Since You Asked

Personality has a lot to do with new traders’ ability to grasp and properly execute market mechanics. What seems so natural to many long-term traders seems alien to novices. We try to explain what makes stocks move, and we try to show by example.

Even with all this, a lot boils down to (yes) the personality of those new to trading. For example, a Ceo from a Fortune 500 company may delegate some of the learning process or not bother examining the particulars of, say, premium/discount to fair value and why the stocks will follow suit. They may not take the time to understand why pivot points work (often technical, always self-fulfilling). Then the new trader who has taken time to immerse themselves in the “why” of how things work will learn more quickly. One fails, one succeeds, but only one of them chooses to learn the how.

It’s almost like taking two personality types starting any new business venture. They might both start a franchise in the same town. But one might take the time to do traffic studies, ethno-analysis, bus routes, and so on. The other might just assume that his or her shop should make money because he or she paid for the franchise.

I do my best with all personality types but honestly prefer those who are willing to listen to established traders — those who don’t expect too much too soon, those who understand that this business takes time, money, training, and experience. No paper-trading, except maybe for platform basics, but real cash in trading.

Some adapt quickly to simple mechanics and read the markets well, some look for automation, and some do both. In my opinion, a trader must be multifaceted and know when to automate and when to define entry and exit points.

Trading is a business and should be approached that way — no rose-colored glasses. My brother and I have been the “they” (as in “They must know something”) but realize that there is no “they”; it is simply a business that must be learned. Don’t overcomplicate trading, and don’t try to rush your way into it.

PRIMARY MARKET INDICATORS
I have enjoyed your columns in Stocks & Commodities for a long time, and I thank you for your help over the years. I’m curious as to the primary market indicators that you teach your traders to use. I’m not really a technical guy, but maybe I should get more into all of this stuff. What things do you look at for your trading? — KLCho

First off, thanks for reading the magazine. Now, let’s talk about trading indicators. I try to keep things simple.

I have a large cell set up for the tick.Nyse, which is one of the most valuable indicators available. When the net ticks (stocks trading on an uptick vs. stocks trading on a downtick) reaches near a +1000 or -1000, then a short-term market reversal is quite likely.

I keep a Nasdaq 100 tick chart as well. The Nasdaq tends to lead the listed market. I include the basics like Djia, Spx, Oex, Comp, Ndx, and so on.

One feature that is unique and valuable is the snapshot grid for up to eight stocks (the “children” stocks each trader has chosen as his primary daily trading symbols) that I have set up. At 3:30 we take a snapshot of the price of these stocks as well as the futures. We take another snapshot at 3:40 when the market on close (Moc) imbalances are published. There tends to be a direction indicated between 3:30 and 3:40 when these imbalances come out. We can match our stock prices to the published imbalance to see if that was the reason for the move, or if the stock simply moved with the overall market (S&P futures). We snap again at 3:50 and at the bell (4:00). Then we snap the actual Moc price, the final price for the day. This allows us to follow our stocks and how they move in relation to various published imbalances each day. We have another edge in that our platform shows us the movement in imbalance numbers every 30 seconds or so between the regulatory imbalance publishing times of 3:40 and 3:50.

All this is on a page that can be on a screen, or minimized when not in use, keeping it simple and in one place!