods as well as a method for telling the difference (seethe sections on technical analysis).
. Develop a money management plan. Your first goal must be long-term
survival; your second goal, a steady growth of capital; and your thirdgoal, making high profits. Most traders put the third goal first and areunaware that goals 1 and 2 exist (see Chapter 10, “Risk Management”).
. Be aware that a trader is the weakest link in any trading system. Go to
a meeting of Alcoholics Anonymous to learn how to avoid losses ordevelop your own method for cutting out impulsive trades.
. Winners think, feel, and act differently than losers. You must look
within yourself, strip away your illusions, and change your old waysof being, thinking, and acting. Change is hard, but if you want to be aprofessional trader, you have to work on changing your personality.ilMass Psychology
 
12, WHAT IS PRICE?
Wall Street is named after a wall that kept farm animals from wanderingaway from the settlement at the tip of Manhattan. The farming legacy liveson in the language of traders. Four animals are mentioned especially often onWall Street: bulls and bears, hogs and sheep. Traders say: “Bulls makemoney, bears make money, but hogs get slaughtered.”
A bull fights by striking up with his homs. A bull is a buyer—a personwho bets on a rally and profits from a rise in prices. A bear fights by strikingdown with his paws. A bear is a seller—a person who bets on a decline andprofits from a fall in prices. .
Hogs are greedy. They get slaughtered when they trade to satisfy theirgreed. Some hogs buy or sell positions that are too large for them and getdestroyed by a small adverse move. Other hogs overstay their positions —they keep waiting for profits to get bigger even after the trend reverses.Sheep are passive and fearful followers of trends, tips, and gurus. Theysometimes put on a bull’s horns or a bearskin and try to swagger. You recog-nize them by their pitiful bleating when the market becomes volatile.
Whenever the market is open, bulls are buying, bears are selling, hogs andsheep get trampled underfoot, and the undecided traders wait on the side-lines. Quote machines all over the world show a steady stream of quotes —the latest prices for any trading vehicle. Thousands of eyes are focused oneach price quote as people make trading decisions.
4344 MASS PSYCHOLOGYArguing About Price
When I ask traders at a seminar, “What is price?” some answer, “Price is aperceived value.” Others say, “Price is what a person at one particular pointin time is willing to pay another person for a commodity.” Someone says,“Price is what the last person paid for it. That’s the price right now.” Anothersuggests, “No, it’s what the next person will pay.”
Traders who cannot give a clear definition of price do not know what theyare analyzing. Your success or failure as a trader depends on handlingprices—and you had better know what they mean! Some attendees at theseminars I give become agitated as they search for an answer to a seeminglyobvious question. Arguments fly back and forth, as in this discussion:
I'll give you the worst-case example. In the 1929 crash, Singer stock wasselling for $100 and all of sudden there’s no bid, no bid, no bid, andsomebody comes forth—“I gotta sell, what am I bid?” and one of thefloor clerks said “one dollar” and he got it. He got the stock.
Price is what the greater fool is ready to pay.
Take the ’87 market. All of that 500-point decline — stocks weren’t worthany less after the decline than before. So it was the difference in theperception and the willingness of the next person to pay for it.
You might carry that one step further. What you’re paying for is abso-lutely worthless, It is just a piece of paper. The only value that it doeshave is the intrinsic dividend value, compared to government paper atthat time.
It still has the value of whatever anybody will pay you. If no one wants topay you for it, it has no value.
It'll pay you for a yield.
What if you trade soybeans? You can eat them.
How about a stock that has no yield?
But doesn’t it have assets?
The company that issued the stock has value, cash flow.
I give you one share of IBM; if no one wants to buy it, you can light acigarette with it.12. WHAT IS PRICE? 45
There is no such thing that no one wants to buy IBM. There is always abid and an ask.
Take a look at United Airlines. One day the paper says it’s $300 and thenext day it’s $150.
There’s no change in the airline, they’re still making the same cash flow,they’ve still got the same book value, and the same assets —what’s thedifference?
The price of stock has very little to do with the company it represents. Theprice of IBM stock has very little to do with IBM. As I visualize it, theprice of stock is connected by a mile-long rubber band to IBM and itcan be wildly higher and wildly lower -IBM just keeps chuggingalong and it’s a very, very remote connection.
Price is the intersection of supply and demand curves.
Each serious trader must know the meaning of price. You need to know whatyou analyze before you go out and start buying and selling stocks, futures, oroptions.
Resolving Conflict
There are three groups of traders in the market: buyers, sellers, and unde-cided traders. “Ask” is what a seller asks for his merchandise. “Bid” is whata buyer offers for that merchandise. Buyers and sellers are always in conflict.
Buyers want to pay as little as possible, and sellers want to charge asmuch as possible. If members of both groups insist on having their way, notrade can take place. No trade means no price —only wishful quotes of buy-ers and sellers.
A seller has a choice: to wait until prices rise, or to accept a lower offerfor his merchandise. A buyer also has a choice: to wait until prices comedown, or to offer to pay more to the sellers.
A trade occurs when there is a momentary meeting of two minds: Aneager bull agrees to a seller’s terms and pays up, or an eager bear agrees to abuyer’s terms and sells a little cheaper. The presence of undecided tradersputs pressure on both bulls and bears.
When a buyer and a seller bargain in private, they may haggle ata46 MASS PSYCHOLOGY
leisurely pace. The two must move much faster when they bargain at theexchange. They know that they are surrounded by a crowd of other traderswho may butt in on their deal at any moment.
The buyer knows that if he thinks for too long, another trader can step inand snap away his bargain. A seller knows that if he tries to hold out for ahigher price, another trader may step in and sell at a lower price. The crowdof undecided traders makes buyers and sellers more anxious to accommodatetheir opponents. A trade occurs when there is a meeting of two minds.
A Consensus of Value
Each tick on your quote screen represents a deal between a buyer and aseller. Buyers are buying because they expect prices to rise. Sellers are sell-ing because they expect prices to fall. Buyers and sellers trade while sur-rounded by crowds of undecided traders. They may become buyers or sellersas prices change or as time passes.
Buying by bulls pushes markets up, selling by bears pushes marketsdown, and undecided traders make everything happen faster by creating asense of urgency in buyers and sellers.
Traders come to the markets from all over the world: in person, via com-puters, or through their brokers. Everybody has a chance to buy and to sell.Each price is a momentary consensus of value of all market participants,expressed in action. Price is a psychological event—a momentary balance ofopinion between bulls and bears. Prices are created by masses of traders —buyers, sellers, and undecided people. The patterns of prices and volumereflect the mass psychology of the markets.
Behavior Patterns
Huge crowds converge on stock, commodity, and option exchanges — eitherin person or represented by their brokers. Big money and little money, smartmoney and dumb money, institutional money and private money, all meet onthe exchange floor. Each price represents a momentary consensus of valuebetween buyers, sellers, and undecided traders at the moment of transaction.There is a crowd of traders behind every pattern in the chartbook.
Crowd consensus changes from moment to moment. Sometimes it getsestablished in a very low-key environment, and at other times the environ-13. WHAT IS THE MARKET? 47
ment turns wild. Prices move in small increments during quiet times.When a crowd becomes either spooked or elated, prices begin to jump.Imagine bidding for a life preserver aboard a sinking ship—that’s howprices leap when masses of traders become emotional about a trend. Anastute trader tries to enter the market during quiet times and take profitsduring wild times.
Technical analysts study swings of mass psychology in the financial mar-kets. Each trading session is a battle between bulls, who make money whenprices rise, and bears, who profit when prices fall. The goal of technical ana-lysts is to discover the balance of power between bulls and bears and bet onthe winning group. If bulls are much stronger, you should buy and hold. Ifbears are much stronger, you should sell and sell short. If both camps areabout equal in strength, a wise trader stands aside. He lets bullies fight witheach other and puts on a trade only when he is reasonably sure who is likelyto win.
Prices, volume, and open interest reflect crowd behavior. So do the indica-tors that are based on them. This makes technical analysis similar to poll-tak-ing. Both combine science and art: They are scientific to the extent that weuse statistical methods and computers; they are artistic to the extent that weuse personal judgment to interpret our findings.
13. WHAT IS THE MARKET?
What is the reality behind market symbols, prices, numbers, and graphs?When you check prices in your newspaper, watch quotes on your screen, orplot an indicator on your chart, what exactly are you looking at? What is themarket that you want to analyze and trade?
Amateurs act as if the market is a giant happening, a ball game in whichthey can join the professionals and make money. Traders from a scientific orengineering background often treat the market as a physical event. Theyapply to it the principles of signal processing, noise reduction, and similarideas. By contrast, all professional traders know full well what the marketis—it is a huge mass of people.
Every trader tries to take money away from other traders by outguessingthem on the probable direction of the market. The members of the marketcrowd live on different continents. They are united by modern telecommuni-cations in the pursuit of profit at each other’s expense. The market is a hugecrowd of people. Each member of the crowd tries to take money away from48 MASS PSYCHOLOGY
other members by outsmarting them. The market is a uniquely harsh envi-ronment because everyone is against you, and you are against everyone,
Not only is the market harsh, you have to pay high prices for entering andexiting it. You have to jump over two high barriers— commissions and slip-page — before you can collect a dime. The moment you place an order youowe your broker a commission — you are behind the game before you begin.Then floor traders try to hit you with slippage when your order arrives on thefloor. They try to take another bite out of your account when you exit yourtrade. In trading, you compete against some of the brightest minds in theworld while fending off the piranhas of commissions and slippage.
Worldwide Crowds
In the old days, markets were small and many traders knew one another. TheNew York Stock Exchange was formed in 1792 as a club of two dozen bro-kers. On sunny days they used to trade under a cottonwood tree and on rainydays in Fraunces Tavern. The first thing brokers did after they organized theNew York Stock Exchange was to stick the public with fixed commissionsthat lasted for the next 180 years.
Today, only floor traders meet face-to-face. Most of us are linked to themarket electronically. Members of the financial crowd watch the samequotes on their terminals, read the same articles in the financial media, andget similar sales pitches from brokers. These links unite us as members ofthe market crowd even if we are thousands of miles away from theexchange.
Thanks to modern telecommunications, the world is becoming smallerand the markets are growing. The euphoria of London flows to New York,and the gloom of Tokyo infects Hong Kong.
When you analyze the market, you are analyzing crowd behavior. Crowdsbehave alike in different cultures on all continents. Social psychologists haveuncovered several laws that govern crowd behavior. A trader needs to under-stand how market crowds influence his mind.
Groups, Not Individuals
Most people feel a.strong urge to join the crowd and to “act like everybodyelse.” This primitive urge clouds your judgment when you put on a trade. A13. WHAT IS THE MARKET? 49
successful trader must think independently. He needs to be strong enough toanalyze the market alone and to carry out his trading decisions.
If eight or ten people place their hands on your head and push you down,your knees will buckle, no matter how strong you are. The crowd may bestupid, but it is stronger than you. Crowds have the power to create trends.Never buck a trend. If a trend is up, you should only buy or stand aside.Never sell short because “the prices are too high” —never argue with thecrowd. You do not have to run with the crowd—but you should never runagainst it.
Respect the strength of the crowd — but do not fear it. Crowds are power-ful, but primitive, their behavior simple and repetitive. A trader who thinksfor himself can take money from crowd members.
The Source of Money
When you try to make money trading, do you ever stop to wonder whereyour expected profits will come from? Is there money in the markets becauseof higher company earnings, or lower interest rates, or a good soybean crop?The only reason there is money in the markets is that other traders put itthere. The money you want to make belongs to other people who have nointention of giving it to you.
Trading means trying to rob other people while they are trying to rob you.It is a hard business. Winning is especially difficult because brokers andfloor traders skim money from losers and winners alike.
Tim Slater compared trading to a medieval battle. A man used to go on abattlefield with his sword and try to kill! his opponent, who was trying to killhim at the same time. The winner took the loser’s weapons, his chattels, andhis wife, and sold his children into slavery. Now we trade on the exchangesinstead of doing battle in an open field. When you take money away from aman, it is not that different from drawing his blood. He may lose his house,his chattels, and his wife, and his children may suffer.
An optimistic friend of mine once snickered that there are plenty of poorlyprepared people on the battlefield: “Ninety to ninety-five percent of the bro-kers don’t know the first thing about research. They don’t know what they’redoing. We have the knowledge, and some poor people who do not have it arejust giving the money away to charity.” This theory sounds good, but it iswrong — there is no easy money in the market.
There are plenty of dumb sheep waiting to be fleeced or slaughtered. The50 MASS PSYCHOLOGY
sheep are easy —but if you want a piece of their meat, you’ve got to fightsome very dangerous competitors. There are mean professionals: Americangunslingers, English knights, German landsknechts, Japanese samurai, andother warriors, all going after the same hapless sheep. Trading means bat-tling crowds of hostile people while paying for the privilege of entering thebattle and leaving it, whether dead, wounded, or alive.
Inside Information
There is at least one group of people who consistently get information beforeother traders. Records show that corporate insiders consistently make profitsin the stock market. Those records reflect legitimate trades that have beenreported by insiders to the Securities and Exchange Commission. They rep-resent the tip of the iceberg —but there is a great deal of illegitimate insidertrading in the stock market.
People who trade on inside information are stealing money from the restof us. The insider trials of the 1980s have landed some of the more notoriousinsiders in jail— Dennis Levine, Ivan Boesky, and others. For a while, hardlya week went by without an arrest, indictment, conviction or a consentdecree: The Yuppy Five, Michael Milken, even a psychiatrist in Connecticutwho traded after learning about a pending takeover from a patient.
The defendants of the 1980s insider trials were caught because theybecame greedy and careless — and ran into a federal prosecutor in New Yorkwith major political ambitions. The tip of the iceberg has been shaved down,but its bulk continues to float. Do not ask whose ship it will hit—it is yourtrading account. .
Trying to reduce insider trading is like trying to get rid of rats on a farm.Pesticides keep them under control but do not root them out. A retired chiefexecutive of a publicly traded firm explained to me that a smart man doesnot trade on inside information but gives it to his golfing buddies at a coun-try club. Later they give him inside information on their companies, and bothprofit without being detected. The insider network is safe as long as its mem-bers follow the same code of conduct and do not become too greedy.
Insider trading is legal in the futures markets. Technical analysis helpsyou detect insider buying and selling. Charts reflect all trades by all marketparticipants — even by the insiders. They leave their tracks on the charts justlike everyone else — and it is your job as a technical analyst to follow them tothe bank.14, THE TRADING SCENE 51
14, THE TRADING SCENE
Humans have traded since the dawn of history —it was safer to trade withyour neighbors than to raid them. As society developed, money became themedium of exchange. Stock and commodity markets are among the hall-marks of an advanced society. One of the first economic developments inEastern Europe following the collapse of communism was the establishmentof stock and commodity exchanges.
It took Marco Polo, a medieval Italian traveler, 15 years to get from Italyto China. Now when a European trader wants to buy gold in Hong Kong, hecan get his order filled in a minute.
Today, stock, futures, and options markets span the globe. In India alone,there are 14 stock exchanges. There are over 65 futures and optionsexchanges in the world. As Barbara Diamond and Mark Kollar write in theirbook, 24-Hour Trading, they make markets in nearly 400 contracts — fromgold to greasy wool, from Australian All-Ordinaries Index to dried silkcocoons. All exchanges must meet three criteria, first developed in the ago-ras of ancient Greece and the medieval fairs of Western Europe: an estab-lished location, rules for grading merchandise, and defined contract terms.
Individual Traders
Private traders usually come to the market after a successful career in busi-ness or in the professions. An average private futures trader in the UnitedStates is a 50-year-old, married, college-educated man. Many futures tradersown their own businesses, and many have postgraduate degrees. The twolargest occupational groups among futures traders are farmers and engineers.
Most people trade for partly rational, partly irrational reasons. Rationalreasons include the desire to eam a large return on capital. Irrational reasonsinclude gambling and a search for excitement. Most traders are not aware oftheir irrational motives.
Learning to trade takes hard work, time, energy, and money. Few individ-uals rise to the level of professionals who can support themselves by trading.Professionals are extremely serious about what they do. They satisfy theirirrational goals outside the markets, while amateurs act them out in the mar-ketplace.
The major economic role of a trader is to support his broker — to help himpay his mortgage and keep his children in private schools. In addition, the52 MASS PSYCHOLOGY
role of a speculator is to help companies raise capital in the stock market andto assume a price risk in the commodities markets, allowing producers tofocus on production. These lofty economic goals are far from a speculator’smind when he gives an order to his broker.
Institutional Traders
Institutions are responsible for a huge volume of trading. Their deep pocketsgive them several advantages. They pay low institutional commissions. Theycan afford to hire the best researchers, brokers, and traders. Some even strikeback at floor traders who steal too much in slippage. The spate of arrests andtrials of Chicago floor traders in 1990 and 1991 began when Archer DanielsMidland, a food processing firm, brought in the FBI.
A friend of mine who heads a trading desk at a bank bases some of hisdecisions on a service provided by a group of former CIA officers. Theyscan the media to detect early trends in society and send their reports to him.My trader friend culls some of his best ideas from these reports. The sub-stantial annual fee for those experts is small potatoes for his firm comparedwith the millions of dollars it trades. Most private traders do not have suchopportunities. It is easier for institutions to buy the best research.
An acquaintance who used to trade successfully for a Wall Street invest-ment bank found himself in trouble when he quit to trade for himself. He dis-covered that a real-time quote system in his Park Avenue apartment inManhattan did not give him news as fast as the squawk box on the tradingfloor of his old firm. Brokers from around the country used to call him withthe latest ideas because they wanted his orders. “When you trade from yourhouse, you are never the first to hear the news,” he says.
Some large firms have intelligence networks that enable them to actbefore the public. One day, when oil futures rallied in response to a fire on aplatform in the North Sea, I called a friend at an oil firm. The market wasfrantic, but he was relaxed—he had bought oil futures half an hour beforethey exploded. He had gotten a telex from an agent in the area of the firewell before the reports appeared on the newswire. Timely information ispriceless, but only a large company can afford an intelligence network.
The firms that deal in both futures and cash markets have two advantages.They have true inside information, and they are exempt from speculativeposition limits (see Section 40), Recently, I visited an acquaintance at amultinational oil company. After passing through security that was tighter14, THE TRADING SCENE 53
than at Kennedy International Airport, I walked through glass-enclosed cor-ridors. Clusters of men huddled around monitors trading oil products. When1 asked my host whether his traders were hedging or speculating, he lookedme straight in the eye and said, “Yes.” I asked again and received the sameanswer. Companies crisscross the thin line between hedging and speculatingbased on inside information.
Employees of trading firms have a psychological advantage — they can bemore relaxed because their own money is not at risk. Most individuals do nothave the discipline to stop trading when they get on a losing streak, but insti-tutions impose discipline on traders. A trader is given two limits — how muchhe may risk on a