Art Simpson (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?
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 1970s 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 do?
POP: I really liked the challenge and excitement of floor 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 last 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-foot 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 because her career start was as a math teacher. Her husband was a general manager at the FM radio station I always liked to listen to for 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 positon. It happened that I was strong into taking profits on the 3rd wave of buying or selling. It apparently was her breakout indicator. She would always take my offer below the last trade for selling, and before she carded it she would say, " I hate trading with you because I always lose when I take your trade."
I never forgot that statement she would make. Losing never stopped her from staying with her plan as she knew how to lose small and go with her program. I am sure she has made lots of money 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 people following me that they, too, would bid the market. Then I would turn 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 what you would think. I also learned to not stakeit 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 then, 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 that develop give you a good range to work with if you don't get emotional about it.
ALS: Maybe we should elaborate on 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 for one. They would say, "Well, it is only money," and that made me mad as I took it personally 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, when 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 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 person's game out there. I am not saying that is the route to success now because it is more than youth in this business that 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 advise other traders to start on the floor?
POP: I am asked for advice often, but I don't like to ever give advice. 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 that makes them a success.
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 colleagues, 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 credibility 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 choose 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 traders' 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 advice or any outdated information like the writings I wrote in the 1970s. So why don't we call upon the traders from the forum to guide us in this book?
ALS: Great idea! I am rather impressed with this one trader and know he will respond. But we don't want to exclude any of the others so I guess we kind of make them Phantom of the Pits, too!
POP: That certainly is okay with me. I like the idea. No loss to throw out is what I enjoy.
ALS: Okay 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 the "You win and you're right." Trading is not those statements. A trained trader understands success as "You lose good and you're wrong small." Trading is called coming out on the small losers' side and being rewarded with knowing how good you have been wrong.
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.
ALS: Have any of your associates over the years 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 cannot 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 better with lens C or D. 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 because 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 that affects you directly when it 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 (on the Futures Talk forum) had some good suggestions on phases of this book. He calls step one "preparation." Let us continue with that suggestion from the forum.
POP: Suits me fine.