How I Learned about the Market

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My career as a trader began in Portland, Oregon, where I had met a Merrill Lynch broker who thought we could make some money together. He -was half right, we got lucky immediately. He made good money on his commissions and I lost money. Worse yet, the money wasn't mine; a fellow I had never met had asked me to invest it. In hindsight, the initial beating I took was more than fortunate, it was life changing.

That event hardened my desire to learn the business; after all. if it Was that easy to lose, it had to be pretty easy to-win, right? My broker was as new to the game as I was and really had very little advice or suggestions.

His market insight was to buy good stocks and hold on (a brilliant insight), but my aptitude or desire was to make money from catching short-term market swings. Thus began my education as a short-term trader.

I had no teacher and knew no other traders, so I naturally turned to books to help solve my problems, just as you have in buying this book. The authors all made it sound so easy. I read Joe Granville's classic work on technical analysis and began keeping daily open, high, low, and closing prices on stocks as well as indicators Joe said we should follow. Before I knew it, I was not only totally consumed by the markets but spending 5 to 6 hours a night and all my weekends on trying to beat Wall Street, gaining a fortune, and beginning to lose a marriage.

My first wife, Alice Fetridge, had become a "chartist's widow" yet still supported my habit. We eventually left Portland and moved to Monterey, California. We both had jobs, and I was also working on my law degree. I even sat for and passed the "Baby Bar Exam" (the test given to night school and correspondence students). By then, however, I had pretty much given up on becoming a lawyer, especially after working for one. I had thought being a lawyer meant being in court, saving people's lives; the reality was that it dealt with collecting money from judgments, finding deadbeats, and representing bums and outright criminals. It was not like trading.

Fortunately in Monterey, I met two brokers who, like me, kept charts. Joe Miller and Don Southard were soon swapping war stories with me, teaching what they knew about the markets. We were all big followers of Granville's On Balance Volume (OBV) work and kept OBV charts on the 30 to 50 stocks we followed. I also started to keep moving averages, another tool espoused in all the books back then, just as they are today

My stock trading met with some success, but what accelerated my career was a book by Gil Haller, unabashedly called the Haller Theory. I learned a lot about stocks and speculation from the book, then got to know Gil and to this day appreciate the support and encouragement he provided. Gil's concept was to buy stocks that had already moved up a lot. This is now a methodology used by the funds to buy what they call "momentum stocks." Haller was doing it way back in 1964 and making a living. But, he didn't live the way I wanted to! His desk was an old door atop cinder blocks, stationery was the back of a letter someone else had written him. Gil was not cheap, just a frugal spender who precisely counted and saved every extra penny

Eventually, I began to envision a theory of how markets work: In the short term, markets spurt in rallies and declines, moving above and below a balance point I could call the "average" price. My object was to determine when price was low and should move back to the average. That meant I needed to identify an overextension of price and then have something that would tell me when this move was over and the spring back to the average had begun.

Because it all seemed so easy, I was sure there must be some master theory or code to how all this was done. There must be some basic undeniable way the market-all markets-moved from point A to point B, I reasoned.

What I eventually found out is that this original thesis is true: there is a way markets move. The good news is that there is a structure in how prices move from point A to point B. The bad news is that the structure is imprecise. Nevertheless, there is a semblance of order to price action, and like a foreign language, it can be learned. It has taken most of my life to figure out the basics of this language that the market speaks, and I am more than happy to help you learn to use my magic decoding ring.

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