Saturday, July 11, 2009

Jankovsky, The Art of the Trade

Jason Alan Jankovsky’s The Art of the Trade: What I Learned (and Lost) Trading the Chicago Futures Markets (Wiley, 2008) is a challenging book. First, because it’s the tale, undoubtedly apocryphal at times, of a trader whose swagger puts him in a league with Jim Cramer. So it’s hard, at least for this reader, to empathize with him at his lows or to toast his highs. Also, as he himself admits, the book may seem “overly simplistic, esoteric, or philosophical with no trading value.” But there are valuable nuggets in The Art of the Trade that justify its place on a trader’s bookshelf. Today I want to share one of them.

Jankovsky probes the mindset of the loser, assuming that if you know how a loser thinks you can reshape your own thinking to become a winner. He makes a distinction between a person’s belief structure and his expectation of results. That is, if I do such and such (the belief structure) I’ll get what I want (expectation of results). Now if a person gets what he wants, he concludes that it was due to his belief structure. If he doesn’t, he is willing to change his belief structure. For instance, “Since I’m constantly losing, I should do something to improve my approach. I don’t know enough about ______ (fill in the blank).” The loser is saying that he expects a change in his belief structure to make a critical difference. Perhaps if he changed indicators, perhaps if he concentrated more on fundamentals the market would reward him. But it’s just more of the same; he will continue to be a loser. Jankovsky argues that the loser’s expectations are incorrect because he has a faulty view of the market. It simply doesn’t work according to these belief structures. Both fundamental and technical analysis, though not useless, are highly overrated.

Jankovsky contends that the market is “a constant inequality that we, all of us, who participate, wish to see push in our favor.” He also claims, less insightfully in my opinion, that it’s a mirror, that “the entire market and all price action are a perfect reflection of [our] own thoughts.” How do these redefinitions of the market translate into profits? Here’s one of his explanations of price action: “Now watch this, that is the last bunch of losers getting out. There they are, that’s their stops liquidating with the loss. Right now they are all sitting in their offices saying ‘I knew I should have waited.’ They can’t stand that so they will try to get it back. That means the angry ones will do the same trade from the same side in about an hour or so, especially if prices move back to their original entry.” . . . “Okay, the winners are probably thinking I have to do something right here, they probably will move their stops up. The pit wants those stops. When they force the market into those stops, the losers will jump on those prices. Their thinking is probably, ‘I’m gonna miss this trade if I don’t,’ but the pit needs their blood to get out. Once that happens the market will come right back. This is free money, I’m getting in.” (p. 139)

This testosterone-laced account of the give and take of the markets, of the tug-of-war between the losers and the winners recasts a lifeless chart into a charged trading environment. It’s a shift in thinking that software programs such as Market Delta have tried to capture. But Jankovsky would, I suspect, stick with his conviction that trading is an art in which you want to find the losers in the market and take their money away from them.

1 comment:

  1. Jankovsky's The Art of the Trade was previously published as Dancing with Lions, that was accompanied by some tapes, which provided the meat of his trading advice. The book, well, it's interesting.

    Many years later - a while before Wiley republished his book as The Art... - he wrote Trading Rules that Work, a much better book IMO, that covers the basics very nicely.

    Best trading,