Trading With An Edge (Part 1)
When I first became a specialist in 1985, we
were in the beginnings of a great bull market. What this meant was that one
could literally pick a winning stock by throwing a dart each morning at the
Wall Street Journal. It wasn’t until things slowed down that I realized that
in order to be successful I had to have an advantage in the marketplace…I had to
trade with an edge.
My search led me
to the two emotions that have always governed the market — fear and greed. I
noticed that in times of great upheaval, when fear and greed were at their
highest, the market presented the greatest potential for profits. When the herd
mentality was running rampant, it was signaling that a change in trend was just
around the corner. It was as if the market was screaming “reversal!†For the
remainder of my time on the floor, I made my living off of picking, to the best
of my ability, the precise moment in which prices returned to their mean.
In 1994 I left
the floor in the hopes of transferring this financial edge to my home office.
With 16 years of trading experience behind me, how could I fail? The results
were disastrous, as I lost a good portion of my nest egg within the first 2
years. How could something that had worked so consistently over the past 9 years
just suddenly stop working?
I realized that
the edge I once possessed stemmed from the outside stimuli I used to receive on
the floor. Without order flow and the rush of the traders along with the noise
from the floor, I was helpless. There was nothing for me to distinguish as to
when the herd mentality began or ended. I began to read the usual investment
periodicals, watch the same financial TV shows and take their commentator’s
advice, but soon realized that they knew less than I did. It was apparent I had
no edge in my trading. I had become the herd.
To be
continued…..Â
Steve
Primo
P.S.
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