potential business and I've often reflected that many of you just now starting to trade are going through some of the same feelings that I thought were mine alone.  Let me share just a small piece of what was so difficult for me to master.  I hope you can relate to my thought process at that time and that perhaps in some way that I might be able to help some of you as you fight the very same battles we all have to fight as beginning traders.

Once Upon A Time
Most folks prior to the 1990's considered the stock market an exclusive business arena where they couldn't go.  In that magic place, mystically unimaginable things happened.  Stock certificates changed hands.  Vast amounts of money found their way from one lucky investor to another.  Fortunes were heaped upon fortunes, all JUST out of reach of the average American; the 'little' guy.  As funny as it sounds, the 'picture' that comes to mind as I look back is that of the Monopoly board game logo.  You know the little fat guy in the black tuxedo with striped trousers and black silk top hat, complete with cane and monocle? My parents were lower, middle class and never traveled in the same circles as folks who were investing in the market, so my early impressions of Wall Street we left to an imagination unfettered by facts.  Consequently, it never occurred to me that there might be an opportunity in the stock market for someone like me!  But that was destined to change.

Progress - A Two Edged Sword
During the early 1990's I was really looking hard for a business opportunity to get me out of having to work for someone else.  Having no clue of a specific direction or discipline, I was open to just about anything.  I remember hearing a commercial for some guy from the Northwest who was a stock market guru holding classes to teach others how to trade.  I bit, enrolling in my first "class," but not before calling MasterCard to have my limit raised so as to accept the $4500 price tag for the two day class.  I was so excited!  At last, I was going to be able to go to this once forbidden place and have an opportunity to ... to ... to do what?  I didn't have a clue, but it sounded very intriguing and I was going to do it!

The first class was an eye opener!  Wow, you mean to say that I can buy a stock (as soon as I heal from the tuition), then sell someone the right to buy my stock from me at a profit, getting PAID for that sale and ALL I have to do is RAKE IN the profits?  Now this was my kind of business!!  I was so impressed I felt compelled to buy the next class ... and the NEXT... and so on and so on.  You know the routine!  Approximately $18,000--and two unsecured loans--later, I was off to the races, trading covered calls and feeling life was good!  And it was ... right up to the point where something 'unfamiliar' happened and I lost $30,000 in ONE fell swoop!  Obviously, I had missed something somewhere!

In fact, what I had missed was what this was all about in the first place.  I had stepped out (unknowingly) into the cold, sometimes cruel world of 'hardball commerce'!  I paid for the classes thinking that THEY were going to give me all the answers and I could simply store this knowledge away along with my stack of video tapes, books and other paraphernalia I'd purchased at the class (after having my Visa Card limit raised as well).  What I had missed was what I had been taught my entire life; there is NO free lunch!  If you're going to do something special YOU have to do it.  Others might get you started in that direction, but in the end, your accomplishments are UP TO YOU-KNOW-WHO!  I began to realize that trading in the stock market was no different from any other business.  You have to have EXPERIENCE--academics is not enough. It never has been and never will be!  The challenge in ANY area of life comes from the APPLICATION of the academics.  The 'real world' of any business can be and usually is vastly different from whatever academic preparation you may have had.  Bottom line-expect the UNexpected! 

Probably like many of you, I've gone through my share of misdirection and disappointment.  I have overcome my 'urge to kill' and have moved on to more fully appreciate my being tossed out of the academic nest and FORCED to teach myself what I have to know to succeed in the market.  In reality, if I had NOT had that experience, I'd probably still be talking to airplanes for the FAA instead of flying them myself!  I've come to realize that the misperception was within ME, no one else.  I paid for a class.  They provided that class.  My error, if any, was in believing that the market always behaved the way I was taught in those classes and that was all I needed to know.  Prepared by that history and those experiences, I'm not only a better trader, but I can now TEACH others not to go down the path I once trod.

A Formidable Business Arena
The stock market is a wonderful place to be, full of opportunity for profit and fun trades to do, but there are more things to consider than just that. This is ESPECIALLY true if you want to make a living doing this.  The market does not work the way most folks envision ... never has ... never will.  The academics you've had may have covered the basics, but the train stops there!  In the REAL world of trading, stock prices rise and fall, sometimes in harmony with what  you've been taught and other times violating every principle known to man!  You'll probably not see it coming but you have to be prepared to do something about it.  Option premium will ebb and flow, rarely in perfect harmony with the underlying stock price!  You have to prepare yourself to make good business decisions sometimes in spite of the market's activities.  All of this demands that you and I as traders be able to do something which is just incredibly difficult ... we have to be able to remove the EMOTION from our trading, approaching each trade with an almost "...I don't care" attitude!  Otherwise, the emotions inherent in any trade can combine with some of the weird things the market can do to totally overwhelm you, needlessly taking you OUT of an otherwise viable business!  I'll need to add some background here in order to give you an example of what I'm talking about.

I host a morning trading lab designed to capture very short term (not DAY trades) situations to produce regular, consistent cash flow.  This is where we bring in our short term "bill-paying" money, so it can be a very intense type of trade, at first.  To keep us all focused, I publish a 'trade plan' every evening for the trade(s) we'll be doing that next morning.  The trade plan is very specific, outlining WHY this particular stock / strategy combination, how and when to get in and out and what we're going to do to allow our profits to maximize while still in the trade.  The plan is clear.  The plan is specific.  I design it that way to enable trades to be almost mechanical in execution (taking the emotion out of the way).  In a recent trading situation we were long a particularly volatile stock, trading to the upside.  The plan called for us to initially place a stop loss at about 1/2 of what the stock 'oscillated' on any given trading day.  The idea is based upon my experience that if a stock 'wiggles' more that 1/2 its daily movement in a specific direction, it will probably continue the 1/2 of the way down.  This particular stock had an average daily range of over $3, so the plan called for a stop loss of around $1.60 below our entry point.  The market opened down... the stock began to move up... confirming the likelihood of it's moving up.  I called confirmation up and said buy the stock now.  Most of us did.  We then placed our stop loss, $1.60 below our entry price.  Then the stock turned on us. By the time it was down $1 from our entry, I was being asked if we should bail out.  "Follow the plan, folks" I reminded them.  Two of the traders were unable to control the "fear factor" and pulled the plug, encouraging others to do the same.  "What do we do, Bob?” came the question. "Follow the plan, folks" I reminded them.  Within 10 minutes, the stock had recovered and it went on to give us a tidy profit ($500 in about 15 minutes) for the day.  Those who depended upon their feelings not only missed the profits but took about a $1000 hit.  So much for emotions and trading!

Treat It Like A Business
We've all been down this same road.  Some of us succeed by remaining focused upon correct business principles, planning your trades then trading those plans.  Those who 'throw money at the market' in a willy-nilly fashion, then run around like chicken little with a "sky is falling" mentality usually have a mercifully short stock market experience.  Stay focused.  Remain disciplined.  Follow sound, prudent business principles.  You can't fail ... all you can do is quit!