To Adapt and Evolve Is To Succeed-RAMOUTAR REPORT VOL.8

Discussion in 'Psychology' started by RAMOUTAR, Oct 1, 2003.

  1. Ramoutar Report Volume 8

    To Adapt and Evolve is To Succeed.

    To reiterate the disclaimer:

    The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions.

    This post is a bit verbose. It contains many examples relative to the subject matter. Enjoy!

    As each year passes there is always some new mechanism, trading vehicle, margin or order handling rule that’s introduced and it throws traders off of their equilibrium. Along with that, there often comes a “new” fad, or a “popular delusion” that seduces and ultimately destroys them. When I entered the securities industry, I caught the ending of one fad and the beginning of a new one, limited partnerships and biotechs. Nothing compared to the events of late.

    Within your circle of friends, colleagues and fellow traders, how many do you know of that survived that fateful day of March 31, 2000? I’m proud to say that I know of many who survived, and know many more who didn’t. I always had a deep respect for individuals that allowed themselves to evolve and adapt, as the markets’ changed. These are the folks that will always be far ahead of the pack, not hunting the next quick hit or boom.

    During the Internet boom, I did not trade “ONE” Internet stock. Why? They neither fit in my personal trading stable or my personal trading plan. The fundamentals, technicals, and overall behavior were abnormal. Is that wrong? Back then it sure seemed that way, people were amazed and angry that I didn’t trade them. I felt like “Serpico”, a man who wasn’t on the take. I don’t see it as missed opportunity in the boom, and I certainly don’t see it as luck after the bust, I made a conscious decision to not trade the dot coms. Was I regretful that I didn’t trade them? Absolutely. But I was ecstatic that I stuck to my plan, and maybe that’s why I’m still around. I gave up huge profits, and later larger losses in exchange for longevity.

    Here’s a look at some of the popular phrases I have heard from traders over the years, as new changes came and fads went in and out, and many of them went out with them…

    1990 – “I can’t believe how much money I lost in that limited partnership. I sure hope I win some money in that settlement.”

    1991 – “Oh sure, every one of these companies has the cure for cancer and aids. I like this new CANSLIM thing, and I’m going to stick with that”

    1992 – “I can’t believe this stock went from $5 to $50, and it still doesn’t have the cure for cancer or aids”

    1993- “Do you mean to tell me, that NAFTA passed and these stocks are higher because of it?”

    1995 – “Now why the hell would I want to give up my $65 fixed commission and 15% investment returns to become a SOES trader?”

    1996 – “Price fixing my butt, now we have to trade in teenies? What happened to stocks being quoted and trading in ¼’s? The SEC is going to do something about this, YOU WATCH!”

    1997 –“What the hell is an ECN, and who in the world is ISLD? They are outbidding GSCO for 100 shares. They’ll be out of business in a few months. INCA will crush them. How can anybody make money trading for 100 shares?”

    1997 – INCA chairman in an interview with Mark Haines from CNBC :”Would you ever consider acquiring Island?” INCA chairman: ”Not in a million years, they’re and island onto themselves. I don’t see how they can grow at $1 per order.”

    1998 – “OK, let me get this straight. They have this website on this new thing called the Internet, and people use it to search. This company charges advertising fees, that are three times the amount of print ads, and they have no earnings? You said the symbol is YHOO, and its going where? I’m going to short the at $15, the hell with them?”

    1999 – “I can’t trade anymore. You remember that stock you told me not to trade or “short”? I’m still short, and I’m finished.”

    1999- “How in the world am I supposed to make money trading with decimals?”

    2000 – “I’m back after that short, I found some money. All I need is $5,000, and I trade stocks for rebates. I’ll do this for a while and then I’ll get a job with a trading firm.”

    3/31/2000 3:00pm-

    “Hey Bob. Is it me, or does it look like something’s wrong with this market? DAMN!!! I should have held that short on YHOO.”

    2001 – “This rebate trading thing is awesome. Even though I’m making money, I really don’t feel as if I’m trading.”

    2001 – INCA buys ISLD. LOL!!!

    2001 – “Blodgett has not returned any of my calls. He said EBAY was going $400 and PCLN was easily a $700 stock. *&^( IN CO%^ SUC!%$ !!!!

    2002 – “Super Montage is really going to hurt the market.

    2003 – “How high can the S&P go?”

    Last week – “Where is the S&P going?”

    I believe you get the idea. Every time there is a new change in the market, there is always a large group that doesn’t survive the change. Why? They are not willing to adapt. Instead of evolving and adapting to the new environment, they hold on to the market’s past and get very sour about the present, thus sabotaging their future. Not trading what they see, and changing how they think.

    When I started SOES trading in 1995, I used Level II and nothing else. Every stock was quoted in ¼’s, moved in ¼’s and had and average spread of a ¼. I did very well trading for myself, and for one the firm I was with. I really didn’t make technicals my primary analysis until 1995, and that changed my trading forever. I made the realization that I was using price action all along; it was just in my head, now I had the visual.

    After using TA for a couple of years, I saw a lot of the original SOES bandits from 1988 get washed out, many of them made fun of me for using charts. They couldn’t handle the teenies, and the ECNs. It didn’t make sense to them, and unfortunately they didn’t accept it. Why? The entire market changed. Most market makers showed a size of 100 shares for the first half of 1997, they too had to go through a learning curve of competing with anonymous orders on ECNs that could have been put there by a grocery store owner in the back of some building in the Bronx. They had no idea, so they reduced their exposure. Take a look at a Level II now. Before teenie quotes, when stocks moved through a price tier, they changed by .25; teenies equaled .0625 on the same move. The next washout was the decimals. Now stocks were quoted in pennies and moved in pennies.

    The reward on a one-tier move in Level II on a 1,000 shares went from $250, $62.50 and then $10, in a span of 3 years. Whoever survived that jumped on the Internet roller coaster as it “clicked” up the track until that fateful day, March 31, 2000. If you were a trader throughout that whole period, take a moment…sigh with relief and pat yourself on the back. I personally have a very deep respect for any trader I meet who lived through that and survived. My respect is for the stamina and the discipline they had to adapt their plan and themselves to the changing market.

    What do the traders that entered the market in 2000 and 2001 face? They have narrow ranges; new trading vehicles (ETFs, SSFs, etc) and they’re cursing the people who talked them into trading to begin with. I have spoken with several traders over the last few weeks; many who were rebate traders making the transition into P&L trading. The prop and LLC area of the market has undergone some radical changes, and it’s affecting the payouts and the cost of doing business for the trading individual. Some of the changes are good and some are bad, it depends which camp you’re in and which house your with.

    When your trading plan isn’t working anymore, you need to look at what you’re doing before you start blaming your quote and execution platforms, costs, and the market. Take a real hard look at your trading plan, trading stable, analysis, scanning, methods and timeframes. This is also a good time to see if your current resources (quote & execution platform, costs, firm, environment, etc.) still meet your requirements.

    After you have made any drastic changes to your trading plan, it is my advice that you scale back your size until you get used to it. The only way to expect nothing and be prepared for everything is to be ready to change in very short notice.

    Pretend for a moment that equity pricing and order handling changes again. Let’s say that instead of quotes being 20.01 – 20.02, they become 20.0001 – 20.0002. Is it possible? It sure is. What’s the likelihood of it happening? Not too good. If that seems ridiculous to you, look back at the history of the markets’ changes. Start forgetting about how long you have been a trader, at the end of the day it means nothing. You’re not a government employee whose going to get a pay raise for your tenure, and a pension when you retire. You’re trading for a living. Everyday is a new day. What you made yesterday, last week, last month or last year is not the most important thing. What is most important is what you do now, and how you improve it for tomorrow. When I was broker, the most popular saying I heard from the manager was, “You’re only as good as a your last sale.” I as a trader live by the saying, “I’m only as good as my next trade.” Adaptability is one of the keys to longevity and success.
  2. I apologize to those of you who PM'd me and still have not received a reply. I'll be back to you shortly.

    You may find previous reports at these links:

    Volume 1 – Fear an the Market

    Volume 2 – Switching Timeframes

    Volume 3 – Elements for Successful Trading

    Volume 4- What Are You Looking At?

    Volume 5 – Building Your Trading Stable

    Volume 6 – What Really Drives Prices.

    Volume 7 - Trading Is War (typo as Vol 6)

    If you have any problems with the links go to search, and type in Ramoutar report, or PM me for links.
  3. jai,

    welcome back !

    surfer:) :)
  4. Good stuff, as usual :)

  5. Preperation for change is the precursor for adaption and change to the given climate...

    Along that line, for those of you trading listed and depend on the role of the Specialist .... I would start to prepare TODAY for in years to come - that role could be HISTORY.


    PS> Thanks RAMOUTAR for your reports. I have enjoyed reading them.

  6. Excellent reply harmonicpatrick. We may be some distance away from the abolition of open outcry but it will take a while. I have very few listed stocks in my trading stable, they're just to aggravating. The Big Board has stonewalled transparency and has failed to conform to the order handling rules followed by Nasdaq.

    The Big Board's way of giving price improvement, is giving up a penny once for every 10 times they don't .

    I believe that the NYSE will be the world's most frequently visited museum in the next 20 years...Who knows?

    Glad your enjoying the posts.
  7. Are you serious about the museum? You may be right, but I see the specialists screwing us for a long time. Good report as usual. Where you been man? This stuff was coming out once a week. Keep em coming ese!
  8. Momento


    Always a pleasure reading :)
    Thanks for sharing
  9. Yes I am serious. That's my opinion of course. The specialists, "specialize" in much more than maintaining a fair and orderly market. I don't complain much about obstacles, I just find ways to work around them.

    When time permits, I'm here. ET replaced my time watching reality shows on TV, however, they are getting pretty interesting. :)

    Glad you're enjoying the posts. Excuse my ignorance, what's "ese"?

  10. My pleasure...glad you're enjoying!
    #10     Oct 1, 2003