Profit Depends on Minds, Not Markets

Trading is about making a profit, in the best case by applying a disciplined method and an organized set of strategies over time. The markets in which we traders may deal are irrelevant to the activity of trading, except regarding the relative level of advantage we may obtain by dealing in one market and shunning another. I’d be perfectly happy to trade tiger shrimp, tiger lilies, Bengal tigers, or Kellogg’s Frosted Flakes if I thought I understood how to profit by doing so.Consider.

If you and I would restrict our trading horizons by heeding the views of every purported expert to come down the pike, we’d very quickly find ourselves not trading at all! It’s a lock cinch to locate an expert who dislikes any given broad market, any specific market within that broad market, or any given trading strategy we might employ. All other considerations aside, we should elect to trade in any market in which we can demonstrate to our own satisfaction that we can generate an advantage, and we should use whatever strategies will facilitate our claiming that advantage. Devil take the ersatz experts, the moonshiners, and the mythologists.

No part of this chapter is about bashing any other trader or any particular methodology. If a trader is successful in applying his methods, I cheer, whether I understand the methodology or not. I like winners. In his book Pit Bull (HarperBusiness, 1998), Marty Schwartz explained his methods in a general fashion, and his methods assuredly work for him. The same is equivalently and obviously true of other successful traders—their methods work . . . for them. You and I may or may not be able to put these other traders’ methods into profitable use, or we may develop our own over time.

However, we cannot possibly prosper until and unless we take the time to examine, and the more closely the better, the claims and underlying assumptions of any of those who would advise us, and to sort out the profitable
from the unprofitable. And, make no mistake about it, you should absolutely apply this same standard to your favorite author.Being cynical never earned anyone a dollar as far as I know, H. L. Mencken excepted. Discard any cynicism you may have about those who discuss trading, strategies, and methods. Some highly popular market pundits contain more crap than a Christmas goose, as you and I know (or should know) from experience.

Fear of lawsuits prevents me from specifically naming a number of these folks right now, but consider all those financial experts, those clowns who ranted on about the “Y2K” event threatening a market disaster of Biblical proportions. Dang, I musta missed it! I hate it when that happens. Or, maybe these folks hadn’t any clue in the first place?Rather, and much more profitably, retain a healthy skepticism about such alleged experts and about any of their methodology, until such time as you can profitably apply portions of their advice or their strategies to your
trading.

When the mythologists, the moonshiners, and the morons crawl out of the woodwork and make all sorts of pronouncements about this, that, and the other thing, just give their views a withering look with a jeweler’s eye. Smile at them and say “Thanks!”Then fade them, and bank the profits. It’s a very high expectation trade.Ignore History and Lose—No Exceptions All right, what information do I require? First on the list, without any doubt,
is a database of historical prices for a broad set of markets, perhaps 60–70 in all. Historical databases are available from numerous vendors, but be alert: the quality of the data varies widely from vendor to vendor.

The best  and most error-free end-of-day data I’ve found for futures markets comes from Pinnacle Data, at pinnacledata. The databases this company offers also have the merit of being very reasonably priced. (Side note: you can be absolutely certain of three things when I mention any company’s or person’s product in this text. First, I use it. Not, “I have used it”; I use it and it’s a very good product, for my purposes at least. Second, I don’t receive and wouldn’t take any compensation of any kind from any of these companies or people, period.

Third, the number of such mentions in the text will be small; I’m not here to write advertising copy.Now, back to our exciting tale.)In some instances, brokerages will provide price history data for some sort of fee, or even at no charge for good clients. Policies vary from brokerageto brokerage, so if you propose to use historical data as a tool in your approach to trading (which I believe strongly that most traders should), you would certainly be missing a bet if you didn’t learn what your brokerage offers along these lines.I trade futures options, mainly, and it would be entirely reasonable of you to assume that I also need a database of historical option prices.