Long-Term Secrets to Short-Term Trading. L. Williams


Whether you know it or not, you have been trading commodities all your life. Sure, you may have never traded a contract of Pork Bellies, but you have almost certainly traded a possession like a car, house, or antique for someone else's money or possession. If you have never done that, for sure you have traded time for money. You have traded your time as a teacher, lawyer, pipe fitter, or ditchdigger for someone else's money. So, you are halfway there. you just never knew it! When we trade our time, we are actually trading our time plus our skills. That is why a brain surgeon gets more per hour than a knee surgeon. That is also why an outstanding quarterback gets more than a tackle and surgeon combined. He has a greater career risk. It is not that one skill is inherently more valuable than the other, it is that one is more difficult to come by and carries higher risk.

This characteristic generates more dollars for the person selling his or her time and skills. There is no intrinsic value to Michael Jordan's dribbling and shooting skills, but the owner of the Chicago Bulls saw an opportunity to make a great deal of money with those seemingly valueless skills by. packing stadiums and getting television revenues. Thus, something of “no value” may have great value. At a trading seminar, I once demonstrated this point by, placing a personal check of mine in a scaled envelope and then added it to 14 similar envelopes in a clear plastic bag.

The attendees each had the opportunity to reach in and draw out an envelope. The person who drew the one with the $5,000 check would be allowed to keep it. The bag contained 14 worthless envelopes, but suddenly they had value Although all but one were empty, there was a 1 in 15 chance of Winning $5,000; thus each envelope, or opportunity to take out an envelope. Was worth $333.33. Once the participants began taking envelopes out of the bag, those empty, worthless envelopes gained in value. After all, once five empty envelopes were removed, there was now a 1 in 10 chance and the value had risen to $500. When just two envelopes were left in the bag, people in the audience were willing to pay $2,500 to dip their hand in and pull out an envelope! Suddenly, what was worthless had great value!

That is your first lesson in becoming a more aggressive commodity trader. Value, like beauty, is in the mind of the beholder. As a trader, the lesson is never to second-guess what value really is: it is what the market will pay. It (the market or collective judgment of other traders) may not pay that value for long, but price is King, it is what is. I learned long ago not to argue with what is. In 1974, I reached a value judgment that the price of Cattle would skyrocket so I began loading up, taking my first position at 43 cents a pound. I "knew the value" of Cattle; at this price, it was way under value offering a sure trade. So, as price drifted to the 40-cent area, I bought more. After all, if 43 cents was cheap, 40 cents was even better. At 38 cents, where price next went, I had a steal, and being no dummy, I stole some more, only to see price plummet to 35 cents, then 30 cents, and finally 28 cents-where, dear reader, I was tapped out. My resources were limited; this move cost me about $3 million, all in less than 30 days.

Two months later, the price of Cattle soared to over 60 cents a pound. But I was not there-a sure-thing trade had set me back dearly and helped contribute to rumors, afloat still today over a quarter of a century later, that I blew out trading, despite a few successes I will get to later in this book. Reflecting on this experience over the years has enabled me to formulate two important rules. The first is that value is ephemeral: it can be anything, and anything can and will happen trading commodities, or stocks for that matter. The second rule, which carries greater weight is that although market trend and direction are major
concerns, knowing how to deal with Your resources has the highest priority. After all, had I marshaled out my resources on the Cattle trade so I could have ridden through the bad times, I would have made a respectable killing. You never know when the markets will do what you think they are supposed to do.

Many times, like God, the market does not deny, it just delays. Serious traders weave protection against this delay into the fabric of their program. There is no greater rule to learn than that of money management. All the horror stories you have heard about commodity trading are true. Good people have been totally wiped out by doing the wrong thing. That wrong thing has never been the market, nor the fact the trader made a bad call. Indeed, every successful trader will have bad calls, losing trades. And lots of them.

I would probably trade the markets without wanting profits if it "proved" my worth to the world, to an old girlfriend, to my parents, my brother, or even someone I cannot identify or dredge from the recesses of my mind. Saying I am ego-driven may be correct, but it is not about bragging, it is about showing them I can overcome. It is about letting the world know I found a way out.

If these words have resonance for you, cinch up your seat belt, you are going on the ride of your life.

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