Secrets of a Trader: Part 2

In the second of a four-part series, GBS names his goals for the year.
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Goals for 2000

Me:

This year is certainly off to a interesting start. How are you doing so far?

GBS:

Actually, pretty well. I started off miserably, but stuck to what I know best, and of course, the market bounced back. So, I'm up this year about 4%. I'm certainly not complaining.

Me:

You've often stated your goal for any one year is a 100% gain. Is that still valid for this year?

GBS:

Oh, probably for every year for the foreseeable future! Is that doable? I think so. In fact, if everything fell into place, I think I could exceed 100% at some point.

Me:

But why not more? Why not a goal of 1,000%?

GBS:

Look, I could shoot for 1000%, but if I did, I'd have to live with the possibility of some huge drawdowns. I look at last year as a good example. Say my strategy was to buy

Qualcomm

(QCOM) - Get Report

every time it dipped 10%. Well, what if I did that, and it ended up dropping 50%? Sure, it might spring back, but boy, I'd have to live with some pretty miserable days. And I'm just not willing to do that. I'd rather bounce along year after year netting somewhere between 50% and 100% every year. I'll grow my equity soon enough that way.

Wesson

Me:

I'm curious, whatever happened to your former trading partner, Wesson? Still keep in touch with him?

The Chartman:

TSC

message boards.

GBS:

You know, that's interesting. There was never any rancor between us, but we just went a few months without talking to one another. Then he sent me an email on something, we started corresponding, and pretty soon, we ended up chatting a few times a week. He really is a good man. And extremely smart, too.

Me:

Did you feel after you split up, the lack of his computer analysis skills hurt your trading?

GBS:

Oh, I guess you never know, but no, I think I did fine without him.

Me:

And are you back working together now?

GBS:

Yes, we're both working on a totally computer-driven trading model. He's the brains behind it, while I'm the "Joe Average" end user. But, at this point, we really have a ways to go, as it's like building a chess-playing computer from scratch. A computer that could beat

Kasparov

!

Me:

So you think a totally automated trading system is possible?

GBS:

Yes, I think so. As an example, what if I could identify via computer scan every stock that traded within a 5% range for a week, and then closed one day at least 4% above that range? And then what if I went out and bought every one of those stocks the next day, selling any that went down 1%, or up 8%? Is that a winning strategy if I do it day in, day out, regardless of anything else? Well, I don't know obviously, but it's worth exploring.

Me:

And are you trading together?

GBS:

No, that's one area where I think we both learned our lesson. We can combine our thoughts on thinking about how to systematically attack the market, but not on specific trades. Our combined volume just generates too much slippage.

Starting a Fund

Me:

Last April Fools' Day, you wrote a column stating you were starting a hedge fund. Obviously that was a spoof , but have you ever really considered it?

GBS:

Yeah, for a few weeks, I guess I gave it some thought. But my wife Nancy kind of vetoed it. She says the last thing I need is the pressure of managing someone else's money. And she's right. I make a decent buck now, and I enjoy what I'm doing. The tradeoff of more money for more pressure just doesn't work for me.

Having a Working Spouse

Me:

You mentioned your wife, and I know she is a well-paid executive in her own right. Doesn't her income totally mitigate any pressure you might have to do well with your own trading?

GBS:

Somewhat, yes. But the thing that has always driven me is pride. I'd want to do well, whether she earned $100 a year or $100 million a year. Also, my wife and I can be fairly competitive. I have yet to outearn her in any one year since we've been married. So, that alone drives my need to succeed!

Me:

But the fact is, you could make zero in any one year, and still have enough money to pay the mortgage

.

GBS:

Yes, that's a fact. But, I encourage everyone to put themselves in that position. In fact, I wrote an entire column on making sure you had all your ducks lined up before you started trading for a living. No need to make it any harder than it already is.

Writing for TheStreet.com

Me:

From the sounds of it, you make a decent living just from your trading. That begs the question, then: Why write?

GBS:

Oh, I'm sure one part of it is because I have a huge ego, and I'm absolutely convinced people will automatically want to read anything I pen! However, the real reason is I like to teach and help people. Also, I like the interaction and feedback I get from the readers. And finally, I just like to write.

Me:

But surely there's some decent compensation involved?

GBS:

Without a doubt. The folks at

TSC

have always treated me very nicely, and in that regard, they pay me very fairly for my contribution. I think folks like

TSC

Editor-in-Chief

Dave Kansas

and

Jamie Heller

,

TSC

editor of strategic ventures, would agree it's been a win/win for both parties since the get-go.

Me:

Anything you don't like about writing?

GBS:

Well, like most writers I'm fairly thin-skinned, so I don't like it when people send me nasty emails calling me any number of names. What I think happens is that if I'm negative on a stock and someone is long that same stock, they lose their confidence and take it out on me. I know

Herb

gets that 10 times as much as I do.

But, in reality, if you disagree with me, and are equally confident in your position, then don't waste your time arguing with me, just take the other side of the trade! Believe me, that certainly won't hurt my feelings.

Me:

You've devoted more and more space to chart requests, almost to the point where that dominates your columns

.

GBS:

Yes, I'm well aware of that. But, like any good writer (at least any writer who wants to continue being paid!) I'm simply responding to what the readers seem to want. I do roughly 25 charts a week. But, I probably get over 1,000 requests per week. If I wanted, I could do chart columns seven days a week and still not make a dent in the backlog.

Me:

One question that often comes up is that you never seem to have a position in the stocks you chart. You chart some pretty good ones, and in fact, have been quite bullish on many you look at, so that's somewhat curious.

GBS:

Truthfully, I really do my best to avoid showing a chart I have a position in. It's just too easy for someone to think I'm bullish on the stock simply because I have a long position. Also, my time frame is so short that by the time I get to the chart, I may have already been in and out of a position with that stock.

Coming Monday, Part 3: "TheStreet.com" on

Fox News Channel

show, advice to readers, kids and Swimming.

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities 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. Smith writes five technical analysis columns for TheStreet.com each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide investment advice or recommendations, he welcomes your feedback at

gbsmith@attglobal.net.