Trading A Lifetime
Rick Ackerman Of Rick's Picks
How did you get into trading?Rick Ackerman started out as a newspaperman before he found his calling as a trader. How often does that happen? Not very! He went from journalism to a seat on the Pacific Stock Exchange (PSE), where he learned to trade the hard way. He has been trading stocks, futures, and options for nearly 30 years, 12 of them as a market maker on the PSE. Currently, he manages a hedge fund and is the editor and publisher of Rick's Picks, a daily advisory geared to traders and investors. The technical tools described in this interview took 14 years to develop and hone.
Stocks & Commodities Editor Jayanthi Gopalakrishnan interviewed Rick Ackerman via telephone on December 2, 2004.
The best entry points when you're trading are going to be the ones that are either not very obvious, or places where you feel uncomfortable entering.
Growing up, I would get stock shares as birthday presents. I wouldn't say I got hooked on the stock market then, but I enjoyed watching the stocks go up. Later, I worked as a reporter and editor for the Atlantic City Press. I came out to California in the mid-1970s looking for a job on a newspaper, but I couldn't find one. I had visited the Philadelphia Options Exchange a few times, and it seemed like an interesting place to work; and I realized that if I simply leased a seat on the Pacific Stock Exchange (PSE), I wouldn't have to look around for a job in California -- I'd already have one. So, sometime in the late 1970s, I became a member of the PSE and leased a seat for a few hundred dollars a month. I had borrowed about $35,000 -- money that I used to trade, and also to live on. It took me about six months to run that $35,000 down to $2,000. So it really came down to survival.
What did you do then?
I would sit outside the exchange, eating a brown-bag lunch with my friend Frank, and we would try to figure out what had to happen, and whether some revelation would come that would save both of us. Frank didn't make it; he left. But I was trading in Levi Strauss options at the time, and I remember putting on a calendar spread 40 times in Levi. I was just about out of the game at that point.
What happened?
Fortunately, the calendar spread came in. Every day it would widen by about an eighth of a point, and I'd make $500 on paper. This happened maybe four or five days in a row, so I was up about $2,000 in the position. From that point on, I never looked back. That turned the tide. I bought myself a leather bomber jacket and a television set, and I paid back the money I owed in short order. I had just come from a newspaper job where I had to scrimp and save -- I think my pay at the time was less than $20,000 a year. This options trading experience was very different -- I could make that amount in a good week.
When you finally succeeded in the markets, was it based on a technique you discovered, or was it a matter of just trying out various things?
It was trying out one thing after another. Oddly enough, the most successful period I had at the exchange -- and I did have my ups and downs -- involved a relatively simple strategy, where I was essentially long calls in a couple of drug stocks, Schering and Smith-Kline. I was short bank stocks by way of puts in Citicorp, Manufacturers Hanover, Bankers Trust, and American Express. I was very bearish on the financial economy at that time.
So the strategy worked?
It worked beautifully -- all of my puts in the bank stocks became worthless over time, but the drug stock calls performed very well. I was hardly working at all; I would come in and tell the broker to scale out calls in Smith-Kline or Schering, and things just worked out. The stocks went higher, and when you're selling a few hundred of these things, and then you sell another few hundred at a slightly higher price, the money just rolls in. It was really a great period. It's a strategy I've used since then, but in a different form.
Is that what started you in technical analysis?
I never used technical analysis when I was at the exchange. It seemed like the most technically astute traders on the floor were the ones who tended to burn out -- and blow out. I was skeptical about technical analysis at that point, because there were guys down on the floor who were very proficient technicians, who had gorgeous charts in four colors, and who were doing relatively sophisticated technical analysis; but it didn't seem to help as far as their profitability was concerned.
Why not?
Trading skills and the skills of technical analysis certainly overlap, but a good technician is not necessarily a good trader. You have to combine the two skills, and you have to find technical tools and methods that mesh with your trading habits and your disposition.
What are some of the trading techniques that you apply?
By the time I left the exchange in the early 1990s, I had quite a bit
of experience as an options trader; I had been an options market maker
for about 12 years.
...Continued in the February issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the February 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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