I've always taken an "off the beaten path" approach when it comes to making money. When I was a young kid, I used to pick violets in the woods behind my house, combine them into teeny little bouquets, take them door to door in my red wagon and sell them. In high school, I occasionally dealt $1 a hand blackjack for other students, but stopped when one guy couldn't pay the $40 he owed, and offered to pay me in cologne instead. Besides, having an automatic edge by being the dealer didn't really appeal to me. Where's the skill, where's the challenge? In college, I stayed in beer money with website referrals via banner and. And then I discovered poker... I played low stakes holdem at a local indian casino earning about $100 a session (which in college is great money) and eventually moved to internet poker with the party poker boom. The weekend after I graduated college, I went to Atlantic City with friends for a few days. I played the first two live poker tournaments of my life, winning the first and finishing second in the next. I called my parents to share my accomplishment, and I distinctly remember my dad joking "don't make it a career." Little did he know...
Within around four years, I had worked my self from small stakes no limit-holdem all the way up to regularly playing in the biggest legal No-Limit Holdem game on the East Coast ($5000 was the minimum buyin, and one's entire stack was at risk in every single hand). Over the course of this half decade, and my 10,000 hours of experience (thanks Malcom Gladwell) I developed a number of skills that helped me beat the odds and my opponents, Namely: Logic and Reasoning, Recall (remembering how my opponents played different hands in different situations), Pattern Recognition, Psychology, Risk Management, and the Important of tailoring your tactics to different situations. These skills, while extremely useful in poker, are also highly applicable to my #1 lifelong interest (besides girls): Financial Markets and the art of trading.
There are three vivid recollections from my childhood that I think about often, the first two are: a six overtime loss in a youth hockey tournament final and the time I stole $50 from my dad's wallet (In my defense, I thought it was a $5). From the first I learned respect for my competitors, to constantly push myself to improve, and to bounce back physically and mentally from a tough loss (all traits that have served me well in my poker career). From the second I learned the importance of trust, integrity, and honesty, values that I apply constantly to my personal and professional life. The third memory is of the time when my dad introduced me to the stock market and the concept of investing. I don't remember my exact age, but I was pretty young, somewhere between 9 and 11 I think. He had me take part of my savings (about $25 from my life savings of $100 or so) and purchase from him a share of stock in a company in which he held shares. As I write this, it's somewhat amazing to me that I still remember the name of the company, Marion Merrell Dow (ticker symbol MMD If I recall), A pharmaceutical company that was ultimately purchased by a conglomerate in 1996. He taught me how to read stock quotes and I would check the wall street journal nearly every day to see how my Investment was doing. After some ups and downs, I ultimately sold out (at my father's suggestion) for around a $5 loss. Another important lesson learned, never rely on the investment advice of others.
I opened my first brokerage account my sophomore year of college, funded largely by poker winnings, starting with the most basic of investment of philosophies, the time honored combination of p/e ratios and throwing knives at the wall street journal while blindfolded. Needless to say I made 30% my first year as a trader (or should I say investor). Despite my early (and obviously well deserved) success, I made it a priority to absorb as much investing knowledge as possible. By the end of my senior year I had waded through all the valuation ratio's and measures that fundamentalists hold dear, and while it gave me a feeling of comfort wrapped inside my little security blanket of investment fundamentals when I purchased companies trading at relative discounts, these principles of valuation did little to explain the sometimes massive daily, weekly and monthly price swings of companies who's financial prospects had not measurably changed in the interim.
And so it was that I stumbled accidentally in to the realm of technical analysis, and boy did I like it there. It was like a breath of fresh air, a completely new way of looking at the markets and why prices moved the way they did. While sometimes mystical in it's applications (think fibonacci) and cultish in it's practitioners devotion, I always appreciated the logic behind the application. Technical analysis treats price much like the laws of physics. Objects in motion (read Price) tend to stay in motion unless acted upon by an external force. This was quite contrary to the oft repeated mantra buy low, sell high. Technical Analysists (or at least the trend following subset) would say buy high, sell higher. It sparked an immediate fascination for me, because it is based on the belief that price is everything. The why is not important, all you need to focus is on is what has happened, what may happen, when might it happen, and what are we going to do about it. The concept of support and resistance levels had the most immediate impact of my trading. Finally, there was a rational explanation for why prices moved up and down, and where they might decide to turn. Support and Resistance levels are simply the psychological value levels of an asset at which supply tend to overwhelm demand or vice versa. Simple, yet elegant.
Unlike fundamental analysis, technical analysis makes an attempt to quantify and incorporate human psychology into the markets, something that I as a poker player appreciated immensely.
Anyway... long story long I suppose, 10 years after my first trade, I've decided to take a shot at the foreign exchange market, the largest market in the world (over 4 Trillion with a T Dollars in daily volume). The main reasons I have for learning to trade this market are:
1). It's Massive. I This is the number one attraction. I have a long term goal of being a professional trader and money manager, and I like the fact that the liquidity is so deep and my capital so insignificant compared to the daily turnover that I could trade a $1 million or $10 Million dollar account with virtually the same approach as a $1000 account (should I ever make it to that level). Bottom line, FX trading is more scalable than any other market, meaning it diminishing returns kick in alot later than in equity trading.
2) The high leverage. This is probably the number one selling point of the FX market to small retail traders and the primary reason why the attrition rate is so high (reportedly over 95% which is approximately the same as the failure rate for poker players). Going in I was aware that the market makers want a constant stream of small traders to chew up and spit out and the risks of high margin are substantial, but if you happen to make it to the 5%, the rewards are even greater.
3) The diverse objectives of market participants. Unlike the stock market, there are huge amounts of capital traded in the spot FX market without the explicit objective of profit. Multinational Corporations, export/importers and other businesses utilize the FX market daily to hedge currency risk, rather than trade in expectation of gain. Beyond this, entire countries (through their central banks) trade astounding sums in attempts to realign their exchange rates (Japan being one of the most frequent).
4) The applicability of Technical Analysis. Somewhat ironically, because that the FX market is at it's core driving by interest rates and long term capital flows, the trends that exist in the market are some of the most persistent and conducive to the use of technical methods for prediction and analysis. (My bread and butter)
Okay enough chitter chatter, let's get TRADING!
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