How A Simple Argument Birthed The Dart-Throw Trader
Dart-Throw Trading was born out of two very specific encounters that I had with two former students.
1. A trading student from Chicago, who took 10 years to achieve his goal of getting a financial education because he couldn’t afford the cost of tuition.
2. An angry student in New York who claimed that the only way anyone could consistently make money in the markets was they had to be “Right” all the time.
These two events coming together sent me on a quest, beginning in July 2005, to discover, once and for all, what was missing in the financial education arena.
So I spent two years surveying more people than I thought I could, asking more questions than I probably should have, and picking more brains than a zombie from Night of the Living Dead.
One of the most enlightening discoveries made during this two year quest was that 71% of the people I surveyed shared with me that they had spent more money on education than the education, in turn, made for them.
I found this to be an amazingly lopsided statistic. Does that mean that the education was not good, or did it mean the student didn’t apply what was taught?
More questions to uncover…
So I asked, and here is what I was told. The top three reasons why the education, that many people have invested their hard earned money into, did not produce the desired results was because of:
Inadequate training (#1)
Lack of focus (#2)
Lack of specific skill sets taught (#3)
What that really means, as I dug deeper, is this:
People just like you are investing in (what they believe to be) focused training, yet what they are getting is a set of inadequately-taught generic skills and strategies.
So I asked the following question…
If you could create the perfect trading system, what would it look like? What follows are the results that were shouted back to me:
1. 92% of people surveyed said they are tired of the “sales seminars”.
2. 73% said they want a pay-as-you-go system.
3. 88% said they would like to choose from a list of strategies.
4. 79% said they would like to learn from multiple instructors.
5. 74% said they would like to learn 1-3 strategies per month.
6. 75% said they would like to get winning trades each month.
7. Only 14% of people surveyed said they would like someone to just do it for them.
So based on my encounter with a student from Chicago, an incredulous student from New York, and two years of asking questions…
The DartThrow Trader was born.
Before I go any further, I want to be on the record with a few things…
#1 – This challenge is not, nor will it ever be, for everyone.
#2 – The DartThrow Trader Challenge is a work in progress.
My goal was to create a trading system that actually met the needs of the disenfranchised investors I had spoken to from July 2005 – September 2007.
So let's get to the much-anticipated details of this challenge so you can discover exactly why it was called… “The most innovative and outrageously creative, on purpose, financial program ever attempted by mortal man”.
To understand that quote, let me share with you how the DartThrow Trader Concept was born.
This whole “Dart-Throw” concept was born out of an “argument” in 2004.
I have been a financial markets “insider” since 1989, and have been teaching others how to trade since 1994.
In 2004 I was teaching a class in New York City and had a student approach me, in an attempt to start an argument.
His position was based on an erroneous presumption that the only way anyone could make money in the financial markets was if they were “right” all the time.
“Are you serious?” I asked. (His red-faced expression indicated he was.) I began to laugh (out loud). And then the words came flying out of my mouth without the hint of regret.
Although I can’t recall the conversation verbatim, I remember saying something to the effect of, “If you know what you are doing you can simply put the stock quotes on the wall, throw a dart, randomly select stocks and make money.”
It’s that frickin’ simple.
Of course he didn't believe me. I shrugged my shoulders and simply said… “It's true!”
So there you go, somebody (gasp!) doubted me. I had to prove what I said was true, especially to myself.
That is how this all started. Could I really throw a dart, randomly pick a stock, and make money? Well, as they say, there is only one way to find out.
The first thing I had to do was establish some rules. (Establishing your own rules is just one of the “perks” to Original Game Creation.) I didn't want to skew the opportunities; however, I believe there is more to trading than just going “long” or “short”.
My first rule: the only stocks eligible for the dart board had to be optionable. According to the 2006 CBOE market statistics data, this would be a list of 2027 stocks to choose from, providing more than enough stocks to fill a wall full of targets.
My second rule: eligible stocks had to be trading above $20 per share at the beginning of the year.
My third rule (and this narrowed it down the most): the stocks not only had to be above $20 per share and be optionable, but they also had to be listed on One Chicago and have Single Stock Future Contracts available. This brought my overall list down to about 476 stocks.
I know what you are thinking: “If I only had to watch 476 stocks, I could also make money.” You know what? That’s probably true. The problem, as I see it, is that most people are constantly looking for the hot stock of the day, the “can't-lose” pick, blah, blah, blah…
Most investors I've met over the years spend most of their time trying to pick the stock, the system, the newsletter, or the Guru that will win every time. The sad truth is you can't win all of the time. However, you can amazingly increase your odds of winning if you take the time to learn how to trade the only three market conditions that can ever exist.
Do you know what they are? Of course you do… Bullish, Bearish and Stagnant (and I would suggest one more… the “I-don't-have-a-frickin-clue!” Yes, that is a market condition. Just ask any trader.)
The “I-don’t-have-a-frickin-clue” market condition is the one that most stocks live in, but many investors are afraid to admit.
Think about it. Most investors have spent thousands of dollars (directly or indirectly) on education, software, newsletters, computers, and various other gadgets and trading widgets (anyone still use the magic 8-ball?).
What’s the perceived “need” for all that stuff? It is because they “don’t have a frickin clue” where a stock (or the market) is heading most of the time. I mean, let’s just be honest with ourselves…
If we truly knew where a stock was heading, we wouldn’t need all the peripheral accessories. I know the argument: “But Jimmy, all that stuff helps me determine which way my stock is heading”.
Oh really? Why don’t I believe you? Maybe it’s because I bought into all the hype myself. In fact, I spent the better part of the last 10 years “selling” some of the hype.
Do we need education, software, newsletters, computers, gurus and magic 8-balls? In a word: yes. The purpose of these things is to make our trading easier and more efficient, not difficult and time consuming.
You Like Fish, Don't You?
The problem is most investors are looking for a “fish-feeding” system.
Remember the old adage, “Give a man a fish, you feed him for a day; but teach a man to fish and you’ll feed him for a lifetime”?
The reality is most people do not want to “learn how to fish”; they want someone to feed fish directly to them (preferably with an adult-size bib and a generous amount of ketchup and/or tarter sauce).
If you are looking for someone to feed you fish you will love Dart-Throw Trading because, seriously, all you have to do is throw a dart. (Ah, sorry… you’ll have to bring your own bib and tarter sauce. I'm watching my cholesterol.)
If you are looking for someone to teach you how to fish, you will love Dart-Throw Trading because, by allowing us to feed you a “weekly” fish, you will learn “how to fish” in the process.
The Dart-Throw Trader is the best of both worlds. You get fed and educated all in the same place, at the same time. And you know what? It’s painless…and fun!
So how did the challenge work, and (more importantly) what’s in it for you?
Beginning in January 2006 I threw a dart each week at my 476-eligible-stocks dartboard, so that each stock I traded was picked at random.
According to Malkiel, any blindfolded monkey can throw a dart. I just got to be the “chosen monkey”! (I used to let my kids have a shot at it, but discontinued this practice when their limited dart-throwing skills led them to accidentally spear the dog.)
Once the stock had been selected, I would then evaluate the fundamentals, technical’s, sentiment, and news around the stock to determine what type of trade would be most prudent for the stock’s current exhibited behavior.
You remember the four behaviors we talked about earlier, right? Yeah, you know… bullish, bearish, stagnant and I-don’t-have-a-frickin-clue (the last one is my favorite, also).
Once the stock’s current behavior had been evaluated (to the best of my ability and understanding), then can I began to determine which of the 70 (give or take) different trading strategies will be best for my newly-predicted outlook.
There really are over 70 different things you can do around a stock these days; the good news is, most are overrated and useless.
Maybe I would explore the Bull Call Spread… maybe the Bullput Spread… the Condor could be a possibility, although I really like the Iron Condor… some like the Straddle, others the Strangle or the Strip… have you ever seen a Call Ratio Back-spread correctly structured?
Yes, I know, lots of interesting terms to consider. That is the beauty of having a toolbox full of strategies, instead of just being limited with the boring one-dimensional long or short trade.
Once a week I would throw a dart. I would evaluate the stock based on fundamentals, technical analysis, sentiment and news. I would determine a current behavior based on my analysis. From there I would choose a trading strategy relevant to the current behavior. I would then place a trade and watch it unfold, just to see if I could actually…
Put stock quotes on a wall,
Throw a dart,
Randomly pick a stock…
And make money.
Once the stock had been selected and evaluated and a strategy had been chosen, I begin to monitor the trade’s performance for my pre-determined exit strategy.
Occasionally I would exit a trade before my pre-determined exit target. However, that only occurred in one of two possible scenarios: if the stock either made a strong move against me with no hope of recovery, or if it made a strong move in my favor and I wanted to lock-in those sweet profits.
I have often said and it’s worth quoting… “You will never go broke taking profits, but you might if you leave them on the table!” – Jimmy Slagle, The Dart-Throw Trader
Here is A Step by Step Outline of what I did…
Step 1: On Monday (sometimes Tuesday) of each normal week at precisely 1:00 PM EST I threw the proverbial dart.
Step 2: Once the stock had been selected and the dart safely put away (for the benefit of the dog), I began the evaluation process.
Step 3: After the stock’s evaluation was completed, I decided on the most prudent strategy based on my now-decided outlook.
Step 4: Once I had selected the strategy I felt would most profit from the expected behavior, I then structured a trade around the chosen stock.
Step 5: Once the trade had been placed and my exit targets had been identified, I monitored the trade on a daily basis, looking for an early exit if either 1) the stock moved against me without hope of return, or 2) if the stock moved rapidly in my favor and profits needed to be realized.
Step 6: If the need to exit the trade became apparent, I made that decision and the action was taken.
Step 7: Repeat Steps 1-7 the next week.
Obviously this type of “rebel-without-a-cause” approach doesn’t appeal to everyone. The good news is I understand; the better news is I’m a rebel; and the best news is; I do have a cause.
My cause is to help you become a better, more consistent trader so that you can spend less time trading and more time doing the important things you wish you had more time to do (and to raise a lot of money for charity… more about that later).
So now you know how the Dart-Throw Trader Concept was born.