ALS – Phantom, can you remember the first advice you ever heard from another trader?
POP – No, I can’t ever remember any advice. I don’t mean to be ungrateful to all my many friends and colleges but I really don’t remember any advice. In fact that is part of the reason I want to pay a debt to other traders. I don’t think anyone ever gives much advice because they feel it is putting them at a disadvantage. Of course it isn’t the case but most traders behavior is determined early in their lives. That is why I feel behavior modification is critical.
ALS – I can see the critics already starting to line up to point out your big point of trading is behavior modification! Are we going to write an entire book on behavior modification? If so we will have to give this book away. Not only that but also what creditability does Phantom of the Pits have to anyone?
POP – Nothing would please me more than to give the books away. Or perhaps we could ask Futures Magazine to sponsor it for all the publicity they would receive. Accurate insight is what we are going to give every trader who reads this book. It isn’t enough to point out requirements. I want to give them guidelines so they can chose their own destiny.
ALS – Sort of like change your thoughts and you change your destiny, huh?
POP – This is exactly where we want to be. No promises, no requirements, no false hopes and no undue influences. Exactly the way it should be. Traders must make their own millions. I only need to be responsible for keeping them in the game forever.
ALS – Phantom, I don’t make my money from writing so how about making it a little easier in writing this book for me. Guide me a little in what you want to convey to the traders in this book.
POP – I have an idea, which presented itself, when I viewed some of the other trader’s questions on the forum I frequent. They don’t know the important questions other than from their own experiences in trading. Eventually they will come upon all of the situations I want to protect them from getting into. However, I don’t want to give specific trading advise or any outdated information like I wrote in some of my documentation of the 70’s. Why don’t we call upon the traders from the forum to guide us in the knowledge they are seeking for this book?
ALS – Great idea! I am impressed with several traders but this one Trader I know he will respond. But we don’t want to exclude any of the others traders so I guess we kind of make them Phantom of the Pits Too!
POP – I like the idea. No losses to throw out is what I enjoy.
ALS – Ok again! You Win! You are right!
POP – Funny, I have had years to hear what you just said. I really don’t hear that anymore. I mean you win and you’re right. Trading is not those statements. A trained trader understands success as you lose well and you’re wrong small. Trading is called coming out on the small loser’s side and being rewarded with knowing how good you have been wrong. 8 It requires a balanced life to sustain the meanness of the markets. Traders never plan for the bad days and there are bad days. It is when it affects their lives that they must make a new choice. Either change their behavior or go down in defeat.
ALS – There’s our subject again. Are we going to get tired of hearing the truth of trading?
POP – Traders have a choice. Either face the truth of trading or look for the nearest exit. Speaking of facing the truth, I don’t know what your plans are but I have a mind for a good 2 inch steak served up for dinner. Chow for now!
ALS – You ever eat crow?
POP – Surprisingly in my early years no but in my mid years yes. I think that’s what you
The following is an interview with one of the most powerful traders I have ever known and whom I consider the best trader I have ever known. His purpose in this agreement of this interview is to help those who have that ability and desire to become the best traders they can possible be. There is no claim to fame so to speak but only the honest effort to bring to other traders the insight of a very difficult business of trading for a living.
ALS – Phantom, why do we start this book without knowing who you are for others to admire and thank?
Phantom of the Pits – I remember being on a train after one of my first trading days and thinking of how I had doubled my account in that one day. I looked around and was so proud of what I had done but not one person on the train knew or would even care if they did know. At that point my direction was self-driven in seeking out what was possible in trading. I know more now than I knew then. The markets as a trader have humbled me more times than I wish to remember. It’s always easier for an observer to put their finger on a problem than the one who is wrapped up in the situation. That is who I am! I am the observer and I wish to point out the line in the sand. I don’t know who puts the line in the sand but I clearly see it. Who remembers he who points out the line? You may call me Phantom of the Pits from here forward and we shall remain as the shadow of your writings.
ALS – After over three decades of trading why haven’t you written a book sooner?
POP (Phantom of the Pits) – I have but they have all seemed to be outdated because knowledge is quicker in coming than in writing I always wanted to have it exact. I have made mistakes and to give my mistakes to others seemed to be admitting I was wrong. It has taken years to understand that being wrong is what trading is all about.
ALS – Surely there are those who know you and appreciate what you have accomplished in your trading career. Why don’t you accept their recognition?
POP – I have always believed that there are two sides to a coin. In fact I find out that there are times when you could argue a third. I won’t take credit for what I have accomplished. There are no guarantees and I have been put on notice a few times. My success is nothing without putting a bucket full of water beside the pump to prime it for the next trader, the other side of the coin. There will always be those who drink all the water from the bucket (the third side of the coin.) Why shouldn’t the thirst of others be fulfilled when it can be done so easily?
ALS – To You what is the most important aspect of trading?
POP – Behavior modification without doubt is the key to trading success. Not only in how we think but also how we act in certain situations. We must adapt to changing situations which we have no control. We often must change the situations of which we do have control when trading.
ALS – Let’s start your writings and insights into successful trading from any background you can give us of your trading! Is there any important point you wish to make about your trading background.
POP – My only point is that I am not different from any of the readers who will read this. How I got started or who I am makes no difference in trading. Let us not dwell in such trivia, which has no significance in how your readers will succeed. What was is and what is was but a breath after the markets close.
ALS – Ok, with me if it is ok with you that we get started with our behavior modification of trading! 6
POP – Ok with me but a little history on my first access to behavior modification as a child. My brother was at a tour of a blacksmith’s shop in his youth and watched the blacksmith take channel lock pliers, hold a horseshoe, hit it with a ball pin hammer a few times to shape it, and then put it into a fire to temper the metal. Upon removing the horseshoe from the fire and dipping it into water, a tempering process, he laid it down! At that point my brother picked it up and threw it down on the ground. The blacksmith looked at my brother and said “Hot isn’t it son?” Well my brother said “It don’t take me long to look at a horseshoe!” That taught me more in trading than anything else. Trading is not taking long to look at a horseshoe. Don’t ever forget that!
ALS – Trading is like a hot horseshoe?
POP – Your losers are your hot horseshoes! Note: Phantom has observed and participated in an internet forum sponsored by Futures Magazine in an effort to pay his debt to other traders. Many sharp traders frequent the forum as well as beginning traders. One remark of interest in observation of the forum by Phantom was as to how effective knowledge can travel today compared to the late 60’s and early 70’s. It is Phantom’s thought that he who has the most toys will not win but he who has the most knowledge and can change their behavior to what is needed will take it home.
“It should never take long to look at a horseshoe”—POP
ALS – Let us get into a little of your background without breaking the rules here. How did you come upon the name of Phantom of the Pits?
POP – It all comes from the respect I have been given in the Pits. I started Pit trading in the early 70’s after some early off floor introductions to commodity trading.
ALS – Why did you decide to trade on the floor instead of Up above (off floor with quote machine) as most traders?
POP – I really liked the challenge and excitement of floors trading. The appeal of being in complete control at all times seemed to be a dream of all traders. I certainly felt I could do well on the floor by being in total control. I had a few friends who advised me to buy a membership and get on the floor. It happened so fast.
ALS – We both know you are Phantom at showing up on the floor over the past several years. Can we get into some of your experiences on the floor?
POP – You know we all had so called offices on the floor in the Pits. Each day prior to the market open we would all go stand in our little 3 by 3 foot office. Every day there was this trader named Cindy who would make her office one tier in front of mine. I remember her name as her career start was as a Math teacher. Her husband was a GM at the music FM radio station I always liked to tune to listen to easy music. I actually knew more about her than she ever knew. Each day she would wait until she was sure where the market was headed and position. It happened that I was strong into taking profits on the 3rd wave of buying or selling. It apparently was her break out indicator. She would always take my offer below the last trade for selling and before she carded it would say ” I hate trading with you because I always lose when I take your trade.” I never forgot that statement which she would make. Losing never stopped her from staying with her plan as she knew to lose small and go with her program. I am sure she has made lots of funds over the years. I sort of felt bad when she would say what she said but it started me thinking about losing. Her mind was set correctly in trading. Funny how little incidents shape our belief in trading, some good and some bad.
ALS – She was never afraid to take your trade even though she felt she lost from it most of the time?
POP – She had convictions. A lot of the other traders would shut up and back off whenever I would make an offer. I was starting to pick up a reputation for being correct and the traders would start to follow me. It actually would hurt my execution and that is where I discovered that EXECUTION is critical. If you can’t EXECUTE in getting in, you sure can’t execute to get out. It wasn’t a mental thing but a hindrance in my trading plan.
ALS – So what did you do to overcome this execution problem.
POP – I started to play games with my trades. Actually the Funds do it now. It is so artificial but they fall for it. It worked like this. If I had a position and I wanted to take profits I would pretend I wanted to add to my positions. So I would Bid the market instead of Offer. I had enough follow me that they too would Bid the market. I would turn the Bid and instead hit the Bid and sell my positions.
ALS – Seems like a good strategy. Did it work most of the time for you?
POP – Well I felt bad about getting the other traders out of position by using this little game so I decided to just hit the Bids when I wanted to get out. If there weren’t enough Bids at the last price I would let the market work itself down to a point I was out. Today the funds must use fades because they must go at the market to position. This is a problem if they don’t know the liquidity at the time. In the long run it won’t make much difference as short term influence isn’t as you would think. I also learned to not stake it all on one price. A long time friend taught me the range strategy. It works for me.
ALS – What did you usually trade at first?
POP – You know the only answer I am going to give you! Anything that moved! By that I mean movement has less risk. You wouldn’t think so ordinarily but in a move you can have a smaller position and make a better return. In a dead market you tend to position too large and Wham a news story runs the market and you weren’t prepared.
ALS – But don’t moving markets chop you around more?
POP – There is integrity about the chop as trends, which develop, give you a good range to work with if you don’t get emotional about it.
ALS – Maybe we should interrogate that statement in a later chapter. How did the other traders treat you when you first hit the pits?
POP – They would yell at me to take my profits and to step off of first base. I didn’t mind their remarks except one. They would say “well it is only money” and that made me mad as I took it personal when I would throw money away. I started out with such a small amount of money and I couldn’t stand to lose money at first. I got even with the other traders for that remark. I would watch them and when their shirts would expand and their ties were too tight and finally their face would turn red I would yell at them “TAKE YOUR LOSSES!” It wasn’t long before we had an understanding. I actually was doing them a favor in telling them to take their losses. To this day I call this out to myself when the market isn’t working my position correctly. The big start of my behavior modification I suppose.
ALS – How have your Pit friends and your recent friends treated you over your trade life?
POP – You know I have just really found out recently how loyal my friends can be. If you do something which they remember it is without fail that they will be loyal to you. They respect me more now than at first. That respect is not just out of trading but knowing that true friends look beyond your face into your heart and soul to find you. It is very touching.
ALS – You don’t seem to floor trade much anymore. Is there a reason?
POP – You look on the floor and you see it is a young persons game out there. I am not saying that is the success now because it is more than youth in this business which makes you a successful trader. I trade upstairs because I understand the markets better at a distance and can trade more markets. Being on the floor is limiting as a trader. A floor trader is more of a scalper than a position trader is. I like the latitude of being able to set up various criteria for different markets and not depend on my own execution in the pit to position.
ALS – Would you give other traders advise to start on the floor? POP – I am asked for advice often but I don’t like to ever give advise. I only like to give guidance, as all traders must make their own bed. They must make their own efforts to learn. It is their decision as to how they will make their plan on trading. I can help guide them away from bad behavior but it is their own determination, which makes them a success.
ALS – Have there been any of your associates over the years who have given you a difficult time in your trading?
POP – Only through ignorance! I can forgive all that. Those who don’t learn are their own enemy.
ALS – What must they learn?
POP – Most important they must learn that they don’t have to make SELF LEARNED mistakes. They are always better off to learn from OBSERVED MISTAKES. It can be pretty costly to make mistakes in this business. You can not really tell someone what to do but often if you guide him or her they will be more receptive to making the right decision.
ALS – How do you differentiate between self learned mistakes and observed mistakes?
POP – Let us say you go to an eye doctor and he asks you if you can see better out of lens a or lens b. You make a choice and then he goes to the next step by asking you again if you can see out of lens c or d better. This continues until you have the best lens criteria for your eyes. Well any mistake you make is a self directed mistake and it will hurt only you . No one can teach you not to make this self learned mistake. Now if you tell the eye doctor you are blind in your left eye when he says cover your left eye and he then says cover your right eye, then you have an observed mistake. You wouldn’t make that mistake and since you were affected by that mistake even though it wasn’t your mistake you will remember better. It is better to learn from a mistake which affects you directly that is made by someone else. You have to be mistake aware in trading because there are so many lessons.
ALS – I see. I mean it is clear what you mean on mistakes. Learn from others mistakes and it is cheaper than learning from your own mistake?
POP – I think you have it.
ALS – Do you ever go into the pits much anymore?
POP – To sharpen my thoughts on a market and to re-enforce the proper behavior I often do go back. There is always something to learn from it. ALS – What happens when you walk into the pit?
POP – At the end of the trading day there are those who come up to me an say “I knew it, I knew you would be selling today, I should have known the market was going down.”
ALS – So you move the market?
POP – It seems to be their thought but it isn’t the case at all. You see if I am selling to take profits I am aggressive in doing just that. It is that I have a position to get out of and it so happens there are others doing the same thing. Maybe they have a signal close to mine. It is inaccurate to think anyone moves the markets. If they could I wouldn’t trade! The truth is that the BEST LOSER is the long term winner.
ALS – One of the traders had some good suggestions on phases of this book. He calls step one preparation. Let us continue in that suggestion from the “Futures Forum.”
POP – Suits me fine. I have seen them grow from my early years and I also have loyalty.
ALS – Note: Phantom’s criteria for this insight book is to share with the traders on Futures Forum. Final copy will be somewhat different and expanded. This creates a more timely effort in writing his insight. “The truth is the BEST LOSER is the long term winner.”—POP
Chapter 1. Phantom’s Insights Chapter 2. Your Book Chapter 3. A Little History Chapter 4. Preparation for Trading Chapter 5. Rule One Chapter 6. Rule Two Chapter 7. Trading with Rules One and Two Chapter 8. Day Trading Chapter 9. Options Chapter 10. Cloud Hopping Chapter 11. Time to Reflect on God’s Rules Chapter 12. When We Lose One of Our Own by Harold B. Simpson Chapter 13. Behavior Modification Chapter 14. A Wink is as Good as a Nod To a Blind Horse Chapter 15. Quicker Than the Eye Chapter 16. Your Comeback After a Big Drawdown Chapter 17. Phantom’s Christmas Gift Chapter 18. Rule Three You Say? Chapter 19. Is the Market Always Correct? Chapter 20. The Third Rule Chapter 21. Tie Ribbons on Your Trading Chapter 22. Trading and Three Accidents Chapter 23. My Order Was Filled Where? Chapter 24. Your Trade Program Chapter 25. Phantom’s Chat