DAYTRADING: The Highs and the Woes 11/16/02
Miss Tushbumper called last night. Distraught, she told me that Doc Kronkite was in a “ terrible state.”
“New Jersey?” I asked.
“No, no,” she cried. “An emotional state.”
“Oh,” I said.
“He badly needs your help. I think he’s in crisis,” she told me.
“Again in crisis?” I said.
“Yes,” she replied.
I’m a sucker, a sap, for damsels in distress. I told her I’d help.
“You are a wonderful, compassionate human being,” she cooed, in that whiskey-throated voice that I made my heart pound and my blood flow south.
I couldn’t disagree with her assessment.
“I shall be at your office. I’ll do my best for the doc.”
I heard a grateful sob just before disconnecting.
I walked into doc’s reception room this morning, early for my scheduled appointment. Miss Tushbumper rushed over, threw her arms around me, pulled me close. I melted.
Grabbing my arm she dragged me into the doc’s office. He was lying on his lumpy leather couch, head in hands, sobbing harder than a Red Sox fan after a loss to the N.Y. Yankees.
“Doc,” I began, “Talk on me.”
“I’ll never be a day-trader,” he moaned. “I shorted all week and lost on eleven consecutive trades.”
“Mmm. I’ll have to give you a test to see what you’re doing wrong,” I said authoritatively.
“A test?” he cried. “I don’t do well on tests.”
“No problem doc. This isn’t a pass-fail test. Just a way for me to identify the problem so I can help you. Kinda like the ink-blot tests you give me, or the free-association tests.”
He shrugged, said “OK.”
“Grab your pad, sharpen your Eberhard Faber #2.”
He did as I instructed.
“Ok, question number one: What are your favorite stocks?”
“That’s an easy one,” he said smiling. AMZN, DELL, PMCS, NVDA and IBM.”
“Wrong. A trader, especially a day-trader has no favorite stocks. Ever.”
“Question Two: You check around and are told that IBM is a great company. It gaps opens at 79. Do you buy it?”
“Of course I buy it,” he shouted.
“Wrong,” I said.
“But Meldelbaum-the-fund manager told me to always stick with good companies, to trade the strong companies,” doc insisted.
And how is Mendelbaum doing? I asked, knowing that his fund was down 70% in the past two years.
“Well, he’s living in Rio now. With his secretary.”
“There is the company and there is the company stock,”
I said. “I trade the stock, never the company. I suggest you do the same.
“Question Three: You buy a stock at 20.50. An hour later the stock is at 18.50. How many shares do you buy to average down?”
“Easy. I double my position, cutting my cost basis in half,” he said grinning.
“Wrong.” I said.
“Right,” he snapped.
“Wrong.”
“Right.”
Then he threw the Eberhard #2 at me. I pulled the missile out of my forehead, wiped the blood from my eyes.
“Wrong,” I hollered. A stock down two points is a trade gone wrong. Never average down, always average up.”
“Up? Why up?” he asked, a puzzled look on his countenance. “That just increases my average cost.”
“Exactly. It also tells you that you play is working, that your trade is going right, not wrong.”
“Enough already with the wrong. Another word you should choose.”
“Question Four: You buy 3,000 shares of LGTO at 5.12 off the 5 minute chart. How long do you hold it before kicking it out?”
“Two hours. Definitely two hours. Definitely,” he said, sounding an awful lot like Dustin Hoffman’s Ray in ‘Rainman.’
“Wrong. A stock bought off a 5-minute chart should be sold in 10-15 minutes at the latest. A stock bought off a 15-minute chart should be given more time. The shorter the time frame, the shorter the stock should be held. FDRY, last Wednesday, on the 15 ran from 7.22 to 7.61 in 30 minutes. An entry at 7.25, kicked out at 7.55 is 30 points. That’s a $900 gain…a nice day-trade.
“Question Five: We are in a new bull-market? Yes or no?”
“Yes, absolutely yes,” screamed the doc.
“Wrong. To a day trader bull-markets and bear markets have no relevance; they mean nothing. You flunk the test doc.”
Doc began sobbing, wailing. Miss Tushbumper scurried in, sporting a worried look. She put her arms are the doc, kissed his cheek, plopped a Prozac, followed by a Pez in his mouth.
“It’s ok,” I told them. “All day-traders make mistakes when first they sally forth. We shall prevail.”
Two smiles appeared. Miss Tushbumper walked me out. Once again she bear hugged me. Oh the rapture, oh the joy.
“You’ll help him? At next week’s session?”
I smiled. “Certainly,” I assured her. “We have much work to do of course. But for you, anything.”
Lee Kramer
Copyright 11/16/02
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