Selene - Greek Goddess of the Moon
By Sean Erikson
†Author Biography & Introduction
ABOUT THE BOOK
If thereís one thing you can count on in the markets, itís that you can expect trading books to be outrageously expensive, and you can expect the good ones to cost the most. Gann used to price his work to cost as much as a new home, so he probably takes the cake when it comes to inflation-adjusted book pricing, but I understand that this book is also expensive. Maybe not Gann-expensive, but stillÖ When you are considering investing in a book like this, and I certainly have been on the other side of it more times than I can count, thereís a certain expectation that the author knows what theyíre talking about and has something of value to say. So, I think itís very important for you to understand a little bit about who I am and why I am sharing this information.
THE AUTHORíS EARLY TRADING CAREER
††††† First of all, ďSean EriksonĒ isnít my real name. I made it up. If you do a search for Sean Erikson, youíll find pictures of a bunch of real people who have that name. I expect some of them are traders. Maybe some of them are even good ones. If you ever come across one of those guys after reading through this book, please donít go over and try to shake their hands or bother them. Theyíre innocent in all of this.
Iíll circle back around to the name in a minute, but first let me give you a short summary of my trading career. Iíve been involved in markets ever since I was a teenager. I had a mentor when I was very young who used to manage money for a family office. He was a good trader and made money, but he wasnít a great one, and I wouldnít expect anyone to recognize his name if I put it in print. I owe that guy a lot though Ė he gave me a push, and got me hooked. Heís the one that really lit the fire under me, and as far back as high school, I knew that trading was what I was going to do for a living.
When I was in my twenties, I worked in one of the exchanges. This was back before electronic markets showed up and showed me the hustle and bustle of how things used to be back in Gannís day. It was an exciting time for a young guy, so much action and energy. The first group of people I made friends with were a bunch of floor traders. As in any large assembly like an exchange, there are all sorts of groups and cliques that naturally form. This particular group of traders all had one thing in common: they were gunslingers. They traded on emotion, and there was no plan. They would show up, figure out what to do in the moment, and then try and ride the order flow. Some of them were good at it and were able to make a living. Others werenít so good, and were barely breakeven. All of them, without exception, were completely full of stress and anxiety, amped up in a way that is hard to understand unless youíve also been in a position where you had to spend every day in a fight against the market to try and survive.
But there were others....... One guy in particular who worked in an office across the hall from the one I spent most of my time in could make money trading anything except the S&P. For whatever reason, that market just didnít work with his approach. As I recall, he used to spend most of his time reaming out the traders on the floor when they would make mistakes with his orders. Heíd chew them out, hang up the phone, do some analysis on his computer, then call them back and ream them out some more. Iíd have quit had I been on the other end of that guyís phone calls.
I remember him really well because I could hear him yelling through two closed doors, and it happened almost every day of the week. The guy was completely over-the-top in almost all ways, but he was always nice to me personally, which I appreciated since I was kind of scared of him. The reason I bring him up is that he was really the first trader that worked off a set of rules. He didnít need to put himself through the stress of trading on the floor, and was more successful than most of those guys anyway. He showed me the benefit of having a plan, and sticking to it.
It wasnít long before I met my first whale. One day a trader friend of mine who was a lot older and a lot more experienced than I was, took me on a tour of a particular trading house he worked at. He paused at one point and pointed out a man who happened to have his office door open at the time. I thought the guy was an accountant or something, since he had a completely different demeanor than any of the traders I was acquainted with at the time. For example, he actually seemed calm, which was weird.
ďSee that guy?Ē my buddy said, ďHe never trades less than a 200-lot on any market.Ē
†My reaction at the time as best I can remember was basically ďHoly shit..!Ē I knew the guys on the floor took huge positions since they were trading for pennies, but this was the first trader I saw who ever traded size and held overnight. S&P futures, which was the market to trade back then, moved in ten cent increments and was worth $250 per point. Holding 200 of those meant that every tick on the chart was worth $5,000 to this guy. If the market moved ten points in a day, which happened all the time, this trader would make or lose half a million dollars. Half a million in a day, and that was just one market in his portfolio! It was the first time that I came across someone who, without a doubt, really knew what they were doing. Itís funny looking back on that moment, because a 200-lot doesnít seem like such a big deal anymore. Iíve traded way more than that.
Eventually, after a lot of struggle, I found my feet and got to be a pretty good trader. I traded my own money for a long time speculating on everything, stocks, futures, forex, options, you name it. At a certain point, I expanded and began working for a private consortium. A handful of Silicon Valley entrepreneurs had made a fortune selling their technology company, and ended up getting bit by the trading bug. That last part was partially my fault! We ended up joining forces, and they kicked in money to a pot that we all traded together. I brought the trading expertise and they brought the big money. It was fun and we made a lot of profits over almost a decade of trading together.
††††† By the time I had reached this point in my career, I was trading completely off the computer and didnít go anywhere near exchanges. Yeah, Iíve called plenty of orders into live brokers, but I hated doing it and would never want to go back to those days. The electronic markets revolutionized everything. As long as youíre not engaged in some sort of high frequency trading operation, you can pay a very reasonable fee to co-locate a server in Chicago or New York and gain less than millisecond latency to the order-matching engines. An entire class of super sleazy traders I used to try and steer clear of in my time at the exchange were all put out of business, which was a good thing for everyone. Slippage has ceased to be a practical concern. It still exists, obviously, but itís nothing like what I used to have to put up with.
††††† At some point, as happens for many successful traders, I got seduced by the idea of running a hedge fund. The trading group I was involved with had banked 30-40% returns eight years in a row, and I found myself fantasizing about how much I would have earned had I been running our approach on a multi-billion dollar fund instead. The back-of-the-napkin math that I found myself performing was irresistible, and I eventually decided to jump in. I got licensed, gave an obnoxious amount of money to some lawyers to set up the structure, and launched my own fund. Iím not going to say which particular fund it was. It wasnít a huge, brand-name fund, but it wasnít a teeny one either. Letís say a small, boutique fund, and leave it at that.
I found that managing a fund was a lot more work than being a trader, especially when it came to compliance and investor hand-holding, but thatís the part of the job you embrace in order to accept the 2/20 fees you get to charge. For those of you who might not be totally clear on what that means, if youíre running a fund, you have the ability to charge 2% on all assets under management as an annual fee, as well as the ability to take 20% of profits from whatever you earn for your investors. Itís one of the few professions left where you can come in at the ground floor with almost nothing and turn yourself into a billionaire in a relatively short amount of time based on nothing more than your own skill or your ability to schmooze the right rich investors. The first way is the honorable way to do it, the second unfortunately much more common.
††††† Over the years, my fund had its ups and downs, as all funds do. We were aggressive, which meant that when weíd take losses, weíd perform relatively worse than our competitors, but when we did well, we would just crush everyone else. The fund reported to a number of databases, and it was ranked against various global indices in the industry. We had a number of #1 rankings over the years (that was fun), and popped up on all sorts of ďbest ofĒ lists for the various sectors that we focused on. Investors like it when youíre #1! Theyíre like retail traders in the sense that they really have a problem not chasing after the hottest new thing that they see. Markets move like that too, with everyone wanting to buy at tops. I think it must be human nature.
After a number of years of doing this, I began to realize that maybe I wasnít living the dream after all given my daily stress levels, and basically ended up burnt out and scattered. My approach started taking losses. Eventually the system got whacked pretty hard in a flash-crash style spike, and I made the decision to throw in the towel and cash out. Now Iím retired from trading. Maybe I should say mostly retired from it. I still dabble here and there, and fool around with new ideas when inspiration strikes, but I much prefer drinking my coffee and chilling out in the morning to being glued to a computer screen, and Iím making a conscious effort to enjoy the time I have left on the planet in ways that make me happy.
RETIREMENT & WHY IíM WRITING THIS BOOK
Thereís a lot more to life than trading, and after having been in it for so long, you can find that you become a slave to the chase in a way, which sort of happened to me. Just take a look at Gann, multiple failed marriages, estranged from his son and unable to get unstuck from his charts in his old age. Yeah, he was a genius, but thereís a huge cost that he paid. Markets were made for man, not man for markets, to paraphrase the Bible. As much as I admire Gannís body of work, I think that John Templeton is probably a better example of a trading hero to try and emulate. He dedicated the second half of his life to spiritual pursuits and furthering causes that were dear to his heart. Iím trying my best to follow his example in my own way.
††††† Coming back to the point... When I was learning to trade back when I was much younger, I studied everything. I read every book, bought every course, spent time hand charting, learned to program computers to test ideas, etc. You know the drillÖ Interestingly, the really good techniques happen to lie in the strangest places, like in ancient astrological textbooks, for example. The problem is that society does not view those places as acceptable sources of trading ideas and inspiration. If youíre a private trader, you can give society the bird and do whatever you want. But if you expect to court institutional investors that sort of thing is the kiss of death.
††††† Once institutional investors get interested in investing with you it takes them around nine months to actually cough up any funds for you to manage. Most of that time is taken up with countless cycles of interviews and risk assessments. If you get one thing wrong on their list of questions, youíre gone. The issue is that itís their job to protect their clientsí assets, and if you lose the money they invest, itís going to be their ass on the line, not yours. So, they are super picky and super weird about everything.
If you go into one of those meetings and say something like, ďIíve made 50% per year over the last ten years, and I did it by only trading when Mercury goes retrograde,Ē those risk managers will thank you for your time and they will leave. You will never hear from them again, and you will never have another chance to sit down with them. Ever! You are doneÖ 50% per year makes you one of the greatest fund managers of all time but talking about Mercury made you untouchable. I know there are a couple openly-declared astrological funds out there, so presumably it can be done, but I guarantee those funds arenít getting placements from the people that I know in the business.
What Iím trying to say here is the institutional crowd where the really big money lives has certain standards that you have to follow if you have any chance to work with them. I had to shave my beard and get a haircut when I became a fund manager. I had to wear a suit to meetings, and I had to dress in certain colors and not others. It doesnít matter if youíre a good trader. You have to fit into their worldview. If you donít, youíre a risk, and they donít like taking risks.
This is the world that Iíve lived in for years now. Iíve got a secret sauce when it comes to trading, but I know it is kryptonite to institutional people no matter how effective it might be. That much is abundantly clear to me. And if, for whatever reason, I someday get back into the business, then I donít want some crotchety Risk Officer showing up at our meeting with a copy of Trading with Seleneís Chariot tucked under his arm, a bunch of colored sticky notes popping out to mark all the passages that gave him cause for concern.
So here I am, with a bunch of really cool material that I feel like sharing with other traders who are interested in this kind of analysis. Iím not using it right now, and Iím not sure how much Iíll need it in the future. I spent decades (plural!) figuring all this out and donít want it to just evaporate. I was inspired to write this book and when inspiration strikes me, I take notice. If the Universe tells you to do something, itís best to listen and go do it. Iíve learned long ago to go with the flow when I recognize the direction, and I have seen the many benefits that accrue when being in that flow.
Things happen of their own accord and all sorts of help (luck?) shows up to push you along. Itís just like trading in the direction of the trend. So when I heard the call to write about these tools, I acted, but throughout the process I remained strangely hesitant about my real name. Suffice it to say, I had to ruminate over this point for quite some time. I guess what you really need to know comes down to this: In the end, I didnít want to put my name on this book, but Sean Erikson had absolutely no problem doing so. 😊
††††† So thatís my story. I blurred some parts and was vague on purpose for others, but itís accurate otherwise. Iíve pretty much lived and breathed markets since I was a teenager. I worked at a major exchange, and later ran a fund that traded millions and won awards based on its performance. Iíve hung out with guys with billions under management, and Iíve worked with plenty that made eight-figures a year.
Now I live in wine country and fool around all day... Oh, I also think astro-trading is one of the most powerful tools you can use in markets. That last part is where you fit in and why I wrote this book.
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