It was in the issue of May 25, 1959, that Time Magazine devoted almost a full page in its Business Section to the extraordinary stock-market story of a dancer— Nicolas Darvas. Time told how this complete non-professional, ". . . who ignores tips, financial stories and brokers' letters," was able to make himself a millionaire several times over through the investment methods he developed. This article raised a lot of eyebrows among Wall Streeters who were shocked by Mr. Darvas’ disregard for many of the long-accepted, ordinary investment practices to which they were accustomed. But it also fired the interest and imagination of thousands of investors across the country. We at the American research council, publishers of many of the most widely-used and authoritative investment and business guides, were also impressed by Time's brief outline of Mr. Darvas' successful investment methods. As a result, we decided to approach Mr. Darvas about writing a book describing his techniques.

You are about to begin a journey into the science of investment analysis. Many of you may think that using the word science to describe the activities of Wall Street is a misnomer. Luck, chance, or voodoo are probably closer to your explanation of investment activity. I hope to convince you otherwise. As you make this journey, it should become obvious that investment analysis and its related extensions are rigorous enough to be taken as an actual science. Like other scientific disciplines, investment analysis requires a working knowledge of its basic concepts. Part One explores these concepts, with considerable emphasis on exercises that hone awareness, expertise, and understanding of this once arcane subject. A century ago, the task of investment counseling belonged to men of prudence who, for fear of being wrong, usually invested funds with guaranteed returns and did not rely on scientific discipline. The fear of not being beyond reproach—otherwise known as ''reputation fear"—provided enough guidance for these men.

In 1901 pharmacist Charles Walgreen bought the drugstore in which he worked on the South Side of Chicago. Today Walgreen’s is the largest drugstore chain in the United States. If, like Charles Walgreen, you start on your own, with no partners or stockholders, you are said to be a sole proprietor. You bear all the costs and keep all the profits after the Internal Revenue Service has taken its cut. The advantages of a proprietorship are the ease with which it can be established and the lack of regulations governing it. This makes it well-suited for a small company with an informal business structure. As a sole proprietor, you are responsible for all the business’s debts and other liabilities. If the business borrows from the bank and subsequently cannot repay the loan, the bank has a claim against your personal belongings. It could force you into personal bankruptcy if the business debts are big enough. Thus as sole proprietor you have unlimited liability.

When I was a little tyke I decided the easiest way to riches was to play the stock
market. It was, after all, a level playing field, a zero-sum game with somebody
winning and somebody losing (hint: The winner is always the broker). All one
had to do to win was pick the stocks that went up and avoid the stocks that went
down. Easy. I kept this in mind when I graduated from Syracuse University with an engineering degree and showed up early for my first professional job. Each
morning I cracked open the newspaper and plotted my stock picks on a piech
of paper taped to the wall. Bob, my office mate, used the same newspaper to
select his stocks. I chose my selections using strict and exhausting fundamental research, but Bob simply closed his eyes, twirled his hand around, and plunged his finger into the newspaper. When he opened his eyes and removed his finger, he announced another pick.

My unique position in the financial community has allowed me the rare opportunity to talk to and question thousands of traders, brokers, and trading advisors since 1979. I am not a broker or a letter writer. I am the chief executive officer of CompuTrac, a company that supplies technical analysis to stock and futures traders. I perceive my position as being neutral, one that allows people to open up and talk to me freely. I started trading for my own account in 1960 and very quickly became aware of the underlying psychological blocks to good trading and money management. This realization has been confirmed by all who have counseled with me. As a result, I sincerely feel that success in trading is 80 percent psychological and 20 percent one's methodology, be it fundamental or technical. For example, you can have a mediocre knowledge of fundamental and technical information, and if you are in psychological control, you can make money.

This book is based on a series of seminars delivered over a period of many years to people working in the global financial markets. The material has expanded and evolved over that time. Participation on the seminars has covered the widest possible spectrum in terms of age, background and seniority, ranging all the way from new graduate entrants to the financial services industry up to very senior managing directors. What all these many and varied individuals had in common was a strong desire to understand how derivative products are used in practice, without becoming too involved in the more complex mathematics of the subject. The seminars (and this book) originated from the conviction that bankers, fund managers and other professionals in the modern financial markets must have a grasp of derivative products.

In this first week of our five–week course on day trading, we want to define what the business of day trading is and what it is not. We will discuss the differences between professional direct-access day traders, and those traders attempting to accomplish the same thing through on-line brokerage firms with internet ISP hook ups. The SEC has expressed many concerns regarding the explosive growth of on-line day trading, and we will address their concerns in this first installment of the course. We will explain why day trading is potentially a valid and rewarding business, but at the same time, we will make you acutely aware of the various hurdles you must overcome to succeed. Successful day traders must maintain a proper psychology, mental attitude, and focus. In addition, you must work with superior technology, have sound money management strategies, and develop a thorough knowledge of the markets. Of most importance, you must understand the risks involved in trading stocks. I realize that this information may be dry, but it is essential that you have this base of understanding before proceeding.

Most traders have their favorite markets. In many cases, though, the same markets you excel in with interday trading, you may perish in with intraday trading. It's vital, then, to know how to pick good markets for your day-trading strategies. But one market can't be a panacea for all day-trading problems. It's still important to know what you trade, warns William Darby, president and chief executive officer of Darby Trading Consultants in White Plains. X.Y. "Professional traders often find they have a special knack for some markets, whether it's from past job experience, training, whatever. Some people just perform better in certain markets." Still, if a market doesn't have a wide price range as well as considerable volatility, liquidity and consistency Darby says, it can be a bust for day-trading no matter how well you know it.

I bought my first call almost 25 years ago; at that time puts hadn’t even started trading. Like a lot of people who get hooked, that first trade was a winner – which only led me to think I knew way more than I did. Succeeding years have taught me otherwise. In the intervening years, I have traded as well as sat on the sidelines. I have read a number of options books to improve my understanding of options theory. But I have never been a professional trader.
In my role as President of thinkorswim, I am working with people who have made their livings trading options. In addition, I have been working closely with Charles on his book to make it more comprehensible to those who have not been floor traders. Charles is a natural born teacher. He is enthusiastic about options and loves all of the nuances of options and their possibilities in different
positions.

“You can be free. You can live and work anywhere in the world, be independent from the routine and not answer to anybody.” With those words I began my first book, Trading for a Living. One of my great pleasures in the years since its publication has been meeting and becoming friends with people who became free thanks to successful trading. Several times a year I run a Traders’ Camp, a week of intensive classes at remote resorts. I enjoy my campers’ successes. A stockbroker became a full-time trader, closed his business, and moved to Rio to pursue a life-long interest in Latin women. A psychologist became such a successful options writer that she paid for an early retirement
for her husband and moved with him to the Virgin Islands to become an expert in what she calls synchronous hammocking. A man bought a mountain in Vermont and trades from the house he built on its top. I wish all students could succeed, but it’s not that simple.