Stocks & Commodities V.

2:2 (74-75): Novice Speculator by John Sweeney

Novice Speculator
by John Sweeney

Bill Wyckoff suggested I write this—not personally, of course, since he's long out of print. He just noted
in Wall Street Ventures and Adventures Through Forty Years that writing and publishing The Ticker was
a terrific way of learning about his market (the stock market). I can take a hint.
I decided to write about growth. After all, nine months of full-time speculation have given me more
growing pains than I ever thought possible. It occurred to me that a careful documentation of my path
might be valuable to others as well as to me. That this would probably highlight mistakes hasn't bothered
me. I know that, in theory, people actually learn from mistakes, whereas success is tough to evaluate and
easy to forget.
I see the world as full of restraints and pitfalls, amongst which we poke and probe for a safe, rewarding
path. When a probing trade comes back with two-thirds of the margin missing, the novice learns to avoid
something. For a novice, that knowledge is enough—survival alone is the novice's goal. A trader, on the
other hand, having bested the issue of survival, may probe some more, perhaps more gingerly, to find a
profit-maker. And by the time one is a true speculator, I assume one knows what is in that
margin-devouring pitfall! After all, the word "speculator" comes from the Latin verb "to see"; hence, a
person who truly does see what is before him. To become a true speculator, then, would be a great
achievement, and is the goal to which these writings are dedicated.
There's no school of speculation, though there ought to be. The "literature" doesn't tie in well with any
academic training I've had. The average broker wants to throw you into the deep water as soon as
possible, preferably before any instruction or testing. You may be trying to do your speculating after the
best hours in your day have been devoted to your "real work." You're playing somebody else's game from
day one, and you propose to do this with less information than the trade, and spending less time with
greed to drive you. Could anything be less likely to enjoy success?
Those are just the problems I, a novice, can see. What else is out there that I don't know about?
Nevertheless, there are a few arguments in favor of trading. First, you are truly in control—you have full
responsibility and autonomy. The markets are always available and probably will be for the forseeable
future. Thus, if you can survive "novice-hood" you are assured opportunity in good times and bad. Also,
the upside potential is limited (if unlikely) while the downside should be limited—the reverse of most
jobs. Further, the markets are tied to fundamental economic trends which, being cyclic, promise more or
less continuous movement and change, ie., profit opportunities. In addition, you can practice your work
any place in the world, and your time is spent furthering your own interests, rather than an employer's.

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Stocks & Commodities V. 2:2 (74-75): Novice Speculator by John Sweeney

Another advantage — entry is not barred by "credentialism", and the test of success is clear and
unambiguous. Success seems reasonably related to the one thing you should be able to control: yourself.
The market is an expensive place to learn about yourself, but it is as patient and consistent a teacher as
you will find anywhere. There is no limit to your own growth in the markets and the subject area is the
world—a subject you are unlikely to master fully but certainly worth your trouble and always interesting.
You can voice your opinions without restraint here.
As for the world around us, I see favorable tax treatment and tax management opportunities in
speculation, increased internal competition in the corporate world, greater corporate instability in rapidly
changing economic environments, quantum leaps in communications capabilities via the personal
computer, and sophisticated data analysis available to the individual. My training in finance and my
experience in management science, EDP (Electronic Data Processing), financial analysis, and general
management in banking aren't typical, but the wide variety of people who trade indicates they aren't
necessary either.
In sum, the freedom can create an ideal lifestyle, if a trifle lonely. The money, wisely husbanded, can be
good. And the personal growth seems unlimited. What more could you expect?
I'll describe the mind-set I had starting out.
I thought the most important factor for success was personality. I wanted to approach trading so as to
emphasize my personality's strengths and minimize my weaknesses. I'm referring to Meyers' and Briggs'
definition of personalities and their capabilities, work done some 35 years ago. Personality is a
statistically identifiable, stable, and consistent characteristic of humans. I, for example, am productive
working alone for long time periods with delayed rewards. I'm patient and not very aggressive. That's not
your typical floor trader so I don't play that game. Technical trading fits my training and personal
capabilities, so I adopted that tack.
I also wanted a market in which I could be comfortable. Given my background I picked the financials. A
year later, I can see how a trader could trade any market, but a novice latches on to any element of
familiarity.
I wanted a market that followed the business cycle, so there would be continuous profit opportunity.
Credit markets qualify there too.
I wanted a large, efficient market with as little chance for hedger dominance, mob hysteria and
manipulation as possible. That eliminated stocks and nearly all the agricultural commodities. The debt
markets are so large, and so intricately competitive, that manipulation and hedger-dominance were
unlikely, if not impossible.
I wanted a lot of cuts at pricing to help me judge cheapness or dearness. Rate futures and rate-related
futures (currencies, precious metals, and industrial metals, in declining order) together with their cash
markets and options give so many cuts at pricing that a consistent "story" would emerge, I thought. That
is, I wouldn't be dependent on the action of just one contract in estimating the market's trend. I could look
at several which would be logically related since they would be arbitrage, spread or alternative trades.
The movement of the whole complex would give me a "big picture" fundamentally against which I could
execute technically oriented trades.
All that settled, I shopped for a quote system so I could be right on top of the market. I wanted one for
two reasons: first, Jesse Livermore's book had convinced me that I needed to understand the "tape". This

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Stocks & Commodities V. 2:2 (74-75): Novice Speculator by John Sweeney

made sense to me as an analyst. Looking at the price charts, it was apparent that more "information"
could be found within the single line and tic mark which represented a day's action. An analyst always
wants to break things down to their smallest part and I wanted to see the tic-by-tic action . I wanted a
sense of how the market moves. I also wanted to day-trade. I was after a reliable source of income and
thought that I could find it if I could find a market with enough intra-day volatility an reliable patterns of
behavior. I was focusing not only on the trees in the forest, but their limbs—and if I could have gotten
into cell structure, I would have! At any rate, I signed up with Radio Data Systems and soon had a tube to
watch.
Next I looked for a discount broker. My personal experience with brokers (ie., consistently losing) led me
to a discount broker. I just didn't want to hear from one. Of equal importance, I wanted my overhead to be
low and my margin requirements liberal. Lind-Waldock seemed to be the most knowledgeable and
efficient at the time, and their executions have been great, and sometimes amazing.
With all this done, I was ready to make big money!
I haven't dwelled on the mistakes I made to this point—they will come out in the trading and systems I
describe in future articles. One thing about trading seems to be that everything can be done several
different ways. These articles are just one person's odyssey, so I invite your contributions. They can be
sent to Technical Analysis, P.O. Box 46518, Seattle, WA 98146. I'll try to work them into the follow-up
articles. I'm hoping a consistent picture of a novice's trials can be put together, one which will make the
lives of future students more profitable.

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