In Defense of a Killer Instinct in Trading

Stand apart from the crowd at all times. Be the first in and out of the profit door. Your job is to take their money before they take yours. Be ready to pounce on ill-advised decisions, poor judgment and bad timing. Your success depends on the misfortune of others.

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-- Alan Farley, The Master Swing Trader, 2000.

OK, it's not Sun Tzu or Jesse Livermore, but I think it makes the point. I'm attacked whenever I talk about trading with a predatory instinct. These obvious "sideliners" accuse me of contributing to the fall of civilization by not playing fair when it comes to the markets.

I call them sideliners because it's obvious they don't trade, nor do they have an appreciation for the laws of supply and demand. In their naive vision, the markets are evil and need to be reformed so they can take advantage of its opportunities. In other words, they never made a dime trading in the real world.

Welcome to the myth of the democratic markets. After two decades of unrepentant greed, we've spent the last three years atoning for our sins, and looking for scapegoats. This self-deception has been so effective we now believe we'd never have bought bubble stocks if "they" had only told us the truth. Yeah, right.

What better entertainment in these mea culpa times than watching a successful woman being prosecuted to the full extent of the law? Undoubtedly none of us would have acted in the same manner had ImClone Sam called us up on that fateful day. At the least, we wouldn't have been caught so easily or fought so hard to prove our innocence.

The markets have never been a pretty place. Just ask the Dutch traders who bought into the tulip mania back in the 17th century. You think 'Net stocks were bad? Imagine paying $10,000 for a single tulip bulb, sight unseen. Where were Elliott Spitzer and the enforcers back then, when they were really needed?

If It's Not Broken ...

I like my markets just the way they are, warts and all. In fact, capitalism would get a lot worse if we didn't have a good place to make bad decisions, at least between 9:30 a.m. and 4 p.m. EDT. Maybe that's why I cringe whenever lawmakers or prosecutors step onto that sacred ground.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At the time of publication, Farley had no positions in trading vehicles mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to [e-mail]. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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