Confessions of a Trader

Chapter 2

Have you ever heard about the bagel man? The bagel man is nothing more than an example representing the common investor, the hard working 9-5er who does not live and breath the markets. It could be the pizza man, teacher or plumber. The idea is, when the average investor thinks it is time to buy a stock it is usually time to sell or short it. Why? Because half the game is psychology and the InTheMoneyStocks or ITMS Trickle Down Effect. The Trickle Down Effect refers to the passing on of information down the chain of command or investing hierarchy. Take a look at the back of a dollar bill. Note the pyramid with the eye at the top. This is a great example of how the ITMS Trickle Down Effect is setup. The elite at the top are privy to the information first. Then, it trickles down to the base or the common worker. The key here is to know it, so you avoid falling prey to it. Understanding that a stock or market is like a mad rush of musical chairs. Think of it like this. You are playing a game of musical chairs. Every other member of the game knows what day, hour, minute and second the music will stop. Now what type of chance do you have in a game like that? The last are eliminated or in this case, lose their money. The average investor buys at the top and sells at the bottom. Sound familiar? These investors are the ones that get the information last, usually the average hard working man or woman unfortunately. This is why we at InTheMoneyStocks.com strive to teach the individual investor how to read the technicals. If you can read the technicals correctly, you bypass the chain of command and become even higher than those that have the news first or in this example, know exactly when the music will cease. Think of it this way. Knowing the technicals allows you to sit in a chair while the music is still playing and be there when it stops.

Sadly, the media keeps the news forefront and focuses the average investor on it. Of course, that is what the media is about and their job, so I cannot blame them for pushing it. In addition, we (the human race) are programmed to look for the easy money. Just like our ancestors would much rather stalk a wounded buck, no pun intended, rather than an angry bear. The easy meal is in our genes. It is only when we bypass that one facet, do we start feeding ourselves for life instead of getting one fish and eating for a day. There is NO easy money. I cannot stress this enough. If it is too good to be true, it is almost 100% of the time.

I remember it so clearly, like it was yesterday. Years ago, Sirius Satellite Radio ran from the low 2's to around $9 per share. This happened as speculation surfaced, then official news hit that Howard Stern would be joining the company. Right around the time the announcement was made, my fellow traders and I went down for a bagel around lunchtime. Conveniently, a truck drove from office building to office building selling snacks. As I was ordering my bagel with cream cheese, the bagel man said I should invest in SIRI. I smiled, raising my eyebrow in a way that conveyed some doubt yet avoided any discussion as my focus was on my food. While walking back to the office, I turned to my trader friends and said, "It is done. Short SIRI." I think it currently trades for $.14, post merger with XM Satellite Radio.

The problem was that the news had already been factored in. Every last buyer had bought except for the average investors like the "bagel man". Once he bought it, once your broker called you and pushed you to buy it on the hyped news who was left? Everyone was in that wanted to be and for a stock to continue up, there must be new buyers. More importantly, the big money like hedge funds had already loaded up months prior as they already knew the news and were now selling it to the bagel man. All of a sudden, a lack of buyers and institutional selling creates downward pressure. It is sad to say, but we trade/invest in shark infested waters. As a trader/investor, if you do not understand the rules, you will be eaten alive.

Understand this folks. If you are hearing the news in your office or from a family member, it is either old news that is already factored in, or it is insider news and you or someone else could be going to jail if you act on it. That is as simple as it gets. Either way you will end up regretting your decision. Any tip should be disregarded. If you are hearing it, ten thousand traders with billions more dollars already know it and have acted on it. If you buy now, you are generally the sucker who they are selling to.

I am telling you truthfully, the average investor and even the newcomer to my trading chat room will often be the best contrarian indicator in the world. Far better most of the time than any technical tools I have ever seen. Here is a short true story as an example. November 2008 was truly awful for the markets especially following October. We saw the markets literally collapse as the financial crisis and economic recession took hold. One Saturday I was doing my food shopping at a store that specialized in vegetables and fruits. As I was searching for some nice ripe mango's, a daughter, middle aged was talking to her elderly mother. They were next to me picking out some oranges. The daughter was telling her mother that they must pull the mothers annuity immediately because these financial products would soon have no value and they would lose their whole investment. The signal had been given. That Monday I told my partners and we started buying. Sure enough, from the November lows, the market has risen 15-20%.

Keep your ears open. Use this knowledge wisely. When the public or average investor speaks, go the opposite way on the trade. It is truly an amazing indicator.

Back to my life as a trader.

I lived in a dorm my freshman year at college. There were three of us in a two person tiny room because of over crowding for the first semester. I still remember vividly my two room mates. A kid from Turkey who had a scholarship for swimming and another one from Queens who had transferred. Very tight quarters, but for the most part we did not care.

Not more than a month into college I opened my first trading account. I still remember it vividly. Etrade. I paid $19.99 per trade back then. Crazy to think a trade could cost that much.. My parents had consented to allow me to put $1,000 dollars into the account. It took some convincing for sure as they were not exactly the investment savvy types. In my family it was more looked upon back then as being a black art, something mysterious that was risky. I knew my mom feared me being part of the greed driven masses in the capitalist system that spawned Enron and Madoff. She would constantly try to push my career towards an eco friendly or teaching career. Once I had opened my Etrade account I was ready to go. Having no idea what I was doing I found a stock I liked and went all in. I still remember the company to this day. Pharmaceutical Product Development, symbol PPDI. My entry price was around $12. For the life of me I cannot remember the reason why I bought it now. My first real trade! Here we go! Let's make some money.

One day passed, it went down. A week past, it went down further. After a month? It was down to $8. What was I doing? You have to be kidding me!

One evening I sat down at the computer and started doing some research on Yahoo! Finance. I came across the profile page and it had an email for the companies investor relations division. I was upset, I was trying to make money and all this stock did was go down. I wrote an email explaining my disappointment in the company in somewhat harsh but proper terms. No cursing, no flying off the cuff, just expressing pure disappointment at me loosing, what to me was a decent amount of money. Also, my ego was hurting. I sent the email that evening, crawled into bed and forgot all about it by the next morning. The stock continued down into the sevens.

One morning I crawled out of bed,. Still in night attire I went into the communal bathroom to brush my teeth. One of my room mates came with the portable phone telling me there was a phone call. I picked up the phone, mouth full of toothpaste and said, "Hello?" Sure enough, the CEO of PPDI was on the other line. He attempted to reassure me, the whole time my mouth dripping of toothpaste as it hung open in astonishment. He asked me some questions, to which I barely answered. He reassured me on my investment and said he was confident in the stock. I hung up. Truly unbelievable. Here I was, not even 20 years old and the CEO of a publicly traded Nasdaq listed stock had called me. I guess it goes to show you that they do not know who you are and you never know who could call. Little did he know that I held under 100 shares of his company and was a college kid in my pajamas with a mouth full of toothpaste.

Sure enough, like the best indicator out there, his call to me signaled the bottom. PPDI began to move up. I broke even and ran like the wind out of that investment. Funny to look back on it today. It went to 40, split and then went to 40 a few more times with multiple splits. That was my first real investment experience and things were only going to get more interesting. The tech bubble was as big as could be and my learning curve was about to get a major shock.

InTheMoneyStocks.com Confessions of a Trader Chapter 2

By: Anonymous Trader