Was the reasoning that the bond market had already run way up, while stocks hadn't? Did you just believe the two markets were out of line valuewise? That's right. Also, we knew the Japanese were buying the high-capitalization U.S. stocks. Having already
learned their buying style in the bond market, the trade was even more obvious.
Then why didn't you do it? The spread between the S&P and the T-bond contract was trading between $19,000 and $25,000 on a one-to-
one contract value basis. I went on a four-day vacation, and in just a few days, Japanese buying in the stock market
had pushed the spread to $30,000.
Why didn't you buy the spread before the vacation, since you had the idea? I was waiting for the spread to break out above its trading range. I wanted to buy it above $26,000. At a
$30,000 spread, I just couldn'tpull the trigger.
What is the key trading rule you live by? Never add to a loser.
What does the average trader do wrong? He overtrades and begs for tips.
How do you handle a losing streak? I instinctively trade smaller and sometimes I just take a break. It is a good habit to wipe the slate clean and
start fresh.
When you are going bad, but still have some good positions on, do you liquidate them as well? Absolutely. They are bound to turn against you too.
I found the subjects of dual trading and the Japanese impact on the U.S. T-bond market among the most
interesting portions of my conversation with Brian Gelber. These subjects, however, did not provide any insights into
the art of trading. On a more practical note, one of the primary caveats provided by Gelber concerned the misuse of
brokerage research. He noted a tendency for the broker and client to use longer-term research for short-term trading.
This misapplication of information often leads to trading losses, even when the research is right.
Clearly, flexibility and suppression of ego are key elements of Gelber's success. Referring to hot traders, he
notes, "I'll go with their opinion.... It doesn't matter if I'm right. All that matters is whether I make money."
Finally, Gelber's reaction to losing streaks is one cited by a number of traders. He advises wiping the slate
clean and starting fresh. Getting out of everything allows the trader to achieve greater clarity. Liquidated positions, if
they still appear attractive, can always be reentered once the trader has regained his confidence.
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