. I didn’t want to make enemies in this business. Some of those who are on pleasant terms might recognize themselves in these pages. I didn’t want to make it easy for lawsuits to findme or lose friends by sharing my experience. Some clients might evenrecognize themselves. The worst part is that everything here is completelyfactual; I tell it like it is and how it really happened to me. Parts are dirty.Many people won’t believe it’s like this. Some will be angry. Some willthink I stretched the truth. Some will say its outright fabrication.Some of the people I’ve known in this business are so completelylost to any form of common sense that they would do God knowswhat to profit or cause pain to me for no other reason than their supersensitive egos are offended somehow just because they think they recognize themselves in here. I hate to say it, but trading is a brutal world.You don’t win unless someone else loses. That’s their journey and theirstory. If it’s such a big deal, write your own book and “slander” me. I’llput it on the shelf with the rest of the stuff that doesn’t matter. . . .
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introduction
Finally, if you the reader doubt the authentic nature of the contentshere, I will give you the acid test. Open a trading account. Become abroker.Jason Alan JankovskyFormerly “Trader X”Chicago, IllinoisFall 1998
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Chapter 1
The Early YearsIllusion in the midst of RealityNo minute lost comes ever back again. Take heed and see ye donothing in vain.—London Clock Tower Motto
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hen I decided to become a commodity broker, I had noidea what I was eventually getting into. It began in thespring of 1987. I answered an ad in the Chicago Tribuneand interviewed with the sales manager1 of a commodity-trading firm.I was very impressed. They had a beautiful office in Oak Brook, Illinois,a very affluent Chicago suburb. Everyone there wore expensive suits, theparking lot was full of German and Italian cars, the whole scene reekedof high finance.
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After some discussion of my background and what I thought I coulddo in the brokerage business, I was hired. The interview was brief. Theydidn’t ask me for a résumé. They just wanted bodies. I was given a bigbook to study so I could pass my Series III commodities broker’s test. Iwas given a start date with the rest of the new hires. I really believedI had scored the job of my life. I was 26 and thought that in no time Iwould be earning $100K a year, driving a Ferrari, and flying the Concordto spend the weekends in Paris.It was largely from my initial experience with this brokerage housethat I chose to keep trading as a career no matter how it turnedout. That first commitment had a lot to due with how my success wasmeasured over the years. If I hadn’t made up my mind that come hellor high water I was going to be a commodity broker, who knowswhere I would have ended up? Over time, the pressures of the trading world gave me every opportunity to quit and do something else. Infact, my family tried everything to convince me that I was out of mymind for sticking with it during the rough years. No one saw what Isaw except for my mother. Moms are like this, aren’t they? One immutable thing was her absolute support of what I wanted to do. Sufficeit to say, at that time when I first started, the lure of money was sostrong that you could have promised me a ride on the Space Shuttleto quit and I would have turned you down. I wanted it that bad.To put this in perspective, as an Air Force ROTC student with agood academic history, I earned an Air Force Academy appointmentwith a good shot at the space program (according to my recruiter). Asa side note, there is a commercial space tourism company selling ridesright now aboard a privately built spacecraft just for people who wantthat thrill.2 I was surprised to learn after missing what seemed to mea once-in-a-lifetime shot at the time (I turned the Air Force down), Iwas able to do it anyway. The concept of “regrets” and “missed opportunity” figures high in this story. Sometimes life gives you a secondchance at something. The markets will always give you another chance.I was totally unprepared for what would become the “normal”process of working in this industry. My first day on the job at aMidwest brokerage office went something like this:I walk in. The “sales manager” brings me to an empty desk, pointsto the phone and says, “Here is a phone.” He drops a stack of papers
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on my desk and says, “Here are some sales leads. Your job is to convince people to send money for trading. Once you have opened a fewaccounts, we’ll show you what to do with the money.” He then said,“Good luck,” and walked away without saying another word.Okay, no problem. I was so excited about what I was doing I reallythought everyone I called would talk to me. I didn’t see it as telemarketing. I believed that everyone wanted to make big money. I thoughteveryone would see the wisdom and “common sense” of the particularmarket opportunity that we were selling. I just watched the “seasonedprofessionals” sell and did what they did. What made this whole experience intoxicating was that what we were selling actually happened.We were suggesting that the public buy silver. At the time I startedon the phone in 1987, silver was selling for about $5.10 an ounce. Thecompany I worked for was marketing call options. I had scored 100percent on the part of the Series III that covered option hedging andspeculating. I had basically succeeded at everything I had done before;why should this be any different? There was no way you could convinceme that I had anything to learn. Besides, the company was making therecommendations; they were telling me what to do. I figured betweenme and them, “we” knew exactly what “we” were doing. Needless tosay, as long as silver kept moving higher, the money rolled in. I ate thephone. I was the top “rookie” in the office. Silver soared to almost $12an ounce in less than 120 days. I thought it was always that way in thisbusiness. I was making more money in a month than some people Iknew made in a whole year. I felt like I had arrived in a big way.Then I got fired.The company stole my clients (of course). In this business there isa curious concept that companies “own” clients. How can you “own” aclient? Aren’t you supposed to be working for him or her? Doesn’ta client have the right to do business with anyone he or she chooses?I was told that if I contacted any of my clients I would be sued. Theyrefused to pay me my remaining commissions—something about beingcovered in case of potential lawsuits. They never told me when toexpect payment if there weren’t any lawsuits. Maybe they just expectedthem. As you will see, this happens every day. They basically didn’t likeme, I guess. As I found out later, the egos of people in this business arebeyond belief. Never will you meet people, as a group, with absolutely
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no justification for what they think they are. Still, I never found outwhat happened or why I was let go. I certainly wasn’t sleeping with theboss’s wife. (Or his girlfriend for that matter. That’s another thing thathappens every day around there.) All I knew was that I no longer had ajob and I really wanted to be in this business.Believe it or not, it never occurred to me that maybe every othercommodity company could be this poorly run as well. As any Series IIIbroker can tell you, every retail commodity house is run like an accidentwaiting to happen. You would be absolutely amazed at the sheer chaosand complete lack of even the most basic business sense. The peopleworking in the markets every day, as a group, I don’t think could run anewsstand without help.Here’s just one story: At the time of this writing a personal friendof mine just left one brokerage house to go to another. The reason?The owner’s cousin, fresh out of rehab, wanted to get in the business.My friend simply told the owner, “It might not be a good idea to havea recovering heroin addict trading someone’s money and exposing thecompany to risk.” The owner called him a “Jew bastard” and fired himon the spot. My friend had been there for years and was a top producer.In a split second, my friend’s whole life was turned upside down andhis income dropped to zero because some psycho-egomaniac thoughta convicted felon with a drug problem would be a good addition tothe staff and completely capable of servicing clients. If the boss was thatstupid, how well could he manage clients in the first place? How longwould a guy like that last as a manager at Microsoft? How long wouldthat guy last in any business? The Equal Opportunity people would havea field day with a racial slur like that. In the case of my friend it reallywas easier and more cost effective to just find another brokerage house,forget the whole thing, and move on. Not to mention that the “salesmanager” at the offending brokerage house told all of my friend’sclients that he was drinking on the job anyway and “we’ll take care ofyou.” It was an outright lie. But, of course, they “own the client.”This happens every day in this business. Retail brokerage housesare run without any common sense at all. They come and go fasterthan GI’s at a nickel whorehouse. The sad thing is that people don’tcare since there is so much money in it they can afford to be that reckless. It’s like this: If a thief kills another thief and you are a witness and
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a thief yourself, what do you do? Tell the cops? Forget it. You’re in awhole other world. The constant lack of integrity really got to me overthe years, as you will see. I really believed that people in “high finance”were supposed to be a personally responsible lot. Boy was I wrong.So I went to work for a new firm, which at the time was a realtrading house, but of course it wasn’t what I thought a trading houseshould be like. My idea of a “professional house” was nothing likethis place. They had a tiny office, with steel desks, quote systems everywhere, and they let you do whatever you wanted to do. There wasno organized market research, selling effort, nothing. You came andleft when you wanted. No sales hype or $2,000 suits. Just a bunch ofwhackos taking $500 a day out of the markets trading one-lots.3 Noone talked about the markets. They didn’t need to. Some of the guys,who were real traders, only had one or two clients and had had themfor years. What was wrong with these people? Didn’t they know whatkind of money was out there? Looking back, I would give my rightarm to be working at a place like that today, but at the time I was sodisgusted with that environment, which I perceived as apathetic to realopportunity, that I started looking for a new house. I should mentionthat that owner was one of the most respected men in the businessat that time and had a reputation for fair and equitable treatment ofhis staff, customers, and support people. But back then, I didn’t knowhow rare honest and equitable business practices were. I really thoughtI could find the best of both worlds. I found a new brokerage houseabout April. My timing to reinforce this misconception was perfect.Right about then the drought of 1988 hit. My new firm was selling call options on corn and soybeans. Corn went to almost $6/bushel.Everyone was talking “Beans in the teens!” My book of customerequity went to almost a million dollars. A book of equity is the slangterm used for the customer list a broker has that includes the currentcash balance of each customer. A book can be any size number of customers or account deposits. This is also called money under managementor an equity run.So after my book of equity went to almost a million dollars, I tooka few days off. I was in bed flipping through the TV channels when Isaw a financial broadcast telling the world that Chicago soybeans hadtraded to a near-record high of $10.97 that day before closing lower.
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I think it was around $9.50/bushel. Of course, that was the top. As Ihad no idea what I was really doing, I was only mildly concerned thatthe market was below the previous day’s close. I didn’t know what“volume” and “open interest” were, or “reversals.” Nothing. I absolutelybelieved that commodity trading was huge moves, high profits, lots ofsales hype, all that Gordon Gecko stuff.4I kept selling clients and buying calls until September of that year.Not an easy thing to do when the market is lower every week. As themarket kept moving lower, I started asking the boss what was happening. When would the market turn up again? He told me to keep selling.“But it looks like it’s over. What about the clients who are going tolose?” I asked. “They don’t know that. You don’t know that. You wantto get paid don’t you?” was his answer. At that time, I just agreedbecause these guys knew what they were doing, right? One of the bozosworking there drove a red Porsche 928. He also brought in a 500-gallonsaltwater aquarium into the office. He wore big rings. He didn’t talkmuch, but he was definitely into the “look at me” type of thinking. Hereally thought he was the thing. I remember him being called into “theboss’s” office to discuss his lawsuits. No Porsche, no rings, the fish tanksold at auction along with the rest of the company’s stuff.You guessed it;the company went out of business.There was a huge National Futures Association (NFA) investigation. The NFA is the self-regulatory body authorized to sanctionpeople to work in the industry, mediate arbitrations, and generally harass or intimidate those responsible for providing access to the markets.By the way, the first firm I had worked for was also shut down by theNFA. I had no idea how any of this would later come back to hauntme. Simply put, because I had worked at these two companies, I wason the “watch list” at the NFA (yes—they have a watch list; ask themabout the “tainted broker” program if you want to see the constitutioncompletely ignored). It never occurred to me that guilt by associationwas a real thing that would make it harder to work in the business. Mythought was that since I hadn’t done anything wrong, even if there wasa problem, I would be cleared. I had this problem more than once. So didmany others, honest and crooked alike. The funny thing was, most of theguys who worked at these companies moved on to other firms like ratsfrom a sinking ship. And all the other houses wanted the “big broker” type
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to work there. They offered these brokers huge deals to play the sameshow in a different town. Did it ever occur to any of them that if thistechnique generated lots of lawsuits, it might not be a good idea tohire these brokers? Maybe they all just wanted the money so bad theydidn’t care. I found out later why that didn’t matter, but I made thesame mistake. I was on the sinking ship too.So now I was broke, having spent my huge income like a drunkensailor. After all, just get on the phone and wait for the next big haul,right? I went through a succession of companies and repeated thisentire scenario over and over again for the next several years. I even“started” a company with a partner. That’s a story in itself; I’ll coverthat later. During this time I met some “professional” traders. BecauseI was beginning to consider that this boom-and-bust cycle might beavoidable, I actually listened to a wheat pit trader explain the conceptof overbought to me. I picked up a book or two on market analysis.“Maybe there is something to this,” I said to myself. Over the years Ikept buying books, attending seminars, listening to tapes, and subscribing to newsletters. I spent thousands and thousands of dollars doingthis. I routinely listened to what pit traders thought and what they read.It never occurred to me that pit traders might be some of the leasteducated people in the business. This whole process of “analyzing andstudying” the markets was another roadblock. I think you will be surprised at how little that whole process can help a trader.This period became a huge emotional struggle for me. I couldn’taccept that I wanted to do things “right” and yet no one else wanted to.Believe it or not, I never lied to any client about anything. I never misled them or promised they would make money. I sold clean and reallywanted them to win. I genuinely liked my clients. I returned phonecalls promptly and never asked for more than a reasonable amount ofmoney for my services. I always did what I believed a true professionalshould do when he has a fiduciary responsibility—and still do to thisday. However, the fact was, I was grossly misinformed about the truenature of the markets and the industry. I honestly thought the solutionto this problem was more market study and finding the right brokerage house. Although that wheat pit trader and the others all meantwell, I actually lost years “studying the markets.” I found that there isno “right” brokerage house and that no book can ever tell you about
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how to become a trader. You have to live it to understand. Let mefinish setting the stage for where and how I finally became the winner.Someone once told me that all progress in the world depends onthe unreasonable man. The reasonable man persists in adapting himselfto the world; the unreasonable man persists in adapting the world tohimself. Therefore, all progress depends on the unreasonable man. Atthis point, my career in the commodities markets had been less thanspectacular. I had worked at many companies and all of them had goneout of business. All the money (literally millions of dollars) I had raisedwas also gone. I had spent all my income and was once again withouta place to work or a client base of any kind. What was wrong with thispicture? Was it me? Was it the industry? I wanted to be reasonable aboutit, but what was the true answer? I was spending a lot of time dealingwith this same problem. I was working for people who couldn’t get ajob cleaning toilets in the “real” world, but were operating companiesthat made tons of money (on commissions—never in market profits).I was attempting to learn the markets to reduce the loss factor but stilllosing all the time. I got really angry with myself, the markets, and thecompanies—everyone and everything. What was wrong? Why wasn’tthis working? Why wasn’t I a success at this like everything else?The year was now 1993. I won’t talk about the catastrophe thatI created for myself during the first Persian Gulf War except to say this:When it was all over it took from 1991 until 1996 to pay all the debits,unpaid taxes, unpaid debts, and recover from the emotional trauma thatan unregenerate mind is capable of inflicting on its owner. But duringthese previous years, all the raw material for ultimate success were givento me. At the time I saw it as complete and unmitigated adversity. Evenfiling bankruptcy, and all the embarrassment that goes with it, was a hugestepping-stone to prosperity. When the Department of Justice subpoenaed me while I was working for a company that was doing a Ponzi scamthrough the legitimate markets; even that was important. By the way, I wasnever charged due to my phone records showing I wasn’t involved in anyway. But at the time, my point of view was: “What is going on? What iswrong? I’m trying to do this right . . .” and so on. The years of frustration,bitterness, and disappointment were beginning to boil over.Let me draw all this together for you. I’m in my early 30s. I’vemade and lost a million dollars twice. I’m broke, almost homeless,
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without any income, behind in my bills, and no longer have any credit.I’m too confused to work at my best, angry at life. Feeling like I’vehurt people. Feeling like I’ve let people down. Embarrassed in front ofmy family and friends; earning an undeserved bad reputation. To makematters worse, watching everyone I know get on with their lives; getting rich, being in love. The women in my life lost interest in me. Andlet’s not forget drinking too much; even a brief fling with cocaine. Icould go on with all the rage, hatred, and blame. For the sake of making the point, here is the bottom line to all this:At no time during the whole experience did it once occur to methat everything I’ve been through was completely and utterly of myown doing. It was not the fault of anybody but me.If you read between the lines of this short description of my earlyyears, you can see how easy it might be to say things like: “It is themarket’s fault.” “It is the company’s fault.” “It is my stupid clients whowon’t listen.” “This research sucks.” “If only I had done _________(fill in the blank).” “If only so and so hadn’t done _________ (fill inthe blank).” “What a rotten fill” or “The market’s gonna come back.”“Markets don’t do this.” “My girlfriend left me, that bitch! It’s her fault Ican’t think.” And on and on, ad nauseum. If you are in the business, andhonest, you know you have said or thought the same things. Or at leastheard it from someone you work with.In my state of mind, I was doing everything I thought was right,expecting the whole world to see things as I saw them, holding othersto a standard of behavior they weren’t capable of or didn’t see the needfor; and all the while not considering the possibility that the world Iwas in was nothing like the world I was certain it was. I was completely amazed during my period of recovery to learn that somewherearound 80 to 90 percent of people who trade lose. The average lengthof a commodity broker’s career was less than seven years, and they arebroke when they quit. The average company goes out of business in lessthan five years. All this despite the fact that the industry as a whole wasgrowing faster than ever. How can these seemingly contradictory positions be true? Whose “fault” was it? Where was all that money going?And to whom?Now before you assume that I never experienced these deep conflicts, or I had some kind of detached concept of what was happening
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inside of me, let me set you straight. I felt completely trapped. I couldnot find an answer to what seemed like a huge injustice being perpetrated and worse yet, against me personally. I couldn’t see the truenature of what was really happening. I actually thought that God himself was out to get me. I was “insane” to a certain point. This entireconflict was more than a war inside of me. It was literally a personalstruggle between life and death. There is no doubt that if I had lostcontrol of the last part of myself that I still controlled, I would havecommitted suicide. I know how those poor souls who actually killthemselves feel. That’s how deep of a conflict I was in over why nothing was working like I thought it should. It is almost impossible, even ina thousand books, to adequately communicate the emotions I was feeling. Feelings that were so real I could taste them. Despair really tasteslike burning copper and gin.No one reading this will be able to appreciate the intensity of thatexperience unless he has been through at least some of it. To thosepeople who say, “I would never get that far gone over money. Thatcould never happen to me.” Let me say at that time I believed the samething. I never thought I could get so upside down in every part of mylife. I literally found myself at the end of a rope that I didn’t even knowcould exist; certainly not for me personally. I actually believed it wasall about money and how money works. Remember, I have a higherI.Q. than most and had succeeded at everything I had done up to thatpoint. Women loved me. My family loved me. I had friends. I mademoney. I was young and ambitious, respected by strangers. Then I gotinto the markets. Why should it be any different? I began to experience a world without the same “base” of reality. This thought never wentthrough my mind.In fact, at one point early on my little brother bumped into meon LaSalle Street and asked me how it was going. I started to shakeand told him, “I’m losing over $100,000 so far today alone and I can’thandle it.” My brother took me by the hand like a five-year-old andwalked me over to St. Peter’s Cathedral on Madison Street and sat withme. He prayed while I cried. My world was unraveling and I couldn’tstop it. My entire concept of success and what it meant to be a success was turned upside down and blew out with the wind. I felt likeI was detached from the rest of the human race. I felt as if everything I
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had ever been taught or learned on my own was either a lie or wasn’tmeant for me personally. I resented the success others had and felt powerless to create it for myself. I can’t really tell you how abandoned I felt.I didn’t understand that what I was going through was actually creatingwithin me the potential for a truly glorious thing. Something priceless.I wouldn’t wish it on anyone, yet now I would never trade those yearsfor anything. I was literally only hours from the “low of the move.”Up until this point I was using every tool in my toolbox I couldfind or invent to make sense of what was happening in my life. Still,nothing was working. I knew there was an answer. I knew I could findit. I didn’t know where or what it was but I was committed to finding it. Ididn’t care what I had to do. I wanted to win. I believe it was this resolvethat finally made the difference.Then I had the turning point.The rest of the book is about all the pieces that were there andhow they came to fit together. As I stated in the introduction, this bookisn’t written in any chronological order. All of the chapters and sections fit as part of the whole. The end result is that I’ve learned whatthe markets are really about. I’ve also learned that anyone can be a netprofitable trader and do it anyway he wants. It is my “baptism by lava.”It’s all here and the “secrets” too.Now don’t misunderstand me, I still made a lot of stupid mistakesand repeat some of my previous errors, but something had changed.When that change became clear, the emotional difference is what people call an “epiphany.” And the markets, of course, had no idea this hadhappened to me.
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Chapter 2
The Day I Boughtthe LowClarity of ObservationUnless there be correct thought, there cannot be correct action, andwhen there is correct thought, right action will follow.—Henry George
S
ometime in the fall of 1993, I began referring to myself as a“trader” instead of a “broker.” To most people, the surface difference is that basically one guy is upstairs on the phone (the broker),and the other guy is in the pit doing trades (the trader). The truth is theline isn’t really that clear. Some “brokers” trade and some “traders” simplybroker their transactions. If you are in the business you know whatI mean. For those who don’t, let me take a minute to clarify these13
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relationships. The side of the business I was first exposed to was retailbrokerage. I worked from an office and solicited accounts from thepublic—typically with a market concept easy for the novice to grasp—trades such as soybeans during a drought, cattle during the barbequeseason, that kind of thing.The interesting part is that even though the markets can be tradedfrom the long or short side any time, and often represent more profitpotential from shorts, it is very difficult to communicate this to a publicclient who has never traded before. Consequently, most brokers preferto open accounts by marketing a trading opportunity from the longside. The most popular one I ever did was the “heating oil during thewinter” play. It didn’t seem to matter that no one uses heating oil inenough quantity anymore to make a real energy difference. I believethe New York Mercantile Exchange (NYMEX) still trades heatingoil only because it has so much public interest from all the brokerage houses selling it each fall. Maybe they view it as “free money” fortheir members. I’m ashamed to admit that I too did the “heating oilplay” for many years like everyone else. So, when I say “broker,” I mean“somebody who provides access to the markets.” A lot of brokers helpthe client trade. They suggest when to enter or exit the trade, when toadd to the trade, how to protect equity, and the like. During the timeI was a broker, I did all of this. By doing so, I acted in the capacity of atrader. I had little knowledge of how that really worked, though, whichis one reason why I created so much pain for myself.A trader, on the other hand, is entering and exiting the market (underany time frame you choose) with the intention of making a consistentprofit. His perspective on price action has more to do with where hefeels the market is at, where it might be going, how long it will take toget there, what to do if he is wrong, how much to put on, when to addto the position, whether to add at all, when to lighten up, and what todo if something changes; basically, how to profit without his head beinghanded to him. This all seems very understandable until you consider thatto broker an investment (a trade) is a completely different skill, and is noway even in the same universe as trying to profit from that trade.Let me show you what I mean: In the typical retail broker’s officethere is a group of brokers on the phone selling, sometimes 12 to 14hours a day. Stop to consider that selling a financial intangible over
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the telephone is one of the hardest things to do, period. Some rookieswork for months and quit before ever opening an account. This oftenhappens after a financial trauma hits them, such as getting their carrepossessed. At one company, every rookie who started got the samedesk. After a while an ex-fighter pilot in the office started calling it the“ejector-desk.” Statistically, financial sales over the telephone are one ofthe hardest things to consistently do because both the state of mindand the skills needed to remain successful are very hard to develop andmaintain. In addition, remember that