to me, after all the seminars I've given, books and letters I've written,that just having winning approaches and strategies is not enough. To actualize my intentions to make morewinning traders, I realized something was missing.Years ago, I fell into the psycho-babble, mumbo-jumbo that psychological baggage kept us frommaximizing our success. I no longer feel that is the main problem. The problem is one of focus. I'll explain:McDonald's is not the largest purveyor of fast foods. They are big, about 14,000 restaurantsworldwide. But the King of the business is, of all people, Pepsi Cola with over 24,000 stores including TacoBell, Chevy's, Pizza Hut, California Pizza Kitchen, Kentucky Fried Chicken, Hot 'n Now, and numerousother food outlets. Pepsi's sales were recently 28.5 billion a year, Coca-Cola had 16.2 billion, andMcDonald's 7.4 billion.Yet the total market valuation (shares x market price) of Coke is 93 billion compared to Pepsi's 44billion and McDonald's has a 31 billion valuation on 25 percent of the revenues of Pepsi!Profitwise Pepsi earned 4 percent on sales compared to McDonald's 15 percent and Coke's 13 percent.The difference? Coke and McDonald's and more focused ... more profitable.Dennis Rodman is a great showman and basketball star. Why? Because early on in his college days hiscoach told him to focus exclusively on defense, forget being an offensive high scorer ... and away his career
189skyrocketed. He has now become more profitable. Fellow team-mate Michael Jordan unfocused to becomea baseball player and became less profitable. Other unfocused sports stars Bo Jackson and Dion Sandershave also done less well than they could have by being one sport athletes.The year I turned $10,000 into $1,100,000 I was totally focused. Did nothing but trade, no marathons,no fishing, no family life, but, boy did I make money!There are three levels of market focus. The first level is that of time and commitment. Most folks thinkthat's all there is to it. It isn't. YOU must also focus on just a few markets and next focus on approach. Mosttraders follow too many markets with too many systems or approaches, becoming unfocused andunprofitable.Like corporations that think they can grow by expanding into new areas, traders think they can makemore money by following more markets with more systems. On paper, both strategies look good. In reality... they simply don't pan out thanks to the human element and Mr. Murphy's appearance and the leastexpected, and most costly, times.Therefore, my bottom line is that while it helps to have winning strategies and valid data to basedecisions upon, without focus-dedication-and single mindedness-you will never maximize your ability to bea winning trader.
May 1996
Volume 33, Issue 5Running, Trading, and LosingWinning is easy to handle, but what about when all goes not quite so well?
I know a little bit about losing. More than most, I suspect, because the truth is while I have had somespectacular wins and gains as a trader, I've also had my "fair" share of drubbings. Fact is, the last month orso have not been very pleasant around my house. A winning trade has been harder to find than a characterwitness for Mike Tyson.In my case it's even worse than for you ... I'm supposed to be an expert and not have this happen, plusI have several thousand people looking over my shoulder (at all times) seeing how positively poorly I amdoing. Gads, that's enough to make one want to stop publishing.So how does one handle these streaks of seemingly doomed failure?My marathon running experience may have helped the most to answer this question. In everymarathon I have ever run, 17 and counting, there has always been a spot where I ran better and faster thanever expected. And, by the same token, in every marathon I have run there's always been an "equity dip" a
190point of seemingly no return, no recovery. I'm not kidding here. At mile 23 in one run, I literally laid downin the street for about 5 minutes while runners I had passed earlier (my winning streak) sailed by.What I learned about running was that the only way to snap out of those terrible, terrible letdownswas ... to slow down ... to walk a bit ... even lie down in the street. In short, by stopping the pace andcollecting myself, I was able to pick the pace back up and resume the race. Guess what, gang? It's thesame with losing streaks. When they hit you, as they surely will, back off a bit, slow down, even stoptrading, but stay in the race.
November 1995
Volume 32, Issue 11Doing the Wrong Thing ... It's So Easy, Isn't it
This business of trading commodities can get pretty funny.Pretty rough too. Take for example what I think is the number one fault of all traders, the love of a gooddebate.It seems we are, or like to think we are, pretty smart cookies. Therefore "we know better," we argueour politics, religion and worst of all our markets. Thus when we can plainly see a market is in a downtrend,we become bottom pickers, trying to out argue the market itself.Believing in some omnipotent power, we muster up all we have to argue with cold hard facts.But that's not the half of it ... the larger problem comes from us wanting to "beat" the system or thecrowd. We attempt to do this by jumping the gun ... by getting in ahead of time as we "know" the market,indicator or whatever will give a signal tomorrow and we want to be there first to prove we outsmartedeverybody.How to Prevent Jumping the GunWe are a darned sight more concerned with showing off than we are with showing our winnings. That'scostly in this business. Jumping the gun, arguing with the market (that means not doing what you know youshould do) is just an immature attempt to prove our superiority. There are better, and far less expensiveways to establish such points. Trading is not a race, jumping the gun serves up no advantage. Speed withoutdirection will never win a race.
191The root problem is that we have probably defined intelligence incorrectly. We "smarty pants"perceive intelligence as an us versus them game and in that process use our supposed superior intellect toprove either (1) how big we are or (2) how small they are.Intelligence is not about that, nor has it anything to do with IQ. Intelligence is the ability to resolveproblems. Successful trading is the resolution of market direction, nothing more nor less. The more youfocus on this, and the less on proving something-anything-the more money you will bank at the end of theyear. Take action because it is correct, not because it might get you in quicker or prove how great of a traderyou are. That's how one builds bank account in this business.
April 1996
Volume 33, Issue 4Boston Marathon, 1996
Pain and agony are found on the streets of Boston as well as La Salle in Chicago ... and give us aninsight into trading commodities.I spent all of 1995 trying to qualify for the 100th, and greatest, running of the Boston Marathon. At my age,53, one must run the 26.2 miles in less than 3 hours and 30 minutes. It took 12 marathons, one a month,before I squeaked in under the wire on the last day of 1995.Pain and agony makes one's mind focus as well as wander during all those miles. Mine wanders andfocuses on trading ... what I discovered was the amazing similarities needed to succeed at both thesecallings.No one has ever successfully traded or run these blasted races, on a consistent basis, without training.Training is the underlying key to running a marathon. For my money, literally anyone-that meansyou-could traverse those 26.2 miles. All you need to do is start slow, and keep extending your distances.Eventually, you catch yourself running 40-50 miles a week and ... you are there ... a marathoner. Ditto withtrading. Spend that much time studying, paper or gingerly trading, and suddenly anyone, even you, are inthe chips.I've been passed by fat old ladies, little kids, and one guy smoking a cigar. Like I said, anyone can doit! You just learn to deal with pain and agony. It's there every day, in running or trading. Success comesfrom dedication, with a definite obsessive passion. There it is, what brings about success in either of theseendeavors ... passion, dedication, obsessiveness ... it's what gets you through the pain ... what brings you tothe finish line.
192
July 1996
Volume 33, Issue 7It's Not the Trade, It's the Battle
Notes to myself on winning and losing.Traders are like gunfighters, we are only as good as our last trade. Or so we tell ourselves, thuscommitting one of the major mental errors in the game. The truth is there is little if any relationship to ourcurrent or last trade and how we will do overall. jack Schwager makes the point that the best way tomanage money between funds is to give some money to traders that are in large equity downswings.It is no different with us.But, we think the one battle (our current or last trade) is the entire war. In so doing, we get so bummedout, or elated, that we lose focus on the fact that trading is an ongoing war that never ends. It absolutelynever ends. I will be trading until the day I die, that's a given. So, should I be concerned with the outcomeof my current trade?Proud Ponies or Broken-Down Nag SyndromeWell sure, to an extent, but it is not the be-all, end-all trade that will make or break my career. Yetwe act like it is, prancing around like either a proud pony or roll over and play dead like an old nag. Whichis also why I'm not betting the ranch on that one trade ... there's more to my career than just the next spin ofthe wheel. The reason I am a short-term trader is that I don't have a long-term perspective (trust?). This thenis my largest enemy; the inability to perceive that this is an ongoing process that will, hopefully, never end.Because of that we need to carefully marshal out our energies and capital to not scatter our talents acrossthose multispecked charts.My battle plan is to wage a war, not a battle.
193August 7996
Volume 33, Issue 8The Art of Fly-Fishing Revisited
Fly-fishing and today's commodity traders have much in common that we can all learn from ...While talking to a subscriber who owns a motel on one of the premier fishing streams back east, Istumbled onto an interesting analogy I'd like to share with you. My daddy taught me the fine art of catchingtrout long before the fly-fishing fad set in. Pops was never much of a fly-casting type, but could do anadequate double hall, carefully selected his tippets and knew the difference between a front-end weightedline and a double taper.But he didn't use that stuff very much ... fact is he looked down his nose on the L.L. Bean "fancydancer fishermen" as much as they shook their heads at his beloved worms, grubs and grasshoppers. You'dnever catch my dad at a Trout Unlimited meeting ... but he could be seen after dark chasing night crawlersaround our back yard with a flashlight.I asked him once why he didn't fly-fish more often, to which he replied, "Son, I came out here tocatch fish to take home to eat. Crawlers and Hoppers are the best thing I know of to catch fish with. Believeme, if those dainty little nymphs caught lots of fish I'd use them ... but I sure as hell wouldn't get all dressedup in those fancy vests and pricey waders. This sport is about catching, not dressing."Maybe that's why I don't have real-time quotes in my office, am pretty computer illiterate, don't readthe Wall Street journal and hobnob at Futures conferences decked out in Brooks Brothers suits. Invariably,successful traders tell me they became winners after they stopped keeping a jillion indicators, watching 3 or4 monitors and following 5 hot lines every night. “it's the simple stuff that works" is the most commoncomment winning traders make.Sure, you can get all duded out to trade, but the truth is you'll catch morefish with worms and hoppers on a bent pin than any fly ever tied.
194
November 1996
Volume 33, Issue 11Fear and Greed, Looking Them in the Face Again
Since they are the strongest emotions to screw up traders' psyches, I know we can never spend toomuch time dealing with these demons ...There's More to Fear Than Fear ItselfObviously FDR was not only not a capitalist, he was also never a trader. There is a lot to fear aboutfear. But what it all gets down to is that fear is a blocking mechanism, a self-protection device, designed tokeep us out of trouble.While it's wise for fear to block or stop you from going into dark alleys after midnight, it's not wise tobe afraid of taking trades.My personal experience, plus that of talking to thousands of traders, is that the very best trades are theones we fear the most. The greater your level of fear, the better the chances for a winning trade.This makes absolute sense when you look at the opposite side of the coin, the trades we fear the leastare the most dangerous. Why is this? Because in the world of speculation, the rules of investment profits areturned upside down; what looks good is bad, what looks bad is good. Trades that look like "sure things"seldom are, which is why trading is so difficult.The point trades that make you tremble late at night are the ones you must take. But you can't. Wrong!You can take them once you have the realization that the risk on all trades is the same-the amount of yourstop loss. A trade that looks like it's designed by Stephen King has no more risk than one from Mr. Rogers.AS LONG AS YOU USE AN ABSOLUTE DOLLAR STOP YOU WILL BLAST AWAY THEPOTENTIAL RISK OF WHAT APPEARS TO BE A RISKY TRADE. In short, stops allow smart tradersto take the trades everyone else passes by.Getting a Grip on GreedGreed is a different breed of cat. The purpose of greed is to motivate, to cause us to excel, to strive forperfection ... but since this never has been and never will be a perfect game or business ... greed causes us tohold our losers, and winners, too long.
195Plus, as I've learned the hard way, greed is the strongest of these two emotions. More money is lost dueto overstaying positions (greed) than exiting due to the fear of losing money. Greed kills just as speed killsas we get out of control. The solution?Systematic exit points.The purpose of a system is to control your emotions of fear and greed, that's really why we havesystems ... to make it easy. So if you know where to take profits, you eliminate the power greed has overyou ... as long as you follow the system's rules. By getting a handle on fear (with stops) and greed (withknown exit points or rules), we can trade free of emotional baggage.
February 7997
Volume 34, Issue 2Pepsi Proves the Point
Last year we wrote about the importance of focus using Pepsi Cola as an example, this year themarket proves our point ...It's All About FocusLast year we pointed out that Pepsi Cola was too broadly diversified ... too unfocused ... hence their marketvaluation on sales was far less than Coca-Cola.Last week Pepsi announced they were getting rid of their restaurant business, Kentucky FriedChicken, Taco Bell, and Pizza Hut and, lo and behold, the stock jumped up!This is an all important life-lesson; You cannot do anything well without being totally focused.Focus means you must first get rid of distractions, and annoyances to your goal or lifestyle. Then youneed to continually define and redefine your purpose so that you can work on focus to and for that purpose.As traders this means we need to identify what our personal market focus is. For some it means justshort-term trading, for others it may mean just taking trades set up by Commercials and the Public, forothers it may mean just following cycles, trendlines of W.D. Gann.... but it can never mean following allthis stuff ... which is exactly what most traders do. Defining your time frame of trading, one day, 3-6 days,10-20 days, or longer, will give you trading perspective, plus enable you to use the indicators that workbest for that time frame.
196Most people seem to think they can affirm their way to market success with positive thinking, talkingwith their inner child or perhaps scheme with goals. That's devastatingly wrong. Success in this businesscomes only from focus. The more focused you are, the better of a trader you will be.
April 1997
Volume 34, Issue 4
Why Most Traders Lose Most of the TimeI've spent years pondering why we are not more successful in our trading and think I may havethe answer ..It really gets down to this ... markets can spin ona dime and most traders cannot.That's why so many people fail at what looks like an easy game.The scenario is that you get a signal to buy long. While you do that, your mind, being only human,affixes itself to the idea the markets will, should, and must go up. Damn the torpedoes, full speed ahead!But a funny thing happens along the way; the market, being as fickle as it is, decides to head South. In thatprocess, your technical bag of tricks clearly issues a warning if not an out and out sell signal. See ... technicalanalysis "works."Problem is, your reactive greed filled mind does not. It still wants that buy signal to be correct so ittells you to hang on; that what was, may yet become reality. Meanwhile reality is telling you that what was,was. Was, as in past tense. To compound the error, you have taken a few self-images or positive thinkingclasses or had a high school coach teach you the value of "hanging in there." So you do ... to the chagrin ofyour real self-image.We want to be right so badly that once our mind establishes a viewpoint (the market will rally), it takeshell and high water (that translates into a margin call) to get us to face up to reality.Let me drive the point home. There's a bank robber (they've got about as much larceny in their heartsas traders) whose stakeout man tells him there's plenty of time to raid the vaults so he begins the chicanery,gleefully picking up the cash he's been hoping for. But, then the lookout beeps to say "the cops arecoming." A bank robber would split, he'd change his plans. That's the difference between traders and bankrobbers ... traders would stay in the bank hoping the cop alert was a false signal!
197The last signal, or indication in your work, is what you should be following, not the one before lastthat you are still hoping will work. Hope does not work in this business. Following the market does, that'sreality. The instant you learn to trade reality, not wishes, you will break through the wall of fire to become asuccessful trader. Go for it!
May 1997
Volume 34, Issue 5A Review of Losing Trades Showed That
Subscribers sent me their trade recaps and I found that they are all doing pretty much the something.What Beginning Traders Have in CommonI'm spending a lot of time on losing this year, not because we are soinexperienced with it but because I figure that if you don't lose tradingyou should do pretty well in this game.After a scrutiny of several subs' trades, a couple of things popped out, I'd like to share with you thismonth.In Trading, the Weight of Evidence Does Not Prove the PointThe first thing I noticed is that these guys (which means all of us) were almost always buying at theend of a move. Why would that be? I suspect that's because novice traders wait and wait until it looks orfeels like all the evidence is in ... then they take action ... buying at the high or selling the low.This got me to thinking our problems are buying too soon-we are afraid of missing the move-orbuying too late-we want proof the move is really underway.The balance point to this, I think, is that we cannot buy until price has stopped going down, norcan we buy during the emotions of a strong rally. You need some indication from the market it willrally, but not too much, you can't wait until all the lights are green. The market will always try to scareyou out/in or wear you out/in. It is these two extremes, you must stay away from. If you are getting inbecause of emotions, afraid the move has gotten away without you, pass on the trade ... it's already toolate.
198Plus, once in a position we must give the market some room to move in our favor. That was thesecond most glaring error. These traders noticed many of their trades would have been correct if theyused no stop. Well we do need stops, the problem was their stops were too close. Since they didn't wantto lose much, they used close stops ... and just lost more often! No one I know really has pinpointprecision timing, UNTIL SOMEONE DOES, stops need to be a good distance away from the market ifwe are to find success in trading.
June 1997
Volume 34, Issue 6If You're Supposed to Quit When You Are Ahead,Shouldn't You Start When You Are Behind?
At the risk of breaking the Zurich Axiom to not seek order where there is none, I've been trying todetermine if in fact it makes sense to start trading a system-or increase the number of contracts you aretrading-when the system bangs out losers, not winners.This viewpoint has long been debated by mathematicians and those who profess to understand moneymanagement. They are squarely of the opinion that YOU CANNOT AND MUST NOT increase or starttrading when a system begins to falter. They are afraid it's just rain before a downpour.Their point is that you may well be boarding a sinking ship, so it's best to stay ashore until you see theship right herself with a few winning trades.Traders, on the other hand, or at least this trader, have seen countless drawdowns turned around. Everyyear. For years. So we are inclined to think that even the worse storm is followed by brilliant sunshine.Always.An Expert SpeaksIn an attempt to get to the bottom of this, I first checked with the leading proponent of moneymanagement schemes, and long-time friend, Ralph Vince. His comments were illuminating; "First," hesaid, "The worse case is that all trades, winners or losers, are random. If that's the case, there is nodifference between starting after a positive or negative streak. You will be doing yourself no service, ordisservice by such an approach."The big question is if the system will continue working. I've done tons of research on that and havenot found anything that predicts if a system or approach will continue to make money."
199We agreed on this point. Even the fact a system has made money hand over fist-in real trading-foryears-does not mean it will in the future. All we know about the future is that it will get here and that it willnot be what we expected it to be. A system is based on some thing, if that thing or condition changes, outthe window goes the system. To that extent, the past is meaningless to prove a point, of even anonoptimized approach, to trading.if the future is at all close to the past," Ralph added, "Then, starting after losses will be to youradvantage for the simple reason that you buy dips in bull markets-price goes higher. Like price, your equitycurve will make a new high as well."The bottom line then is that IF YOU EXPECT A SYSTEM TO HOLD UP you want a strategy forstarting up or increasing contracts after losses. If you don't expect it to hold up, why are you trading it? Thereal bottom line bet is, "Will the system continue working?" That's unanswerable, but a choice we mustmake.Simple MathIf you flip a fair coin 100 times, it should come up heads 50 times, tails 50, 25 times there will be twowins in a row, 12.5 times 3 in a row, and 4 in a row 6.25 times. Get it? A 50/50 system should always give50 percent chance of next decision being repeated.Or will it? In a Bond system I trade there has been 68 percent accuracy on 283 trades. In theory,if there has been a losing trade, there is a 68 percent chance of the next trade being a winner, twolosers in a row, still a 68 percent win rate for the next trade.But, that's not the reality of systems I use! In checking the systems I trade I found something trulyamazing. In most of the systems the accuracy rate persisted after one losing trade, and in some for twolosses in a row. But, after three losses in a row most of the systems (which were about 65 percentaccurate) jumped up to over 80 percent winners.Best yet, the average winning trade was about 130 percent greater than all average winning trades!Wow, we are on to something here ... proof of what I have always done, increase my positions followingenough losses that I got angry with myself!I know ... I know ... you want some hard rules of how to implement such a strategy; I'II continueworking on that, and hopefully guys like Ralph, Ryan Jones, and Mark Thorn will have some insight intoall this. For now, my rule will be to increase one unit following three losing trades.
200July 1997
Volume 34, Issue 7Don't "Show Me the Money"
Tom Cruise had it all wrong in Jerry McCuire, but what would you expect from Hollywood,brilliance?It's Not About the MoneyI've spent most of the last 30 days in hospitals with my mother's massive heart attack. Trust me,having all the money in the world could not offset being deprived of health. I have been broke and downand out in my life ... and I'll take that to hospital living any day of the week.You probably know that. But I'd like to think I picked up some wisdom while there. After all, you knowme, the constant researcher, I was asking questions, checking out statistics and all to figure out how toprevent ending up there.This quest really began years ago when Dr. Barney Meltzer told me I had two choices, to either be afabulously wealthy commodity trader with all sorts of physical ailments or settle for making a lot ofmoney, but living more fully and more functional than I was. Thanks to Barney, I got off the adrenalinelifestyle, changed a few things, and here I am a pretty happy person. Which I wasn't then even though itwas not unusual to make $350,000 to $900,000 a month back then!In a Nutshell-How to Stay Healthy (The Wealth Will Follow)I spent several nights with the emergency center crew. They said about 20 percent of their patientsjust let something go too long, a cold, sore throat, infection, so at 2 AM decided they "had" to dosomething about it. They estimated that 60 percent of their "customers" were there because of drugs oralcohol. Sure, the trauma may have been a car wreck, knife or gun fight (both such popular sports inMontana that there's a sign on the hospital door requesting all guns be checked in at the main desk), but thecause of the problem was rooted in too many and too much chemicals of one form or another.So, that's 80 percent of the problems. Of the remaining 20 percent, I was told 10 percent were workrelated, and the remaining 10 percent were genuine accidents! There's a lesson here ... don't do drugs, drinktoo much, or go to work!
201And Here's The Big OneAs I snooped around I noticed something else ... the one big thing that about 95 percent of the patients withmajor problems shared in common.I had noticed this earlier when I took my mom to a doctor appointment. Virtually all the peoplecoming in to see the sawbones had this one ingredient in common. Also noticed that of my mom's friendsthe healthiest and most vibrant one of the group did not share this in common. In short, whether they weresmokers, drinkers, Mormons, Catholics, short or tall, old or very old, it came down to this:The more overweight they were, the more health problems they bad.That is a powerful statement and I hope you will take a long hard look at your waistline-right now-to seeif you are not headed for problems. (I am personally convinced that being overweight is worse than smoking,some smokers don't seem to be fazed by it, but all overweight people suffer.) The important thing, as Dr.Meltzer told me, is that once a person gets so out of shape or overweight, the trendline is too steep to correct.You just can't pull out of it, the bear market begins and thanks to old man age, it gets pretty ugly.Well, enough of this wandering from the markets, but it's done with intent ... I do want you to live life atits best and for a long time ... after all it's hard getting good subscribers, I want those renewals!
August 1997
Volume 34, issue 8The Number One Reason We Lose Money Trading
Let others talk about how much they make, I want to work on losing less!There are as many ways to lose big money trading as there are traders, yet there is a strong commondenominator to each and every loss I have taken. If I can avoid this, I should be able to sidestep much of thepain usually associated with this business.Here it is then, the biggest reason we have big losses ...Large losses come about when we let our belief systems override reality.
202What I mean by this is that we pay more attention to our advisors, prejudices, hopes and aspirationsthan we do to what's really going on. That literally forces us to hold onto losing trades ... and to keepholding on. The secret to winning in this business is to get out of the losers as soon as possible and holdonto the winners.While I have a strong belief that I will make money trading, I have an equally strong belief that everypossible trade I enter may well wipe out my account.My belief system used to be that every trade would work out OK, and I had some very disastrousequity dips. I held onto what I should have pitched, which also forced me to pitch what I should have heldonto! My positive approach to life, my belief system, was killing me, as I was not listening to reality: Rocksare hard, water is wet, bad things happen, commodities are risky. Believe that and you will sure as heckprotect your hard-earned dollars. I trust my systems and trading techniques, but I don't believe for an instantthat they will work on the next trade! That's a healthy, profitable attitude.This is a universal truth. How many people do you have in your life that you should have "stoppedout" of the relationship long ago? I know my life works best when I cut away from so-called friends thatare really emotional drains and stay with those that enhance my enjoyment of life. if that works in living, itwill work in trading!September 1997
Volume 34, Issue 9The Most Important Trading Belief You Have
In this business a positive mental attitude and affirmations cankill you. Instead, try this.Belief SystemsWhile it is true that you are only as powerful as your belief system, the real advantage a belief systemcan bestow upon you is that a firmly held belief will give you more certainty to take action.Traders have trouble taking correct action, as we lack certainty, thus the study of what we believe iscritical to our success.If you get all pumped up with positive beliefs about your market success you will believe so much (inthat coming about) that you will