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"Breaking Point"

[Excerpts from "The New Market Wizards" by Jack D. Schwager]

Bill Lipschutz: "So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain."

Interviewer: "The pain being what?"

Lipschutz: "You give up a lot of things. It's all tradeoffs. It's the middle of the night, everyone else is asleep, and you're sitting in front of a machine with glowing green numbers, with a pain in your psyche because the market is going against you and you don't know whether the fundamentals have changed or whether it's just a meaningless short-term move. Those are very trying times."

Sometimes when I walk around campus, I look at people and try to calculate their breaking points. There's so many different people on campus that it provides quite a range to try your theories on. You look at someone as they walk, looking at how they dress and how they walk and what is in their eyes. You wonder what sorts of things test them and what things have them at their wit's end. You wonder how much pressure it would take to make them snap. For some people it's as easy as bending them a little, their precious course grade snapping in front of their eyes, their hope draining from their souls, their desperation increasing. For others, it takes a lot of work. They've conditioned themselves for pain, and it would take something akin to walking in on their lover in the heat of passion with another person to turn them insane. Dido insane, I mean.

Sadly, there are too many people who blow up too quickly or who back away immediately. There aren't many people who can take it all, grin broadly, and return to thoughts of other things. This seems more true for college students. The test line you feel when you walk around campus is taut with anticipation and tension, ready to snap at any moment. You either have people who ceased to think long ago, or people who are violence incarnate if they would only realize it. Where are the stoics?

I'm listening to Louis Armstrong's "La Vie en Rose", following Louis Armstrong's and Duke Ellington's "Solitude" and Duke Ellington's and John Coltrane's "In a Sentimental Mood".

It's sad because everyone is waiting for the Apocalypse to happen, on one scale or another, and they'll construe their daily lives to fit that belief. The sad part is that there will never be an Apocalypse. They wait and wait and wait and wait for something big to happen, and it never does. They were educated on books and movies where peoples' lives were brought together into the culmination of one big event that would change the world. They keep waiting, and they never see that the biggest things in their lives are the things they overlook.

"One theme that seems to recur in many of my conversations with the world's top traders is their view of the markets as a wonderful game rather than as work. Lipschutz emphatically claims that, for him, trading is such an engaging game that he would do it for free if he had to."


Interviewer: "When you're interviewing someone for a job as a trader, how do you determine whether they have that type of commitment?"

Lipschutz: "Sometimes it's obvious. For example, in an interview someone might ask you, 'What time do I have to come to work in the morning?' In my opinion that's a very bizarre question."

On the trading IRC channels, there's often the person who will lambast the technical analysts for looking at their silly little graphs of trendlines and moving averages and candles and kagi and renko charts. He often argues that it's all hooey, and that if it doesn't work, the technical analyst will just explain it away in a new fashion. He says that a chart can't tell you what actual people can.

The irony of course is that charts ARE people. Stock charts are representations of the psychology of all the traders in a stock day to day. They show the maximum points of greed, fear, complacency, and panic. Oh yes, panic. The emotion that lashes out at the breaking point for a trader. When someone has been pulled so far so fast out of the position he wanted to be in that he gives in completely, after being tested with small chances to escape before things got worse. When he realizes he screwed up and has to react. When all the reason and sense and cool go away and all that's left is one's most primitive instincts. It's the most beautiful thing to see in a stock chart. Or in the west mall on campus. Wherever. All the bullshit we put up to defend ourselves and make ourselves look a certain way is peeled off and we're naked.

It is, of course, that exact moment when things would have turned around for the better. When the patient finally strike. When the Law comes into play that says you buy at the top and sell at the bottom. When Lady Luck turns up your lost keys or term paper. It's a big practical joke played over and over again on mortals.

Interviewer: "In catastrophic situations, when a surprise news event causes futures to lock at the daily limit and the cash market to immediately move the equivalent of several limit days in futures, do you find that you're generally better off getting out right away, as opposed to taking your chances by waiting until the futures market trades freely?"

Randy McKay: "There's a principle I follow that never allows me to even make the decision. When I get hurt in the market, I get the hell out. It doesn't matter at all where the market is trading. I just get out, because I believe that once you're hurt in the market, your decisions are going to be far less objective than they are when you're doing well. And if the market had rallied 1,800 points that day to close higher, I couldn't have cared less. If you stick around when the market is severely against you, sooner or later they're going to carry you out."

Interviewer: "How much did you end up losing in that overnight break?"

McKay: "About $1.5 million."


Interviewer: "Can you describe what your emotions were at the time?"

McKay: "As long as you're in the position, there's tremendous anxiety. Once you get out, you begin to forget about it. If you can't put it out of your mind, you can't trade."

I've started doing things a lot more just for the hell of it, these days. I get this feeling inside like I know I should at least try to do something, whether I will get it or not. And it becomes so powerful that I have to do it. Nothing to lose, everything to gain. I admire the people who are so free about themselves that they can make decisions whenever they want or need to. Granted, this requires some freedom of motion that just about everyone doesn't have. It's a luxury to do. Or is it? If you reconsider the things you value, and find that they aren't that valuable, are they really worth restraining yourself for?

In life, there are people who get into the middle of things and are immediately tossed this way and that. They had no control to begin with and will never have control of the situation. There are also people who tug on the rope that makes those in the middle move in ways they don't want. The people at the ends make it all happen. And they got there because they realized just this.

Here I am, some nondescript college guy who no one really knows, sizing everyone around him up and judging how far they could be bent before they'd be broken. And the sad part of THIS story is that there aren't many other people who are like me in that way. It's playing a game that no one else wants to play. But isn't that just the story of my life.

I think I'm taking the right steps towards being who I want to be. No regrets as far as that goes. I don't want to be one of those people caught in the middle, being pulled on from both sides. Freedom is key.

Interviewer: "Does it bother you when you lose?"

Jeff Yass: "It doesn't bother me at all. I know that I'm playing correctly, and I understand that there is nothing that you can do to smooth out the volatility. I rarely second-guess myself when I lose, since I know that in the short run most of the fluctuations are due to luck, not skill."

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