The Commodity Futures Knowledge Network ®
Special Report #10 - Joe Ross Report
Written by Joe Ross for CTCN & Bruce Babcock's
1st review of a Joe Ross book
Because I had an "attitude" problem, I became an "attitude" problem. Much of my first 6-years were spent out of class. My first grade teacher made me stand in the cloak room (I don't know how many of your readers know what a cloak room is, but it is a coat closet at the rear of the classroom having an open entry at either end).
She told my second grade teacher that I was a problem child with an attitude problem, so from the inception, I was treated as one. To help bring this to pass, and in my resentment at what was happening to me in school, when my second grade teacher also put me in the cloak room, I fixed her by urinating all over the coats and jackets of the other children. This brought me my first promotion, I now had the privilege of standing out in the hall.
Eventually, because I raised such a ruckus out in the hall, I matriculated to the Principal's office, where I spent most of the remainder of my elementary school education. The Principal had a wooden leg and he thought it was real cute to boot me with it now and again. I could fill a book with stories of the ingenious ways I got even with my teachers and the principal, suffice it to say I was a "holy terror." They couldn't wait to graduate me, which they did at age 11 just to get rid of me. I learned how to handle rejection. I learned patience and humility and also learned to fight back.
My outlet for my frustrations was to go into business. I did that at age 8. 1 made my first trade when I was 8 years old. I collected all the old clothing I could carry on a wagon my dad had made for me, and I traded it to the rag dealer for money. That summer, I shined shoes at Union Station in L.A. for more money. When school started, because the government requested it for the war effort, I asked all the neighbors to save bacon fat for me. I collected it and sold it to the butcher for $.65 a pound.
I scrounged for soda and beer bottles, collected them in my wagon, and hauled them to the factory where I got a penny for a small bottle and three pennies for a large bottle. My first seasonal trade came when I read in a comic book about how much money I could make selling greeting cards. I sold Christmas cards during the season. I was learning how to sell myself and to make diligent effort.
By the time I was 11, I was a hard-nosed businessman. I was lending money to my parents, and I loaned them enough to help them move us out of the slums. We moved to West Los Angeles, a few miles South of UCLA. The year was 1946, and I needed a job. I went to the L.A. Times dealer and asked for a delivery route. He laughed at me and said we don't hire kids. I went to the L.A Examiner dealer. He didn't want to hire me at age 11. He said he didn't have any routes open and that I was too young. I asked him who his best carrier was. He pointed out one of the kids working there. I waited for that kid and beat the crap out of him and told him I was taking over his route. He never came back, and the next day I got the route, it had 100 customers. By the time I was 15, 1 had built the route to 1,000 customers. I refused to take no for an answer. I kept knocking on doors until the people subscribed just to get rid of me.
Then I wormed my way into their hearts with good service. I learned that from my dad who taught me to always give more than is expected. Most of my additional 900 customers came at the expense of the LA Times dealer. He hated my guts. At Christmas time, I used to collect over $1,000 in tips from my customers. I never failed to put a paper on the porch. No customer of mine ever had to fish his paper off a wet lawn or out of the bushes. Because I had sold so many new subscriptions, I won enough bats, balls, and gloves to field a major league team. I received dozens of awards under the Examiner's "Little Merchant" program.
Finally, I won a 1938 Chevy Roadster and money towards a college education. I was too young to drive, so I sold the Roadster and on the recommendation of my best friend's father, took the money from the sale and along with my scholarship fund, I bought shares of White Motor Company and made money on them. It was my first Stock Market trade. I was 15-years old.
School was still my nemesis, but I knew how to make money. My friend's father was a professional trader. He was home a lot. I asked him how he made his money. He showed me, and I was hooked. My own dad worked his butt off all his life for peanuts. My friend's dad played golf and polo, and hung out at the country club. We lived in a fixer-upper, my friend lived in a mansion. My career goal was set. I had to be in some kind of business. I did not want to work for somebody else. I did not want to have a job. I learned the lessons of persistence, salesmanship, service, how to overcome the competition, and that I had self-worth.
My friend's dad took me to the Pacific Coast Stock Exchange office in Westwood Village. I was fascinated by what I saw there. A lot of older men were sitting around looking at a tote-board. A clerk, who could write mirror image was posting stock prices. At the top of the tote-board was an electric ticker and stock prices moved across where everyone could see them. Many of the men seated there had a phone and they were buying and selling. That set the hook even deeper.
I can still picture it vividly in my mind. They were sitting there making money, and they were having fun. But how could a dumb yuck like me ever do that? I could barely read and couldn't do numbers. I was a total rebel. I could not stand any kind of authority over me. I learned that you don't have to work hard, you have to work smart.
When I was 17, my boss at the L.A. Examiner asked me to collect his bad debts. His territory included the wealthy areas of Fox Hills, Brentwood, Bel-Air and Westwood. He had many bad debts because the rich people living in those areas simply felt it too much of a bother to write the small check for the newspaper subscription. Others, were simply irresponsible. All were very wealthy. My boss offered me 10% of everything I could collect. Another friend's father owned a collection agency in Santa Monica. Among other questions, I asked him what I should charge. He said to charge one-third. I told my boss this. He yelled and cursed. I told him I wouldn't do it for less.
The next day amidst more cursing and yelling, he agreed to pay one-third. I didn't have much luck collecting until I hired a friend to help me. He was six and a half feet tall, wore a leather jacket, rode a motorcycle, and was ugly and mean looking. I offered him 5% if he would go with me. We would pull up on his motorcycle, "rap off' loudly, and then go up to the front door. It was truly amazing how the money poured in. Pretty soon, we were collecting for the milkman and the bread man. I was making more money than my dad. I learned the lessons of polite intimidation and resourcefulness. I was also polishing my ability to think on my feet.
My trading methodology is such that I still haven't been able to get it down on paper after having written 6 books with a 7th in progress.
My whole approach to trading is so vastly different than your own. From what I gather, you are primarily a systems' trader with a methodology. My own trading style is eclectic. I approach the market with a vast toolbox full of techniques. I trade the markets dozens of different ways. You and your readers have seen one of them in articles on S&P trading. But quite frankly, I would be bored to tears if I had to trade only one way. My nature is that of an adventurer. Even though one simple technique for trading the S&P may suffice for making money. I can't stand to do only one thing. My trading jumps all over the place. I'll fall in love with Options and trade the dickens out of them. Then I get bored and switch over to Spread Trading. Other times I look at outright futures trades. I almost always trade on News, if I feel it gives me some sort of edge. Seasonality plays a large factor in my trading.
I don't care if a market is treading or going sideways. I don't care if is exploding or collapsing. As long as I have the right tool for trading what I see, I'll go for it. I have used and still use darn near every technical study ever invented. Yet I prefer to simply trade what I see on a plain vanilla bar chart.
In the last few years I have traded almost exclusively in the Interbank because I don't have time for short-term trading anymore. Being an educator is my most recent passion. There is little thrill for me in only trading the markets. I want to teach others how to do it. The challenge of doing that is utmost in my life these days. I'm having a lot of successes, but there are still more traders who fail than who make it. Helping others has been the most rewarding thing I've ever done -- better than just trading for money.
My trading methodology, if I have one, is to have learned how to read a chart and to know which tool to use and when to use it. Almost everything I do works, because I've learned how to trade. I think articles have been explaining that concept to Commodity Traders Club readers. A lot of my trading is intuitive, judgmental and based on what I see happening when I go to trade. The least part of my trading is involved with entry. It's what I do once I'm in the market that counts. That aspect of my trading is almost entirely subjective, and based upon long years of learning personal discipline. When I am trading, I know who I am, what I am able to do, and where I'm going. To me, trading is at least 80-percent personal discipline.
[Here was my (Bruce Babcock) first review of a Joe Ross book. Several years later I was to discover a fascinating secret about Joe Ross. Read on and watch the story unfold.] Reprinted with permission of Commodity Traders Consumer Report
How do you market a commodity trading book for $175 if no one has ever heard of you? You have to come up with some intriguing story to give yourself instant credibility. Here's what Joe Ross says in his sales letter for Trading by the Book:, I'm a professional trader. Some of the concepts and techniques that I use go back to before the turn of the century. My family made millions in the commodity markets starting over 100 years ago. I'm doing it today, and so can you.
The book did not back up any of those claims, but so what? This is one helluva book! Although we can't vouch for the effectiveness of the trading methods described, we found it to be one of the best and most interesting commodity trading books we have read in a long time. Although a self-published soft cover, it is far better than most of the hardbound books in our bulging bookcases.
One of the recurring themes in advice to novices from experienced traders is that each person must develop his own trading style and his own system or method. This is true for someone who wants to trade using his or her own judgment as opposed to just blindly following someone else's advice or system. Ross says this book is a description of how he trades. As he puts it in the introduction: "It doesn't tell what you [the reader] should do. Instead it tells what I should do, and what I try to do as a trader."
Before investing in the book, therefore, it would make sense to see whether Joe Ross's approach to the markets might be anything like yours. Here in the author's own words are some hints about his trading style and outlook.
"The main analytical tool I use is the ordinary bar chart. What I do can be used in any time frame: intra day, day by day or week by week. The only reason I don't use elaborate technical studies is because none of them really gives me a more accurate picture of what is going on in the market than what my eyes can see on a price chart."
"I am a checker player, not a chess player. Trading futures is like playing checkers. I just want to march down and get kinged. When I am contemplating a trade, I avoid FNN, CNN, PBS and any other source of opinion on the markets. Everything I need to know is right there in front of me (on the chart)."
Ross is inconsistent about his preferred time frame. On the one hand, he says, "I'm convinced the small trader should trade as long term as possible to avoid the lumps and bumps seen in shorter term market moves." And, "I greatly desire to avoid the terrible fluctuations that short-term traders encounter." On the other hand, he says his methods yield trades that last from two days to two weeks, sometimes longer. That sounds pretty short-term.
Ross agrees with us on the futility of predicting market direction. "I know of no human being now or past who can predict the future. Why waste time trying? I must not believe any of the countless ads claiming that I can pick tops and bottoms. They are not true. I have come to realize that the price of a commodity that I see at any given moment is the only usable reality."
Claiming 29 years of experience, the author should be well educated on the various techniques and theories of trading. He does not like most of them. He never uses Elliott Wave Theory, "It doesn't work for me," he explains. "I can never figure out which wave I'm supposed to be in. Is this the 5th wave of a larger 3rd wave, which is nestled in an even larger 1st wave? I don't know and I don't want to know." Ross is ambivalent about cycles and seasonals. "Cycles are natural, but markets are not necessarily natural. What I find in markets that makes them unnatural is intervention by men. I never know quite what to do when the cycle low is early or late. Or is it the market that is early or late?
"Seasonal trading is not the most reliable as far as timing is concerned. Seasons just refuse to come on time. There are seasonal tendencies in commodities. But these tendencies change periodically and I don't care to lose a few thousand dollars while I find out that this has happened." Fundamental analysis? "I find it of no use at all in my trading, and if anything it throws me off track."
The rest: "I don't use median lines, trend lines, Andrews pitchforks, speed lines, Gann angles, etc. They are not worth drawing on paper or the computer screen. Not a single technical study can tell you what is going on in the market until it is too late. I don't have the physical makeup for blindly following any system, although I do believe in being systematic. Simplicity is the key to the markets."
Does this sound like your kind of trader? If so, the Ross book describes a diversified collection of trading methods he does like. They include both intermediate-term and scalping techniques, chart-based and mathematically-based methods and a continuum of objective to subjective rules.
The book contains six sections. The first presents a complete system for trading congestions. Ross claims this as his only original contribution in the book. (Otherwise, he admits, "There is nothing new here except perhaps in the blending of useful things discovered by others.") The author did not explain the genesis of his congestion-trading improvements, but we found the addition of objective rules helpful. When have you ever seen a specific description of the minimum length of a tradeable congestion?
The second section describes one of Ross's mathematical tools, the offset moving average. It also presents two very simple chart-pattern entry methods. One he calls the "Ross Hook." As the author explains, "Others have done it, so I can't be blamed for wanting to have a hook named after me, can I?" In the Appendix, he claims he "once took an entire year and did nothing but trade the Ross Hook. Every time a hook formed I placed an order in the market in the direction of the hook. I had one of the highest winning percentages of my trading career. I made a bundle that year until it got boring." Typical. Our problem with the Ross Hook is that he describes the pattern one way in Part 11 and somewhat differently in the Appendix.
Section Three presents an original method of defining an established trend and describes a mathematical way to enter in the direction of that trend. The latter part of Section Three and Section Four present the author's separate weekly and daily chart oscillators and an intermediate term trading system using them. Ross says this system gives the highest probability of winning dollars over losing dollars of any method in the book. There are 57-pages (each with its own chart) showing a complete year of trading in Gold using the system.
Section Five describes a scalping method the author claims is worth thousands of dollars. He says, "Trading it alone can make anyone all the money they ever care to have." This seems a bit exaggerated, but we look forward to back-testing the idea on a computer to see how good it really is. All you need to trade it is the last ten days of daily prices from the newspaper. Section Five also contains a method for trading within congestion areas. It is not the authors favorite, but he claims 50-60 percent odds in the trader's favor.
The final section contains some miscellaneous ideas and 76-pages of charts showing a year of trading using the book's methods in six markets. Throughout the book are various cogent comments on the psychological and money management aspects of trading. All in all, it is a very complete book. It is well-illustrated and remarkably well-written.
Our biggest criticisms involve the book's numerous inconsistencies and its imprecision with respect to the problem of trade exit. Those who demand utmost clarity and objectivity will occasionally be frustrated. To miss all the rest of Ross's ideas for that reason alone would be a mistake. As with most commodity books, you have to take the author's word that the methods work or do your own testing. Be careful.
At $160, we can't call this book a bargain, but it is certainly not a rip-off either.
The author also sells a $395 computer charting program incorporating his methods and the computer to run it. If you want personal instruction, he'll come to your home or office for $600 a day plus expenses. He also sells a horse race betting method that "produces as high as 83-percent winners."
[In my (Bruce Babcock) review of his second book, I saw tell-tale signs that perhaps Joe Ross was not everything he was claiming.]
Commodity traders are constantly on the lookout for new ideas. The problem is that there are a lot more bad ideas floating around than good ones. Part of the process of becoming a successful trader is learning how to distinguish the good from the bad. If this were easy, there would be a lot more profitable traders.
Joe Ross is great source for ideas. He has published four $175 books full of them. Several years ago we reviewed his first called Trading By the Book. The next in the series, Trading By the Minute says it intends to show "many of the things [Ross] has learned about successfully day trading."
Here's how Ross describes himself in his sales literature. "I was trained as a trader by my family. They started trading the commodity markets in 1889. That's over 100 years ago. I was taught the family secrets, and am now in my 34th year of trading. That's enough years in a career for anyone, don't you agree?
"I'm launching a new career as teacher, writer and lecturer. I'm willing to share the things I've learned during my trading career and the ideas I was taught by my family concepts that worked 100-years ago, and are still working today!
"During my trading years, I have updated those trading concepts and adapted them to daily and intra-day charts. Amazingly, other than making a few minor adjustments in the area of trade management, these time tested methods, techniques and concepts work in every market, in every time frame."
That sounds impressive. But how do we know they work other than that Ross says so? We don't. There is nothing in this book, even at $175, that demonstrates anything about the effectiveness of the ideas presented. If you have the means to test the ideas before risking your money, we think this book is a good read and a good source of food for thought.
Ross writes about a kind of trading fantasized by many newcomers to the markets. This fantasy is of earning your living by trading at home with real-time quote equipment. You don't have to trade every day -- only when you want to. You trade whatever markets happen to interest you. You are so skillful that you seldom have a losing day. You don't hold positions overnight, so there's never any stress. You take money out of the market like picking apples off a tree in the backyard. You can easily trade yourself to whatever standard of living you want. What a dream!
The author defines day trading as "any method or system that uses a live, real-time data source to determine entry and exit signals." He writes about short-term trading, but he does not always exit by the close-the accepted definition of day trading.
He offers no illusions about the difficulty of short-term trading. "It takes great energy and intensity of concentration. The cost in mental and physical wear and tear makes it problematic from a practical standpoint. Anyone who is a nervous type will be eaten alive." He quotes a friend who has been a professional trader for 24-years as saying all he can stand is two or three days a month.
Ross says he does not hold overnight in the S&P. He further warns that the S&P is "no place for the trader with a small account, one who can trade only one contract at a time, or who is trading with money needed for living." We found it incongruous that one who is afraid to hold an S&P trade overnight nevertheless talks about actually trading 25-contract S&P positions as part of his research for the book.
Those day traders who have struggled to learn how to use all the analytical studies packaged with their "expensive intra day software will be surprised to find out that Ross dismisses them all. "I reject the use of the dozens of technical trading tools in my trading of the intra-day charts. I use virtually no technical tools in my trading because they operate only to confuse the picture and because they are what the majority of the other traders are using. All technical indicators are figments of the imagination. They are created by the trader and render different trading decisions from the same trader depending on the length of their base."
Since Ross doesn't use indicators, he is left only with chart patterns. He always buys strength or sells weakness. He repeats some of the same patterns he described in Trading By the Book for position trading. We think they make great sense from a theoretical viewpoint.
According to Ross, not everyone should trade with five-minute charts just because they want to. In order to succeed you must be able to call your orders directly to the floor and pay no more than $15 in commissions and costs. If you can't do that, you should go to longer-term charts, such as the 60-minute. Ross shows how his techniques work on any bar charts.
In addition to the entry techniques that most people are stuck on, the book also covers all of tradings incidental considerations. These include money management, risk management, market selection, broker relationships, bookkeeping, types of orders [Ross recommends different kinds of orders than most traders], psychology, etc.
One of the most intriguing ideas we found in the book was the concept of identifying an important chart-pattern breakout on the daily chart and then seeking to anticipate it slightly with a different chart pattern breakout trade on an intraday chart. If the breakout action continues a little on the intra day trade, it will soon be carried along further by the longer-term breakout.
The secret of using this approach successfully, it seems to us, is to be rigorous enough in your definitions of the tradeable patterns so that they only occur infrequently. Otherwise, you will tend to see such trades everywhere, and they will become just a rationalization to trade. Ross lists the four daily patterns with which he seeks to apply this approach.
There are hundreds of chart examples illustrating the Ross trading style. Naturally, they have been selected to make the methodology look good. It is important not to consider such examples as evidence that the techniques described will generate long-term profits.
Ross's descriptions are not always clear. A good example is a method he calls Segment Counting. In the introduction he claims it has "definite and consistent rules [which are] so precise that it could be automated under some form of artificial intelligence." Yet finding them in the book takes real ingenuity. In addition, he says they can't be used on charts that are "too flat, boxy or sketchy." Good luck in figuring out precisely what that means.
Ross describes one trading idea that really casts doubt on his credibility. He says, "if I'm holding overnight in a grain, or crude oil, but also with metals and softs [and Eurodollars], I consider spreading off against a back month to prevent being surprised by a gap open against me." This is nonsensical. All it does is incur an extra commission and extra slippage. If you are worried about an overnight gap, you exit. You gain nothing by spreading against your position. This is classic amateur play normally used to avoid taking a loss on a bad trade.
Because there were many things in the book that seemed inconsistent with the representations Ross makes about his actual trading, we called and asked him to provide some evidence to CTCR privately that he really does trade. We said he didn't have to prove that his trading made money. We asked for a copy of just one P&S statement showing that he traded 25 S&P contracts, whether it was a profit or a loss. Or alternatively, we asked for a P&S statement that proved he had made any of the trades he alleged in the book's narrative. (The book talks about making the trades it describes precisely for the purpose of including them in the book.)
Ross was friendly, but he stonewalled us completely on providing any evidence that he actually trades. His reason, privacy was not persuasive. He has already gone public with his books and seminars. We were asking for only very limited evidence which we promised to keep confidential.
He sent a cordial, three-page letter which again refused to provide any evidence that he really trades. He described his reasons for teaching commodity trading and the great satisfaction he gets from his appreciative customers and students. He wrote the following:
"If you choose to evaluate my books I request only that you evaluate the content not me. My trading life is private and personal. I could be the greatest trader in the world and write a lousy, useless book as so many have. I could be the worst trader in the world and write the best book ever written on trading. The proof of what I write is not in my own trading. I know how to trade. I have never had a losing year in my lifetime of trading. That does no one any good unless they can expect to in some way duplicate my own success in their trading ... One last thing, any time you review a book of mine, tell the truth. If the book is good, if it is valuable then say it. If the book stinks, then say that it does."
While ordinarily a commodity book could stand on the quality of the ideas presented rather than the author's trading prowess, the problem here is that the reader is in no position to judge their quality. The book buyer must either take it on faith based on Ross's implied representations that they have worked well for him in a lifetime of [heavy] trading or test them himself. Most readers do not have the capability or the industry to test trading ideas themselves. If Ross is making up his experience, he could do real damage to a careless, trusting student. There is also the question of whether anyone would pay $175 for a trading book written by a non trader with no evidence of the profitability of its ideas.
Proceeding on Joe Ross's terms, we have grave doubts about the Ross money management method. He says he always trades in increments of at least three contracts. He takes quick profits on the first two ($100 or less) to make back his commission costs on the whole position. He then keeps the last contract to make his profits. If he is risking $200 per contract, he has to be right about 70-percent of the time to break even on those first two contracts. This is a lot of frantic activity and risk for little perceptible advantage. We believe that to be successful you must let your profits run regardless of the time frame or the number of contracts you trade. Taking immediate profits less than your initial risk is a direct route to disaster.
Trading three contracts using different methods for each is the functional equivalent of using three different systems. All three should be able to stand on their own in testing and trading. If trading a system that immediately takes $100 profits is a bad idea (which it clearly is), then trading it simultaneously with a longer-term system is no better. It may often make you feel better in the short run, but in the long run it is losing proposition.
In spite of disagreeing with some aspects of Ross's methods, we found many stimulating ideas and much wisdom in the book. Here is a prime example: "It is the very high level of intelligence traders possess that attracts them to highly mathematical concepts for trading markets. There is nothing mathematical about markets, and therefore trading them that way dooms one to failure. Yes, I know that so many of the ads say that markets are cyclical, astrological, mathematical, symmetrical, geometrical and all kinds of other 'icals,' but don't you believe them!"
There is no question that in comparison with other good trading books, this one is overpriced. But there are so few good books on short-term trading that we can't be critical of Ross for exploiting the laws of supply and demand.
Here's something to think about before you order it. Ross says in passing, "When I do a mailing for my books, do you know who sends for them? That's right, the person who just took a big hit in the market. If I mail the same list again, I'll get the same number of sales. Why? Because next time I'll get others who have lost. The winners almost always throw my sales letter in the trash. Who wants to read a book about trading when he is winning?"
Taking a big loss may not be the best reason to order a new trading book. One important ingredient of success is the ability to stay with a good method through the inevitable losing periods. Think about that before ordering.
For those of you pursuing that day trading daydream, we wish you all the best.
[Here's what transpired in my (Bruce Babcock) third review of a Joe Ross book.]
Joe Ross is great source for ideas. He has published four $175 books full of them. Several years ago we reviewed his first called Trading By the Book, a general guide to position trading with daily charts. In July, we reviewed Trading By the Minute, which was directed to short-term and day trading. There we exposed how Ross had probably made up his 34-years of trading experience and the alleged actual trading he described in the book.
In response to that review, a longtime customer pointed out that the following testimonial appears in Ken Roberts' marketing materials (Roberts has been selling a beginner's trading course for a number of years): "I owe you a lot, Ken, for having introduced me to the world's most profitable and best business. After completing my three months, as of June 1st, I am a professional trader. It's what I do for a living. This may very well be the last bastion of true capitalism in the U.S. It's fantastic! - JR., age 53, Lee's Summit, Missouri."
Lee's Summit is the former address of Joe Ross, who was born in 1935. In his first book, Ross wrote something quite similar: "Trading commodities ... is the best business in the world. I earn my living in what is probably the last vestige of true capitalism in the world." In Trading Is a Business, he calls it "the last bastion of true entrepreneurial capitalism in the free world." While Joe publicly denied that he was author of that testimonial, my informant (whom I consider completely reliable) said Ross had privately admitted that he had in fact written to Roberts and that he was quite embarrassed by it.
In spite of Ross having fabricated his trading experience, Trading Is a Business is full of solid information. At the front of the book Ross warns, "This is a nasty book. It will take you apart at the seams, point out your weaknesses as a futures trader, and then attempt to resurrect you as a successful, self-disciplined person who can control his trading in a businesslike manner."
The first section provides according to Ross, "a good dose of homespun wisdom, philosophy and psychology . . . much of it, most of you will have never seen before." We can't vouch for how original it is, but it is good reading. Perhaps a new slant on an old idea will finally bring it home to you.
For example, an interesting Ross concept is a method of organizing and managing chart based trades that might ordinarily fall into the seat-of-the-pants, judgment category. He suggests that you approach such trades as a business manager. You "plan, organize, direct, delegate and control" the situation like a businessman. You analyze the situation in advance. You have a good reason for entering, a planned protective stop, a profit objective, and a plan for protecting profits should the trade proceed profitably.
Here is The Ross Theory of the Markets: "Markets consist of a series of hysterical bursts with pauses for recovery in between. The hysterical bursts are real, caused by rumors and news, or false, caused by intentional manipulation by the floor."
And, "The truth is that I have no trading secrets. Most of the truths I trade by are self evident.
"Here's an interesting idea for you to ponder. The most money is made in the markets when the markets are trending. Markets trend only 15-percent of the time. Conclusion: a trader should trade only when markets are trending."
Traders often forget that "Trading is hard work. The greatest part of it is in the preparation. Trading is 85-percent grunt time and 15-percent fun time."
There are some inconsistencies in Ross's philosophy. We certainly agree with things like this: "One of the biggest sucker traps I've ever seen are the ads placed by people who are trying to convince you that they know how to call market turning points, or that it is even possible to figure them out.
How can anyone believe these rip-off artists? If they could really do it, would they be telling you?"
But Ross himself claims he can trade profitably but would just as soon teach. "If you trade as I showed in Trading By The Book and Trading By The Minute, you're going to consistently hit 65-percent at the least, and close to 80-percent when you get better at it. If you learn to trade like me, you will have winning trades more than 80-percent of the time." Yet on the next page, he says, "I never show anyone my account. It even bugs me that my broker sees it. I never brag about a trade or any exploit in the market."
Ross demonstrates his amateurism by counseling traders to "Take your money and run. Take your profits and escape while they still exist. Be slow and careful getting into a trade. Be in a great hurry to get out." That is correct advice only on losing trades.
Ross continues, "Be content with small profits on a steady basis. Then every so often the market will hand you a big profit, a real humdinger." Ah, yes, that is why it is so important to let profits run. But how are you going to know when to hold on for that humdinger profit? You will always miss the big trade if you are in a great hurry to take your profits.
Like many who refuse to demonstrate the effectiveness of their methods, Ross puts down hypothetical historical testing. He calls it "simulated trading." He says it "doesn't work" because it will not accurately reflect what would have happened in actual trading. "The [tick data] may show a high and a low, but there is no guarantee that a trade took place at those prices. Now doesn't that sort of blow away the whole concept of simulated trading? Simulated trading is phony. It tells you nothing that you can really count on. A system or method based on simulated trading is a false lover that will let you down time and time again. You will have no faith in it, and you will not be able to trade it with conviction. If you want to test a system or method, then test it for real on the mini-contracts at the MidAm or the CBOT."
Ross is right that simulated trading is not precise, but it is certainly not "phony." It is a close approximation of historical performance. It is the only way to separate clearly losing methods from methods that give you a potential edge. Real-time trading can never be a substitute because it takes too long to generate enough trades to make a statistically valid test.
Bruce Babcock, Reviews of Trading By the Book, Trading By the Minute, and Trading Is A Business by Joe Ross. January/February, 1991, July/August, 1993, November/ December, 1993