Any Trading Wisdom to Share?

Any trading anecdotes or tips you’d like to share?  That’s the Question of the Week, the goal being to stimulate a discussion that can help us all grow as traders. Speaking for myself, it has been a long and bumpy road. During the 1980s, I enjoyed all-too-easy success as a market maker on the Pacific Options Exchange. I’d left a newspaper job in 1978 and was soon earning 20 times my editor’s salary working in the option pits. At the time, the competition was relatively light, options premiums were fat and juicy, and retail customers – always easy pickings – were still in the game.  Anyone could have been a winner back then – it was like prospecting for gold in California in 1849. Not surprisingly, my colleagues came from all walks of life – bartenders, ski bums, film producers, cops, rocket scientists, pet groomers, marathon swimmers — you name it.

Anyone Could Do It…

That was the main appeal of floor trading: anyone could do it, at least in theory. Trouble was, the game was always mutating, and over time it came to increasingly favor rocket scientists over seat-of-the-pants traders like myself.  I left the floor in 1989 with my earnings in a steep decline and spent the next seven years wandering in the woods, working mainly as a headhunter (I was ill-suited for this kind of work, since I took unreturned phone calls personally); as a reporter for a company that used a Madison Avenue model for ferreting out promising stocks;  and as an investigator for Hal Lipset, the late San Francisco private eye.

I never lost my Jones for trading, though, and I returned to it on the encouragement of a friend who had happened on a powerful trading system. That system led me to develop one of my own – the Hidden Pivot Method – and with it a ‘camouflage’ entry technique that has greatly reduced the risk of getting into a trade. My trading career now stretches back nearly 40 years — to the early 1970s, when I was enticed to try option trading via exchange list puts and calls offered by the CBOE.

Lessons I’ve Learned

The most important and useful things I’ve learned along the way are as follows:

• Losing trades are inevitable, even for the very best traders, and should be regarded as stepping stones toward consistent profits.
• Taking a token profit early in a trade can do wonders for one’s confidence and timing in managing the trade from that point forward.
• Never trade with money you cannot afford to lose – back-to-the-wall, so to speak –  nor needing to profit in order to pay for necessities.
• Using stop losses and trailing stops, keep risk and reward in a fixed ratio throughout a trade. $1 : $3 is what I advise.
• Wait for the perfect trading set-up, since rarely will a week go by that does not drop at least one or two of them in your lap.

This forum is eager to hear about your own trading experiences and about what you might have learned from them.  Readers?