Summary: Linda Bradford Raschke shares her experiences as a trader, highlighting the excitement and chaos of the trading floor. She describes how rumors and market enthusiasm can lead to significant profits and losses. Through her journey, she emphasizes the addictive nature of trading and the lessons learned from both successes and failures.
Highlights
Yet trading is about decision making under uncertainty. This is my journey as a trader where my knack for being on the wrong side of outliers and unforeseen events is well beyond random. (View Highlight)
Up to this point, the market had rallied 44% since the beginning of the year. There was not much cash left on the sidelines and the previous month displayed the classic deterioration typical of an overbought market. A new phenomenon was introduced the prior year—portfolio insurance. This was a dynamic hedging strategy designed to sell futures as prices dropped. (View Highlight)
I did not want to look at how much money I had lost on the day.
I knew if I did, it would affect my ability to function the next day. Averaging a loser is the worst strategy a trader can adopt, especially if one gets away with it. (View Highlight)
There was a study done on price behavior when the field of behavioral finance was just coming on the scene. It simulated trading with groups of individuals who were not traders. The price of the market would always rise first. It kept inching higher until everyone had bid and there was nobody left to buy. At that point, it broke sharply with no support underneath.
To this day, that is one of the main reasons markets sell off—there is nobody left to buy. (View Highlight)
For a mere 1200amonthIleasedmyownQuotron.Addinanother1000 for the particular data line required, and I was set. Costs were much higher for everything in the eighties, including commissions. Most traders have no idea how good they have it these days. (View Highlight)
After failing to find a colleague to help me with back-testing, I continued to work on developing an integrated methodology based on the foundation of Taylor, Golf, Trend days, and the 2-period rate-of-change. (View Highlight)
“We separate and designate each trading day for its own expected action.†(View Highlight)
Models are just that—they give a trader an initial game plan but have to be flexible enough to adapt as the price action progresses. (View Highlight)
For example, if a market has a large opening gap, a model might suggest the price is likely to trade into the gap area. However, if this does not occur during the next three trading hours, the model suggests the market has better odds to trade in the direction of the initial gap. Taylor said his initial game plan had to be right only 55% of the time. The rest of the time, he had to know how to work around the days where his plan was wrong. (View Highlight)
One of those universal aphorisms rang especially true: “It’s better to have some game plan than no game plan at all.†And you realize quickly enough when you have the wrong game plan. (View Highlight)
And I follow Taylor’s rhythm—do the odds favor a low to high day or a high to low day? All you have to do is get the main idea right— (View Highlight)
The secret to dealing with the unknown, whether it was walking onto the floor for the first time or trading a new market, is to clear the mind and make your body go through the motions. The sensation is like a tennis player relying on muscle memory. (View Highlight)
You ever get a little voice inside your head suggesting you ought not to do something but you go ahead and do it anyway because fuck that little voice, I’m going to make money…
I came face to face with my arch-nemesis: greed.
I sold some straddles minutes before the closing bell. “How can I lose?†I thought naively. (View Highlight)
This was completely unheard of. Such an outrageous takeover offer had never happened before. Mouth hanging agape, I was in shock. I’m sure everyone could see the panic streaked across my face.
“What have I done?†(View Highlight)
Gerry had been selling straddles as well, but his trading account was 20 times bigger than mine. I was a mere peon. My total loss was 86,000,whichdoesna^€™tsoundlikemuchnow,butsinceIdidna^€™thaveanickeltomyname,itfeltlikeIhadlost86,000,000. This 23-year old had lost the cost of an MBA from Stanford in less than 24 hours. (View Highlight)
I found out over time that most every trader had experienced early fiascos in their careers. It simply was a matter of surviving. (View Highlight)
My grandfather made his decision clear by saying, “You got yourself into this mess and you are going to have to figure out a way to get out of it.†I’m sure that was accompanied by a line about building character. He may have thrown in a “young lady†for good measure. (View Highlight)
. Thanks to my humbling experience with City Service, I knew that shorting straddles is an excellent strategy if prices stay in a contained range and I learned that doesn’t always happen. (View Highlight)
The finance industry has a funny way of renaming things to make them sound better to the public. Take the term “correction,†for example. What a cute word for what actually represents a 10% drop in the market. “Oh, the market’s just correcting itself.†Like it made a boo-boo. Puh-lease. (View Highlight)
Bob Nurock, a guest on the show for 19 years, had based his index on Market Momentum, Investor Sentiment, and Monetary Conditions. (View Highlight)
Whenever we’re in a transition period in our lives, we turn anywhere to find answers. What does it all mean? Am I making the right choice? I don’t want to know exactly what my future holds, but I’d feel an enormous sense of relief if someone could give me a sign it was all going to be okay. (View Highlight)
The gay psychic told me I was going to make it big and I believed him. (View Highlight)
I learned a great deal from watching Jerry and considered him to be my silent mentor. If it were not for the routines and rituals I observed him following, I probably would not be in the business today. (View Highlight)
Jerry led by example. You could find him deep in concentration in the clearing firms office two hours before the market opened. He looked like a monk meditating on the markets. His eyes focused on a different world far, far away. He always had an uncanny ability to think three steps ahead of everyone else in the room. His daily preparation was meticulous, and it paid off. (View Highlight)
It is the time spent on preparation outside the regular trading hours that makes a trader successful. (View Highlight)
Wisdom from Nate: Be pragmatic in how you run your business. Set emotions aside and do what you need to do. (View Highlight)
Never get so big that you can’t get out when you need to. (View Highlight)
The enthusiasm was strongest at the opening as the public bid the price way above fair market value. We called this period “The Opening Bulge.†The specialist in my pit used to smile and say, “Take the cookies when they pass the plate around.†The cookies were the profits from retail customers overpaying. (View Highlight)
A trader also has to know when to “tee it up, trade extra heavy, and use a full line.†Most of the time trading opportunities are marginal, but it’s important to maintain some level of activity on modest size, keeping risk low. By engaging in a nominal amount of trades, a trader gets information from the market. How weak is the decline? Where does support come in? Are the reactions shallow or deep? What is the volume and overall interest in the market? Then when a rare window of opportunity presents itself, you are in a position to trade aggressively. (View Highlight)
When traders think about money management, they think about stops and trade management. But a big part of the equation is knowing when to go all in, increase the leverage and press your trading to the hilt. Load the boat. These opportunities have an increase in volume and volatility. There is no point in actively trading in a dull market. Let the market tip its hand and come to life first. And then if you are fortunate to be in the groove and know you’ve got a tiger by the tail, milk it for all it is worth. This is where the real money it made. A trader only needs a few great days a month, so “Take those cookies when they come your way.†(View Highlight)
When the market give* you an opening, capitalize on it. (View Highlight)
To this day I remain skeptical of anyone who brag, about their trade, or profits. (View Highlight)
Humor keeps your spirits up even when your account is going down. (View Highlight)
This was a striking reminder of how the theoretical world and the real world differ. (View Highlight)
Traders who had been in the business for at least three years were likely to stay in business. The others fell by the wayside through the revolving door of Darwinism. (View Highlight)
It took me a few years to understand what Jeff was doing. When there is an established historical range for prices or relationships, it’s natural to want to buy the lower end of the range and sell at the upper end of the range. “Buy wholesale, sell retail.†But if something starts pushing outside its historical range, there is a good reason why. The market is imparting powerful information. (View Highlight)
Most people don’t know how to interpret the information the market shares with them. Markets are all about supply and demand. Stay positioned in the direction of the supply or demand imbalance, especially if it is pushing outside its historical range. This is the same thing as buyers paying above fair value for the boxes. There was a reason why but the traders did not know what it was at the time. It is more comfortable to hold on to what makes sense instead of accepting the seemingly irrational price action. (View Highlight)
Aberrations are seen as something that falls outside of the norm or what is expected. Since it is usually an atypical event, most people think that it should be ignored or discounted. (View Highlight)
However, the types of aberrations that generate profits for savvy traders are the ones that reflect a change in a relationship. (View Highlight)
If positive economic news is released and the market sells off on that hews, this could also be perceived as an aberration. It is a divergence from what would normally be expected. (View Highlight)
But this, too, is the market s way of imparting powerful information. In this case, it may be that there are no buyers left, or that the news has long been discounted.
Trade in the direction of the aberration. The market is never too high to buy nor too low to sell. (View Highlight)
Ticks are the net number of NYSE stocks which last traded on an up or down tick. (View Highlight)
I watched him trade from the short side for the next 10 years, making good money even when stocks were in an extended bull run. His secret was he was very selective about his entry spots, and he did not fight the tape when there was momentum. (View Highlight)
Down limit is a bad scenario for any traders who are long. There is nobody to sell to, and the market is usually going lower the following day. Losing trades seemed to happen to me 99% of the time I made a trade in a new market or a new system. All the research in the world can’t make up for real-life learning experiences. In this particular case, I scrambled to hedge in the cash market, for an extra price of course.
It’s never a problem getting into a market; it’s always a problem getting out when you need to. Rinse, repeat. (View Highlight)
After that, I adopted the philosophy that trading has little to do with brains because overthinking mucks things up. Instead, it was about positioning yourself so that, once in a while, you might get lucky.
At the end of the day, it all comes down to staying in the game. (View Highlight)
My decision-making process was always “leap and then look.†This bit me in the butt more than a few times later in life. (View Highlight)
Every five minutes I jotted down the SP and bond prices, the Ticks and Trin (Arms index), the advancing and declining issues (breadth), and the QCHA (the unweighted average percentage gain of NYSE stocks). This, along with my line chart, helped me to capture 2-3 intraday swings each day. I believe a trader develops a better feel after doing these types of exercises by hand. (View Highlight)
The markets entered “creeper mode†in the summer of 1987. The DOW finally took out 2400 and was grinding higher. A low volatility trend is the worst type of environment for a trader. There is always the temptation to pick a top. These types of moves don’t let anyone in. At the same time, the market never gets so overbought that a reaction down unfolds. A rising market with low volatility is usually a sign of a super strong trend, so I try to avoid these markets. Newer traders get frustrated by the lack of opportunity and dips and short into these types of rallies too soon. But the last 10% of the move can go parabolic as people begin to chase for fear of being left out. Eventually, the market ends in a buying climax which squeezes out any premature shorts. I did not want to be around in this type of environment, so, I took two months off to train with my horse. (View Highlight)
Naivete can open you up to a whole world of opportunities because you are too ignorant to know that something is not supposed to be possible. (View Highlight)