The Part-Time Trader (14 page)

There are a lot of companies out there that offer services that seem too good to be true. My favorite is the Red Light–Green Light system. When you get the green light, you buy; when you get the red light, you sell; and if it is a yellow light, you just hold the stock if you are already in it. This kind of cheap-thrill trading is a bunch of nonsense. It does not work.

At some of the various trading conventions I attended in the past, I would find a number of different firms out there trying to woo people on the simplicity of their trading system and how it requires zero effort and zero maintenance or research. This is a fallacy in every sense of the word. I have met thousands of traders over the course of my career, and the one thing I can tell you with utmost certainty is that there hasn't been a single one that made it to where they are today because of some off-the-shelf “secret” trading program that tries to apply a set of variables to every stock for actively trading in a zero-risk environment. It just does not happen.

Another word of caution for you: avoid the proprietary trading firms, better known as prop firms.

These “brokerages” are becoming highly popular and simultaneously blowing up accounts by offering users with account sizes under $25,000 a way to avoid pattern day-trading requirements by becoming a member of their prop firm and leveraging their account by insane levels like 10-to-1 and sometimes even more.

What is more disgusting is that many of these prop firms encourage you to pay them via credit card and then they provide the rest. But if you provide $2,500 in leverage, they will give you another $25,000 more in capital to trade with. But as soon as you lose that $2,500 dollars, that $25,000 goes away immediately.

The lunacy of these prop firms and what they promise is just another way to not offer a service but to also charge you a commission for every trade you make, as well as taking a percentage of your profits on the trades that you do make money off of (but never taking a share of the losses). They put the trader in a position to ultimately lose. They are leveraging your account, taking a cut from only those trades that profit, and then charge for each and every trade that you place. When your original capital runs dry, so does your relationship with them. Unless you deposit more money, they will simply kick you to the curb.

Most of these prop firms will take upward of 20 to 50 percent of your profits, but for the purposes of this discussion, let's say they take 20 percent. Over the course of the year, your winning trades amount to $200,000 in trading gains, while your losing trades amount to $180,000 in losses. They will take $40,000 out of the profits, and leave you essentially with a $20,000 loss on the year. That is insurmountable and unrecoverable if you are trading with a $50,000 account.

Ask yourself this: how many “self-made millionaires” have you ever met or heard of that started trading successfully through a prop firm? There are none because those who are looking to join a prop firm are skipping some of the most formative years of their trading education by taking a shortcut into the empty promises and doom of prop firm trading.

We covered a lot in this chapter, and it may be necessary to re-read this one a few times. No doubt about it, there are some funny anecdotes, but I cannot stress enough how important it is to prepare yourself for the trading day ahead each and every day before you get to work. After you arrive is not the time to do it. If you find yourself in that position, just skip trading for that day, and focus solely on the existing trades in your portfolio.

M
uch of what you can accomplish, what you can do, and the strategy you can employ as a trader will be centered around what your information technology (IT) department will let you do. For some companies this might be an entire department under Human Resources, and for others, it will be a stand-alone department.

The bigger the company, the more prominent this department will be. A small company will likely be run by only one or two people and be combined with Human Resources and some other similar departments. My experience in Corporate America wrapped it into Human Resources and a couple of other departments as well.

Along those same lines, the smaller the company, the less complicated and intricate the IT department is. Large companies have unbelievable amounts of resources dedicated to monitoring their systems, implementing software, and assuring that their servers remain up and running.

Regardless of the company size, it is very likely that the company has a system in place for monitoring their resources and how they are being used. You have to be careful about this. It is likely that you will never get down to the full extent of what kind of oversight that they employ on their resources.

This is why I am so passionate about being a solid employee. You do not have to save the world, just meet the expectations of the job before you as you try to trade your way out of workforce. Your job is your trading. If you do not maintain an acceptable performance level, your aspirations at a full-time career of trading will be cut short. You can rest assured that if you slack on the job, the full resources of the IT department will come down on you hard and lead to your immediate departure.

There are a lot of contrasts between large companies and small companies, and each carry their own pros and cons. Let's start with the small company. Here, you are likely to find a more family-oriented environment where you are expected to perform. How you do it is up to you, but you better perform because there is no way to hide like some are able to do in larger companies.

In small companies, you might be the only person in your department. Individual performance is key in small companies because the profits are often slim and the margins cannot be risked on a nonperforming employee. However, the resources that a small company will devote to the IT infrastructure will be only what is necessary. It is much less likely that they would have installed keystroke data, and servers will be likely hosted by a third party. Extensive oversight will be a little too much for a small company's budget when much of it can be observed with the naked eye and the capital can be applied to profit-generating activities.

In fact, making inroads with the boss man and others in small companies will help forge a strong bond between you and your coworkers. If you perform like you are supposed to, there is a good chance that they will not care that you trade and watch the financial markets. Some bosses may even let you have it as a perk to your job—like an incentive to doing a good job in your responsibilities. I am not saying this will be the case across the board; I am simply saying this scenario unfolds itself all the time and is not at all uncommon.

Do your job well and they will probably leave you alone. If they do not, they probably have morons working at the helm who do not realize that a good employee with some outside interests is far better and much harder to replace than it is to bring on an unknown commodity, spend the time and resources to train him, and only hope that he is as good as the solid performer that was let go by the wayside. Give him that flexibility and he will do everything in his power to perform at such a level so that he does not lose the privilege he has become accustomed to. At least for me, that was the case when I was working for a smaller organization.

In the smaller company, they knew I had some outside interests in the financial markets, but they also knew I did not let it interfere with my daily activity. Besides, if you are a solid contributor to your organization, the company also realizes how difficult it is to compete with the larger companies in recruiting quality employees. And in my case, they definitely did not want to lay off me, Mr. High Performer, and replace me with an unknown, recent college grad and lose the experience that I had acquired and the time it took to acquire it. It just does not make sense, and such action by small companies does not happen much.

If they are going to fire you, they want to fire you because you suck at what you are supposed to be doing, and when they find out you have outside interests you have a greater passion for, they then have an explanation for why you are performing so poorly. Do not give them that reason.

With large companies, it is not so cut-and-dried. They see you, but you do not see them. At any moment they can be making a case against you for your immediate layoff. You just do not know—and that is regardless of whether you are an exemplary employee.

Here is the caveat, though: these companies often employ thousands of employees, and with the size of the IT department they might have, they simply cannot dedicate the resources necessary to oversee all of the activities on an individual level. Instead, the IT department will more times than not rely on their tattletales on the ground. They wait for someone to come to Human Resources or IT to complain about a certain individual and the activities he or she is engaged in before they start to investigate.

When that happens, Human Resources will view you only as a number, not as the outstanding employee you may be known for being. If there is any substance to the complaint, they will more than likely follow up on you. To my knowledge, this never happened to me, but I have heard of it happening to others for things like streaming movies, music, running an online business and auctioning products off, and even online gambling.

Regardless of the reasons, it is not a good thing. If there is the slightest bit of personal activity being carried out on company resources and during company time, they are more than likely going to report this to your boss. Unless it revolves around pornography, illegal behavior, or compromising company secrets or private data, your activity will be forwarded to the boss man for him to determine the course of action to take against you, and he may or may not act on it. Once that happens, you will be parked in the boss man's office and asked a variety of uncomfortable question.

Going back to being the exemplary employee within your organization, in large companies, unless you give them a reason, it is doubtful anyone is going to file a complaint to have the boss man or IT start evaluating how you spend your minutes each day. In every instance I have seen, if you do your job and do it well and cover your tracks, no one is going to start heckling you about Internet usage or your time management.

If I had to choose between a large and a small company, it would probably be a small one. You are not as inundated with rules, regulations, and red tape as is often the case in the larger organizations. Though the latter will often have far more resources at your disposal, I do not think it is enough to offset the frustrations that come with working for one. Quite honestly, there are far more variables to account for in a large corporate setting, which constantly left me in a state of paranoia for no reason at all when trading. But being conscientious as I am about nearly everything, it was easy to develop a mindset that anyone could sabotage my dreams of full-time trading.

While it is not advised, there is a much better chance of everything remaining status quo in regard to your relationship with the boss man if he becomes aware of your trading practices in a small company—that is, as long as your on-the-job performance is at least at par. In larger companies that employ thousands of individuals, it is really hit or miss when it comes to the repercussions for being exposed as a part-time trader. You are viewed only as a number in the system. If they determine that what you are doing should not be done, you have little in the way of bargaining chips that you will be able to use in your defense.

My best advice is to develop a skill set that no one else has and to make yourself irreplaceable. Make it to where if they were to lay you off, the chances of the boss man's finding an equal would be slim to none. You do that, and it is likely that the boss man will vouch for you, and even let you continue trading without any repercussions. More so in the large companies than in the small ones, you are going to want to fly below the radar at all costs, and in Chapter 8, we go over this in much greater detail.

What really helped me in understanding IT and how it applied to my job function and flexibility was becoming friends with some of the people in the department. When I first started out in each of my jobs, I never knew any of the individuals, but whether it was a small or large company, I eventually knew a handful of folks from there.

One such individual was named Greenwood. He was not a person that I would naturally be friends with because, for starters, he lived and breathed his job. The prospect of being noticed by the boss man, or better yet the boss man's boss man, would make him giddy as a schoolgirl. As you can imagine, these particular types aren't exactly the ones that I am aiming to make close friends of mine. They make me squeamish and cause me to bite my tongue more times than I would like when they start rambling on about which higher-up's secretary they got an e-mail from, or my personal favorite, who they happened to be on a foursome with during a recent golf outing. It is a creepy form of worship that is not deserved.

It really is not hard to befriend the folks in IT. Often (but not always, by any means), these people are geeky or considered “nerds” by society's standards. Trust me—there is nothing wrong with that, as I myself have plenty of nerdy tendencies that if fully known publicly in high school would have resulted in some atomic wedgies by the meatheads that roamed the hallways.

On that same note, though, a lot of the folks in IT have personality complexes. They are extremely smart—in fact, they are usually brilliant. They flourished in college, in the advanced degrees that they achieved, and were a part of the computer clubs in high school. But they are often socially inept or used to being at the bottom of the social acceptance ladder. While they might be a bit standoffish at first glance, making friends with these individuals can come quite easy.

In the past, wanting to be acquainted with someone in the IT group was motivated by personal reasons, but I found that some of these people have made for some solid friendships over the years.

Back to the part that matters: finding a way into the IT world and its inner workings. Up front, you have to look at it from a tactical approach. I made friends with one such guy simply by noticing he was playing around with the latest Mac. I knocked on the door and started asking him questions. I was interested in what he had to say, which included question like:

After you have peppered him with these questions, and yes, often these questions will lead to longer responses than you might prefer, not to mention that most of the answers will not be entirely understandable due to the fact that they are probably talking 20 IQ points over your own. But here the conversation should segway into a more personal level of basic friendship:

You see there? After seven rather general questions, you have yourself a budding friendship in the making. Do not rush things, either; IT people, due to their high level of deductive reasoning, can become rather suspicious of your motives fairly quickly. An additional bonus is that if your wives hit it off, then you are rock-solid going forward. By the time you have notched a couple of lunches, you can probably start diving into the world of IT with him. Start with some general icebreakers like:

Simple questions will make your newfound friend anxious to tell you more about what he does in the computer world. What is better is that often these conversations will evolve on their own into some more in-depth discussions that will reveal to you more details about what the purpose of the IT group is and its relationship with the employee and their activity on your work computers.

The previous questions can also lead to a hypothetical question such as:

I was in another department speaking with someone about a project we were working on and I overheard this guy in the next cubicle over talking on the phone to someone who just bought this guy's homemade blueberry muffins online. That has nothing to do with his job, but he is using company resources to do it. How the heck does this guy get away with doing that?