Born in 1945, Victor Sperandeo is an American commodity and derivatives trader, known as “Trader Vic”. Sperandeo traded, particularly in the energy and metals sectors. He is the CEO of Alpha Financial Technologies, LLC (AFT). It is said that until 1990, he had 18 profitable years in a row with an average return of 72%. Victor Sperandeo takes a trade only when the odds are in his favor. For example, he believes that a typical bullish swing on the Dow Jones Industrial is 20%. After the Dow has performed 20% the odds for further continuation are diminishing.

VICTOR SPERANDEO TRADING TIPS

■ Knowing the stage of the market matters the most

Trading the market without knowing what stage it is in is like selling life insurance to twenty-year-olds and eighty-year-olds at the same premium.

■ You have to know when the odds are in your favor

Gambling involves taking a risk when the odds are against you. For example, betting on a lottery or playing a slot machine are forms of gambling. I think successful trading, or poker playing for that matter, involves speculating rather than gambling. Successful speculation implies taking risks when the odds are in your favor. Just like in poker, where you have to know which hands to bet on, in trading, you have to know when the odds are in your favor.

■ The two-hundred-day moving average (200 MA)

In the stock market, the one indicator I give the greatest weight is the two-hundred-day moving average (200 MA).

■ The key to building wealth

The key to building wealth is to preserve capital and wait patiently for the right opportunity to make extraordinary gains.

■ Cutting losses short

The single most important reason that people lose money in the financial markets is that they don't cut their losses short. It is a curiosity of human nature that no matter how many books talk about this rule, and no matter how many experts offer this advice, people still keep making the same mistake.

■ Admitting your mistakes and having the emotional discipline

The key to trading success is emotional discipline.  Making money has nothing to do with intelligence.  To be a successful trader, you have to be able to admit mistakes.  People who are very bright don’t make very many mistakes.  Besides trading, there is probably no other profession where you have to admit when you’re wrong.  In trading, you can’t hide your failures.

■ The median extent for an intermediate Dow Jones bullish swing is 20%

The median extent for an intermediate swing in the Dow during a bull market is 20 percent. This doesn't mean that when the market is up 20 percent, it's going to top; sometimes it will top earlier, sometimes later. However, what it does mean is that when the market is up more than 20 percent, the odds for further appreciation begin to decline significantly. Thus, if the market has been up more than 20 percent and you begin to see other evidence of a possible top, it's important to pay close attention to that information. I define "intermediate" as a price move lasting a minimum of three weeks to a maximum of six months. Once a price move exceeds its median historical age, any method you use to analyze the market, whether it be fundamental or technical, is likely to be far more accurate.

■ Analyzing risk by measuring the extent and duration of price swings

I analyze risk by measuring the extent and duration of price swings. For example, if the market has risen 20 percent in roughly 107 days, even if I'm still extremely bullish I'll have a maximum position size of 50 percent because statistically, we've reached the median historical magnitude and duration of an up move.

■ Systematic knowledge is only one way to understand all the risks

If there is one fatal flaw in this business, it is allowing isolated information to drive trading or investing decisions-committing money without understanding all the risks. And there is only one way to understand all the risks: through systematic knowledge.

• Good decisions require the development

■ The way to build wealth is to preserve capital

The last stage of a bear market.. is caused by the distressed selling of sound securities, regardless of their value, by those who must find a cash market for at least a portion of their assets... The market player who avoids being invested near the top of bull markets-where he can really get hurt in a panic crash-and plays the short side in bear markets can be in the position to take advantage of such distress selling. You might miss the last 10 or even 20% of the gains to be made near bull market tops but you'll definitely still have your capital when the time comes to buy value with tremendous upside potential and almost no downside risk. In my view, the way to build wealth is to preserve capital, make consistent profits, and wait patiently for the right opportunity to make extraordinary gains.

■ Victor Sperandeo (Derivatives Trader)

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