At the beginning of my career in the stock brokerage business, the stockbrokers and the firm's desk traders gave me the following advice:

- Buy low. Sell high.
- The trend is your friend.
- Cut your losses short.
- Let your profits run.

What they neglected to tell me was the fact that they did not have to use these old market adages in order to "trade" profitably, and as such, had not mastered any of these concepts.

Stockbrokers are in the business of selling stocks to retail clients. Their livelihood is from commission income, which in turn depends on their sales skills. This has nothing to do with trading.

Desk and floor traders in brokerage firms are there to execute retail and institutional client orders. Most of them also trade for their own accounts and their firm's inventory accounts. Like specialists and market makers, these traders trade with the benefit of holding "the book", that is, they know where all of the buy and sell orders are and at what prices. Buying at the bid and then selling at the offer to execute all these client orders, and pocketing the spread, is very lucrative. And it does not require extraordinary talent or skill. Many of these men, knowing what their income stream will be on a particular day, proceed to trade stocks where they don't hold the book, and lose money in the process.

After the market close, these traders gather in bars, where the neophytes look up to them in hopes of gleaming pearls of wisdom so that they too may someday arrive at the pot of gold at the end of the rainbow. Little do they know that it is the structure of the system that makes money for these men and their brokerage firms. It's the way the game is set up. The traders, the salesmen, the specialists, are the croupiers. The firm and the exchanges are the house. They are net takers from market participants, living off the avails of trading activities in this great capitalist system.

I discovered quickly that the brokers and firm's traders had no particular brand of magic, and proceeded in the quest for market knowledge alone. My library contains some 200 books about the market and trading, some dating back to the late 1800s. These books were written by the likes of William Peter Hamilton, Robert Rhea, Charles Dow, W.D. Gann, Ben Graham, Robert Edwards, John Magee, Richard Shabacker, Warren Buffet, George Soros, R. N. Elliot, Richard Wyckoff, Steve Nison, Tom Demark, Ian Notley, Welles Wilder, Justin Mamis, Jake Bernstein, Victor Sperandeo, Martin Pring, Stan Weinstein, Larry MacMillan, David Caplan, John Brooks, Victor Niederhoffer, Charles Kindleburger, Jesse Livermore, George Angell, William Eng, John Murphy, Gregory Morris, William Dunnigan, Laurence Connors, Linda Bradford Raschke, Alexander Elder, Howard Abell, Robert Prechter, Jack Schwager, Robert Hyerczyk, L.L. Angas, Ken Van Strum, Robert Beckman, R.W. McNeel, Henry Clews, John Maynard Keynes, and Burton Makiel. The list goes on. From number crunching to financial astrology, I endured them all.

I don't know why, but as a child, I distinctly remember watching with fascination, the oil shocks, the sugar shortage, wage and price inflation in the 1970s and the interest rate spike that brought it all to a sudden end. In high school, I watched the gold and real estate manias and their subsequent demise. I bought my first mutual fund in 1984 as a teenager and began trading in 1986. In 1987, a newly minted university graduate, I joined a brokerage firm. I could not find anyone who consistently traded profitably. I blew out my account twice in the early days, but luckily the dollar amounts were small. Those experiences taught me a lot about taking losses quickly. Obviously I was not a fast learner, requiring two blowouts to master the first lesson. The rest was a battle but I slowly and steadily climbed the learning curve until "oleman" came into the picture.

In the early days of the Internet, before the explosion of financial information related to the current mania, there were few places where traders could exchange information outside of the brokerage business. I stumbled upon the AvidTrader site and they had a free chat line. I hung around there for a long time and one day, a gentleman using the handle "oleman", an S&P futures trader, came into the site. We became regulars on the site and at some point, I sent him an email, asking him about his methods. He replied that he traded like Forrest Gump.

His basic logic went something like this:We are told to buy low and sell high. We are told to follow the trend. These would appear to be mutually exclusive at first glance. The only way to make these two statements reconcile is if we change it to "buy high, sell higher" or "sell low, buy back lower". I was struck dumb by the power and the simplicity of his idea. It was as if I had sailed for a lifetime on the open ocean expecting to fall off the edge and suddenly discovering that the earth was round instead. Perhaps it was like the moment when the apple fell on Isaac Newton's head and he "discovered" gravity. Suddenly it all became clear to me. I was free.

Let's get technical. What is an uptrend? What is a downtrend? Victor Sperandeo, in his first book, Trader Vic- Methods of a Wall Street Master, defines it perfectly:

Upward Trend - An upward trend is a series of successive rallies that penetrate previous high points, interrupted by sell-offs or declines, which terminate above the low points of the preceding sell-off. In other words, an uptrend is a price movement consisting of a series of higher highs and higher lows.

Downward Trend - A downward trend is a series of successive declines which penetrate previous low points, interrupted by rallies or increases which terminate below the high points of the preceding rally. In other words, a downtrend is a price movement consisting of a series of lower lows and lower highs.

This is simple enough but 90 percent of traders probably couldn't tell you off the top of their heads. Once we know the definition of uptrend and downtrend, we are already ahead and on our way. The next thing we need to do is to draw a trend line correctly. It becomes a game of connect the dots. Sperandeo continues:

"For an uptrend within the period of consideration, draw a line from the lowest low, up and to the highest minor low point preceding the highest high so that the line does not pass through prices in between the two low points. Extend the line upwards past the highest high point. It is possible that the line will go through prices past the highest minor high point. In fact, this is one indication of a change in trend, as will be demonstrated shortly."

"For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that the line does not pass through prices in between the two high points. Extend the line past the lowest high point downward."

Armed with the definition of uptrend and downtrend Oleman said that in his trading he would buy every dip on the way up and be wrong once at the top, whereupon prices would fail to make a higher high. And on a downtrend, he would sell every rally and be wrong once at the bottom when it would fail to make a lower low. How much simpler could it be? It sure beat what I had seen being done by the desk traders and retail clients all around me, namely, buying every lower low trying to catch the bottom and then shorting each higher high to try to get a top. These people were trading their egos. I thought it would be a good idea to just trade like Forrest Gump and make money instead. I did not press him further for he had parted with a real gem. He did say something about using Average True Range. I did not think it was right for me to ask for more handouts. It was time for me to find a way to employ this fundamental truth. The secret was so simple and so correct. I had indeed missed the "Forrest" by getting too close to the trees.