I asked if anyone in the crowd had ever done any fundamentalresearch on the markets they were presently trading. To my surprise, only ahandful of those in attendance claimed that they did any type of fundamentalanalysis on the markets before making a trading or an investment decision.The main point of my presentation was to give technical traders a feelfor the fundamental side of the market. In fact, many seasoned veterans willconfess that they look at both sides of market analysis before making a de-cision. One good example is my old friend and customer Vince McLaughlin.Vinny would talk about the fundamentals of the market and his expertise,and avoid any discussion on the technical levels of the day. Whenever Ibrought up an area of support or resistance, Vinny would respond, “Don’ttalk to me about voodoo!” He would laugh and call it hocus-pocus—untilhe found himself stuck on an arb.
As an arbitrageur, it was up to Vinny to make sure there was no exposurewhen putting on the trade—after all, the concept of arbitrage is to buy andsell a like product, simultaneously making a small proﬁt on the discrepancyand inefﬁciency created in the market. As soon as he was stuck, Vinny wouldbecome a technical trader, asking me where the support or resistance wasin the day’s session.
One of the ﬁrst jobs I had in the futures industry was as a runner fora small, local grain company called Chicago Grain. Still a student at Loy-ola University, I used the analytical training that was instilled in me bythe Jesuits and became a sponge for information. I asked every questionimaginable, looking for those I felt knew the market structure well enoughthat they could explain it to me in simple terms. One of the ﬁrst peoplewho caught my attention was an eclectic individual named Ted Lee Fisher,whom we would affectionately refer to as “Doc.”
Doc was a product of the 1960s, taking the lessons learned by his gen-eration and incorporated them into the daily routine of work and life. Asa clerk servicing his accounts, Doc would come into contact with me onlyif there was a problem with a customer or if I had a question regardingthe positions acquired. What really stood out about Doc was that he wassincere in teaching those who asked anything that he knew about marketsand trading. I became fascinated with the way Doc approached the market.He had a way of incorporating the technical world with the fundamentalsaround him. For a novice in the markets such as me, being able to makesense of the chaos that exists in the marketplace is important. Looking atthe fundamentals of the market doesn’t necessarily show traders and in-vestors the true nature of the market condition unless they can look at theprice action and time factors that guide them.
Doc was the biggest producer at Chicago Grain when I was a runner.In fact, the ﬁrst business dinner I was ever invited to came at his expense,
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when he treated the ﬂoor crew for helping him generate a record monthin commissions. At that dinner I realized that if I were to ask him the rightquestions, the knowledge base that I could tap into was enormous. Duringthe drive to and from dinner I must have asked over 20 questions, rangingfrom his background to his methodology for trading.
I came to understand that he was an original rebel, having taken a yearoff from school at Ann Arbor to ride his motorcycle across the country.He was a real Easy Rider! Not only was he a wealth of information whenit came to futures trading, but it seemed that he had an educated opinionabout many of the world’s thorniest issues. Much of the technical analysisthat guides his trading has roots in the observations he made as a youth inthe turbulent decade of the 1960s.
I have met thousands of so-called technicians who claim that their workon the markets is the deﬁnitive work when it comes to technical analysis.Out of the thousands, there is only a handful that merits any attention what-soever. Out of the handful, Doc is the only one I would consider unique in hisapproach. For decades, he has refused interview requests and has avoidedmarket reporters, until now. For the ﬁrst time, Doc has agreed to share hisideas and insights into market structure and trading.
INTERVIEW WITH TED FISHER
Bouroudjian: Ted, you’re unique in the way you look at technical analysisand your approach to the markets. Many have looked at you for years asthe most unique technician in the markets today.
Much of what you are today is because of where you came from and theexperiences in your life. Tell us a little bit about your background, whereyou came from, and how you got into the market.
Fisher: The short story is I went to the University of Michigan in 1966;it was either that or Vietnam. I went to a lecture by a Harvard professorthat winter on extraterrestrial travel. That professor’s name was TimothyLeary. I also went to a concert by a New York rock band with an artistwho had a slide show. That rock band happened to be Velvet Undergroundand the artist was Andy Warhol. And that more or less set the tone for myundergraduate career. Then I went on to learn. After receiving a bachelor’sdegree in economics, I studied for a master’s degree in philosophy, and Iwas invited into a social science research-integrated program in which Ihad to be literate in four disciplines.
The four disciplines were anthropology, philosophy, history, and soci-ology. My ﬁrst year in graduate school, my professors recommended mefor a Racom Prize—three people at the University of Michigan receive thisprize every year; I was one of them. It was an incredible prize at the time.
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It was a cash stipend of $7,500, which was well in excess of the cost of anew Corvette, which I wanted to buy. Plus, I was given a teaching positionin which I was responsible for my own curriculum, and paid as a teacher.Most important at the time, all my expenses were paid.
When I was coming out of the University of Michigan, funds had beenmore or less cut off by the Nixon administration for the kind of research thatI was interested in, which was, more or less, as punishment for our effortsto end the war. Along with that, I had a personal crisis in which my motherhad breast cancer. I was able to talk my mother into seeking therapy, andshe recovered and actually, thirty-ﬁve years later she has been totally freeof cancer. But at the same time, it was somewhat of a personal crisis and Idecided, what the heck, I would go into the corporate world, because therewas no real opportunity in the academic world.
I had interviewed, of all places, through a family connection at SperryRand. They were very excited to meet me. They decided to create a posi-tion within their Washington ofﬁce to do lobbying. As it turns out, theyhave plants in various states, and the idea was, I would go in and repre-sent Sperry’s views that we have substantial votes in their district, and wewould appreciate their help. They said, “We have to have approval fromNew York. Go back to Ann Arbor, relax for a few weeks, we’ll call you.” SoI’m sitting in Ann Arbor one day, and a man walks in. And I’m watching abasketball game; he says, “What are you doing? I never met you before.”And I give him the story, and he says, “What? Are you out of your mind?For $17,500 a year, you’re going to do that? You have to come down tomy ofﬁce tomorrow morning.” So it turns out he’s a commodity broker.And it’s August in 1976 and gold had just been approved for trade in theUnited States and the Europeans ran it up to $200 an ounce, and as soonas it was legal to trade in the United States, they pushed the price downto $100 per troy ounce.
So I’m sitting in this ofﬁce the ﬁrst day and I’m watching it trade $101.50,hitting at $101.50 three or four times, and I buy some contracts with the resid-ual funds that I had from my savings from graduate school. And from thatday, gold never really down-ticked, until it got to $270 an ounce. And he andI became partners in a brokerage ﬁrm, and built a successful commoditiesbusiness. After that, we went to Chicago and set up a business with FredBrosowski at Chicago Grain and Co., and the rest is history.
Bouroudjian: Your approach to technical analysis is much different thanother technicians. You have a way of incorporating the world around youwith the charts you follow. How did you develop your concepts?
Give us an idea of how it’s different in your mind, and what factors drive
your work.
Fisher: Well, ﬁrst of all, I came into the futures industry as an economist,with the understanding that the things that the Nixon administration had
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done in terms of ﬂoating the dollar along with other economic policies,based on certain economic history, would lead to volatile market phenom-ena. Full disclosure, early in my career, even though I was totally right thedirection of the market, I got slapped a couple of times—that means losing90 percent of my equity (laughs).
I went from being an economist/trader to an economist/technician/trader, and I brought to technical analysis the discipline that I acquiredat the University of Michigan. The ﬁrst thing I did was consume the entirebody of technical analysis that was available in print form. This included ev-erything available from the nineteenth and twentieth century. And of course,as I consumed it and processed it, I was always risking my own capital withthe ideas that I came to know and understand through technical analysis.And so it was a reﬁning process and a hardening process by risking my ownmoney and applying the ideas that I synthesized through technical analysis.
Bouroudjian: Tell us a little bit about your ideas that you synthesized.What types of work inﬂuenced you the most and how did you create yourown derivative approach.
Fisher: Well, the root of my understanding of the market’s truth camefrom a book that I highly recommend for everybody to read, Reminis-cences of a Stock Operator by Edwin Lef `evre. It’s really the biography ofJesse Livermore, a legendary market speculator. It’s not really about tech-nical analysis, but it is an anecdotal history of every way in which he wasright the market, and ultimately got blown out of his positions by hook andby crook.
Initially, that was really the operative tool I had before I became atechnician. After reading Reminiscences’ I read all of Gann’s work. I paidsubstantial sums of money to buy esoteric documents that Gann had pro-duced only for his students, for which they had to pay $30,000 or $40,000 inthe 1930s and 1940s to get. Then I read Ralph Distan, Wyckoff, and Elliott.And I have to say that Elliott, and the Elliott Wave Theory, had a big impacton me. But one has to be careful with Elliott, because it’s an application andif you subscribe to a newsletter by someone who represents themselves tobe an Elliott theorist, even if they were very close to Elliott, you may ﬁndthat they’re more interested in maintaining their track record to sell books,rather than maintaining a track record that will make you wealthy. So thetechnical analysis, or the methodology, that I have used for years in mytrading is a synthesis of what I call structural analysis.
Structural analysis is looking at price and time basically—that would beprice charts. I brought with me, from my academic studies at the Universityof Michigan, an understanding of business cycles because that was one ofmy pet studies. Long before I knew I was going to be a trader, I heard a
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lot of people talk about trading markets, using the sun and the moon, andvarious things, but what I look at is multigenerational cycles that basicallyrelate to the life and death of capital itself. The underlying hypothesis ofthis is that capital is organic, and by being organic, has the natural life anddeath cycle. And the second assumption that is embedded in this is that theson will never learn from the mistakes of the father. And if you put thosetwo things together and go back and look at history, it becomes a valuabletool.
I have a chart of 10-year yields that goes back to 1812, and when I putthat chart in front of people, even a neophyte can see the amplitude oftime. They can instantly notice the cyclic pattern over time. Unfortunately,most people are shortsighted in their approach to trading; a cycle that runsfrom 1942 to 1981 is irrelevant or not particularly useful for them. Whereasfor me it can have a tremendous impact on my work. I’m really trying tocatch the long-term trend of any particular market that I’m engaged in, notjust a day-trade or a short-term ﬂing, but, rather, a position that could lastweeks. So an amplitude of that magnitude is right up my alley. And thenusing my structural analysis, and momentum studies, I try to enhance myparticipation in the trend, but maintain my position in the trend.
Bouroudjian: Your concept of structural analysis is unique. Your under-standing of the market structure makes your work different in that yourfoundations are rooted in the fundamental analysis of the capital market’scondition.
Would you consider yourself a technician who looks for conﬁrmation
through the fundamentals of the economy, or vice versa?
Fisher: Oh, I really believe that the market predicts events, and events donot predict the market, and that if you want to know the future you reallyneed to look at the structure of the market. The work may not be able toforecast what the event is, but you can prepare yourself and participate inthe trend that the event will generate. And 9/11 is one of the most classicexamples of this. Although, throughout my career, I could give you anynumber of them.
In June of 2001 I wrote a very brief thesis and gave it to my clients,which happened to be institutional clients, such as funding desks in NewYork money banks, investments banks, et cetera, et cetera. The Fed fundsrate was roughly 6 percent at the time, and everybody around me, all mypeers and colleagues, were expecting the Fed to raise rates. I wrote a briefthat forecast deposit rates to decline to one and a quarter percent—and thatwas June of 2001. I took a very substantial position, long Eurodollars, theﬁrst 12 contracts, short S&Ps, long gold, long Swiss francs. And the positionwas paying me all of July and all of August. Then September 11th came
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along, with a big impact to the market. And not one of those trends wasinterrupted.
With all that was happening, it was the most difﬁcult time for me to ac-cept the success of my trading. But because of the tragedy that surrounded9/11, every position that I had was proﬁtable. The position was paying mebefore 9/11 and it paid huge after 9/11. Those trends remained intact for any-thing from 6 to 18 months after 9/11. And ironically, deposit rates declinedto 1.25 percent. I got 1.25 percent, not out of a hat, but on a mathemati-cal calculation based upon the capital markets structure that I saw at thetime.
Bouroudjian: There’s been an explosion of electronic trading. The globalfutures exchanges have witnessed phenomenal growth over the last fewyears with the creation of the e-mini concept. There has been a migrationof open interest into the electronic platforms. We’ve seen a proliferation ofelectronic products and services all across the globe.
What impact, if any, does it have on technical analysis, or your work
speciﬁcally?
Fisher: Well, ﬁrst of all the larger the volume and open interest of a market,the more valuable technical analysis becomes. If you take a very smallmarket with very thin participation, it becomes easy to push the marketaround and distort price movements. Overall, you can’t ultimately disguisethe pattern, but you can distort things. So the larger the volume and thelarger the participation in a market, the better it is for a technician. But, infact, this brings you to one of the most important understandings, whetheryou’re a technician or whatever, about the market. It’s what we always callthe edge.
When you’re standing in the pit, and the market is a four bid at ﬁve ifyou can buy the bid side of the market, when everybody around you is stillbid, then you have what we call the edge. Because now you are long at four,with the opportunity to sell the market at ﬁve or scratch the trade if foursbegin to go. So the edge is the dream for someone who’s looking to tradeas a scalper. The part of the edge that most people don’t understand, andit’s integral in my style of trading, involves giving up the perceived edgebecause I don’t normally buy the bid, or sell the offer.
What I normally am doing is, if the market is making new highs, I’mbuying the offer, and if the market is making new lows, I’m selling the bid.In other words, I buy strength and sell weakness. It drives most traderscrazy to even think of doing something like that, because they want to buythe market cheap and sell the market when it’s expensive. But the edge,when you really understand it, is buying or selling the market as it’s turning.There’s a magical moment when that ﬁve offer is turning ﬁve bid after you
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just bought it! That’s where the edge really becomes useful to an aggressivetrader, who’s trying to catch the market when most are oblivious.
In the old days in the pit, I would be standing there, and the market wouldtrade to a new high. Well, now, it’s well offered at that price, guess what? I’mbuying it. And guess what? Everybody’s happy to sell it to me. But then, I’mbuying ﬁves, ﬁves are trading—all of a sudden it’s ﬁve bid! The traders whodidn’t lay it off to another local just spread out the position using anothercontract, but now they’re short at ﬁve, and it’s ﬁve bid. They no longerhave the edge. That’s the biggest secret about understanding the marketand about understanding trading and about what the edge is. Perceptionand reality can be confusing—what you think is the edge and what is thereal edge are two different things. And until you recognize that the edge isﬂuid, not absolute, and are willing to ﬂow with the edge, then you’re goingto ﬁnd trading very difﬁcult.
Bouroudjian: I’ll give you one more question. As a former teacher, asidefrom the lecture on the edge, which is a wonderful bit of information, whatelse would you tell somebody who is just starting to trade? What have younoticed throughout your career that can guide new traders? What can theydo to become better traders?
Fisher: Initially any new trader must understand risk. And again, mostpeople think of risk in fairly absolute terms. Risk, to some people, meansthat if I expose my money, then I could lose it. And so they live in fear ofinvestment losses. What they don’t understand is that if they don’t exposetheir capital, they can lose it. That is risk!
For me, through my life, I’ve seen periods in which the world was madefor speculation. And if you wanted to compound your money, you couldrisk a little bit. If you were to take a little bit of risk, and if you were right,the compounding and return would be huge and enormous, and you couldcreate enormous amounts of wealth by doing that. There have been otherperiods in my life, in a generational sense, in which the time to take riskwas over, and the time to maintain purchasing power parity was clearlyneeded. Purchasing power parity is, in other words, if it costs $100 to buya diamond in today’s market, you don’t care what your money is worth.Whether you have $100 in the future or $1,000 in the future, you want tobuy that same diamond, something real, something measurable, et cetera,et cetera.
One of the examples I always use is that in 1932 soybeans were $0.44a bushel and in 1952 they were $4.50 a bushel. And for sure, there was nogenetic modiﬁcation of soybeans from 1932 to 1952. Soybeans still had thesame protein count, oil count, et cetera, et cetera, in 1932 that they had in1952. But we had a government that took away the gold, inﬂated ourselves
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out of a depression, and inﬂated ourselves through a war, World War II. By1952 it took 10 times, virtually 10 times the amount of U.S. dollars to buy abushel of soybeans, so from 1932 to 1952, using this example, it’s obviousthat it wasn’t a time to speculate; it was a time to preserve your purchasingpower parity.
It becomes a part of ﬁnancial survival to ﬁnd vehicles and ways tomaintain purchasing power parity. If a trader or investor can understandthese concepts, then they have a much better grasp of what risk really is, andhow it works. Remember, in the shorter-term concept, markets always tradefrom fear to greed and greed to fear and you need to ﬁnd ways to separateyourself from the emotions and to participate in the trend. Whether you doit through fundamental analysis, or you do it through technical analysis, fortraders to be successful they must fully understand these concepts.
My one great weakness, and one which I’m still researching, trying toﬁnd an answer for, is the exit strategy. Most people spend all their home-work and all their research on initiating a trade and they spend no timewhatsoever on how to get out. My thesis is that if you catch a trend, itdoesn’t matter whether you catch it from a fundamental idea or a technicalidea or whatever, when the trend is ending, and the move is terminating,you need to have a way to identify that, and a way to take you out of themarket before the market takes back what it’s given to you.
Listening to Doc speak about his work is exciting for me as a studentof the markets and a longtime fan of his work. Most traders don’t under-stand that the true talents in the ﬁeld of technical analysis are individualswhom the average person has never heard of. A genius such as Doc hasalways run from any exposure because of what he might call “bad karma.”It’s also the common denominator among the best analysts in the industry.The less exposure, the better it is. If you ﬁnd a successful strategy, keep itto yourself or a select group of clients. As a devout Buddhist, Doc has in-corporated many Eastern philosophical precepts into his everyday routine.What makes his work so different from that of other technicians is two veryimportant variables: his ability to be correct on the direction and reactionof the marketplace during major price swings and the natural ability to usethe fundamentals of the market to justify the work he does.
In early September 2001, I stopped by Doc’s desk on the upper tradingﬂoor of the CME, as I did every Friday before reporting on the unemploymentrelease on CNBC. During this time I would ask different traders and brokersabout their thoughts on the market and if there was any action in Europethat would work its way into our session. On this particular day it wasdifﬁcult for me to get Doc’s attention. I was not greeted with his customarysmile and peace sign; rather, he had a concerned, intense look on his face.Talking with him, I realized that he was expecting something very big to
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happen based on the structural analysis that is an important component ofhis work. He looked me in the eye and said, “Jack, I don’t know what’s goingto happen, but it’s going to be very big!”
He was talking about a major move in the market because his workshowed that the entire capital marketplace was about to experience sometype of large volatile move. I’ve always thought that Doc was a bit eccentric,but I had never known him to show this noticeable degree of concern. Iremember that the unemployment number was somewhat subdued, with aslightly larger increase in nonfarm payrolls, which made stocks rally andthe ﬁxed-income market break a couple of ticks. Later in the afternoon, mythoughts still on the conversation I had had with Doc in the morning, I askedhim if we could speak for a bit.
He told me that he had seen certain anomalies in the marketplace overthe course of his 30-some years in the business and knew, from his research,that the markets were positioned for a major dysfunction. I have neverbelieved in soothsayers of any kind, whether fortune tellers or horoscopes,but the conversation I had with Doc was as close as I’ll ever get. That daywas Friday, September 7, 2001. Four days later, on September 11, the UnitedStates would be attacked by Islamic terrorists and the capital markets wouldbe sent into shock and turmoil.
The technical analysts in the business fall into two major categories:those who have never traded and want to teach the world what they havenever been able to fully grasp, and traders who feel it’s important to teachothers the niche they have found in the market. Usually it is a derivativeof a proven discipline such as the Gann or Elliot Wave method. The ﬁrstgroup encompasses the charlatans of the industry. At trading conferences,I laugh at the books I see for sale. Occasionally, I come across a bizarremethodology like Nature and Trading and I ask myself, “Who would buy abook such as this?” Invariably, someone walks up to the booth and spendshard-earned money on what is, in my humble opinion, trash. The secondgroup is a little bit more credible, having felt the pain of a position beforetrying to teach the world to do the same. But ask yourself, “Why is themethodology being shared with the masses?” The ﬁnest traders believe it’simportant to keep a strategy as concealed as possible in order to maintain itseffectiveness. Only after a strategy is no longer producing high-percentagetrades do you share it with the rest of the world.
Mike Norman hosts a radio show called Economic Contrarian onBiz Radio, a Texas-based radio network with large national distribution.Norman is a lively personality whose experience on the various tradingﬂoors makes him the perfect person to host a show about the markets. Toooften I ﬁnd myself listening to or watching people who have no clue aboutmarket structure and trading. Norman is a refreshing change because of hisdepth of knowledge and insightful opinions about the markets.
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One morning, Norman was booked to interview a gentleman who hadbased his trading methodology on pure math. T.H. Murrey, of Murrey Math, isa tall southern gentleman from Tennessee who seems an unlikely candidateto be sitting in front of a computer screen trading stocks and options. Murreyhas a devoted following of traders who ﬁnd his approach to the markets aneasy discipline to follow but very unorthodox for experienced traders.
The work is based on the power of a single number, which, accordingto Murrey, is the secret to trading success. At ﬁrst Norman let Murrey talkabout his strategy and his approach to the markets. But as the interviewprogressed, Norman became incensed at Murrey’s statement that he haddiscovered the Holy Grail of trading. A heated exchange ensued betweenthe two, in which Norman maintained that there is no Holy Grail’ in trading,calling the work “garbage” and Murrey “a quack.”
While Norman was chastising him, Murrey shouted back that he hadwon the “Holy Grail award” in trading the previous year. The exchangewent on for several minutes until Norman ended the show by saying hecould no longer expose his listening audience to something he consideredrubbish. It was a fascinating show in which both parties demonstrated theage-old debate between true fundamental skeptics, represented by Norman,and eclectic technical analysts, embodied in Murrey.
EVERYONE IS LOOKING AT THE SAME CHART
If there is any one fault that most technical analysts share, it’s the inabilityto get rid of the charts when necessary. Another Bingism comes to mind:“You have to know when to throw the charts away.” The ability to do this isone of the things that made Bing Sung such a good trader. An important partof any trader’s character is the ability to incorporate the work he or she useswith natural gut instinct. Too many people become married to a strategy forwhatever reason. Perhaps new traders and investors need the simplicity of adiscipline that allows them to make what they feel are qualiﬁed investmentdecisions based on a given methodology.
This approach gives part-time traders a tool by which they can mapthe price action of a market and make sensible trades with the handicapof time and lack of homework. Most people don’trecognize that becomingmarried to one particular strategy can be disastrous. This is the primaryreason that over 90 percent of the retail public who open futures tradingaccounts lose their money within three months of starting. How can that be?How can so many people consistently lose? When new traders and investorsstart thinking they can compete with seasoned veterans on an equal playingﬁeld, tthey are destined to fail.
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New traders cannot compete with the veterans of the markets and ex-pect the same level of success unless they have the right combination ofdiscipline, time, and a proven gut feel for trading. New traders usually ﬁnd astrategy they understand and then become enamored with it. Most of thesetraders end up ﬁnding out what the old-timers have known for years: If youlive by the sword, then you’ll die by the sword. In other words, if you ﬁndyourself married to a certain methodology, then that methodology mightone day bring you down.
Imagine a trader who based his or her entire strategy on the relativestrength indicators of the market. This trader would have been selling thestock market all through the late 1990s because the relative strength index(RSI) was so high. With hindsight, it’s clear that this trader would