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How I Trade for a Living

by Gary Smith (1999)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

How I Trade for a Living

By Gary Smith

Quick Summary

Gary Smith shares his personal approach to full-time trading as a livelihood, covering his methods for selecting stocks, timing entries and exits using technical and sentiment indicators, managing risk through position sizing and diversification, and maintaining the psychological discipline required to trade as a primary income source. The book provides a comprehensive look at the practical realities of self-directed trading as a profession.

Detailed Summary

Trading Philosophy

Smith's approach combines multiple analytical methods: sentiment indicators (including Investors Intelligence surveys, odd-lot short sales data, and specialist positioning), technical analysis (moving averages, volume analysis, up-volume day patterns), and a "whole-brain" approach that integrates both logical analysis and intuitive pattern recognition. He emphasizes that no single indicator or method is sufficient and that the art of trading lies in synthesizing multiple signals into a coherent market view.

Sentiment and Contrary Indicators

A significant portion of the book is devoted to sentiment analysis as a contrary indicator tool. Smith uses the Investors Intelligence survey, the COT (Commitments of Traders) report, and various measures of public sentiment to gauge when the crowd is too bullish or too bearish. When consensus reaches extremes, Smith positions himself against the crowd. His analysis of specialist and odd-lot behavior as indicators of "smart money" versus "dumb money" positioning draws on the work of earlier analysts including Marty Zweig.

Technical Timing

Smith's technical methodology includes the 9-to-1 up-volume day indicator (identifying days when up-volume overwhelms down-volume by a ratio of 9:1 or greater, historically a powerful bullish signal); moving average analysis; the use of weekly highs and lows in the Wall Street Journal as a breadth indicator; and the integration of mutual fund cash levels as a liquidity indicator. His approach to the Nasdaq 100 Index and specific stock selection criteria are detailed.

Wealth Accumulation

The book includes profiles of wealth accumulation approaches, discussing how different types of traders (those focused on index trading, sector rotation, or individual stock selection) build wealth over time. The role of mutual funds, fund supermarkets (like Waterhouse), and direct stock trading in a self-directed portfolio are covered.

Practical Trading Life

Smith addresses the realities of trading as a profession: the isolation, the psychological demands, the need for continuous learning, the importance of maintaining a trading journal, and the financial planning required when trading income is variable. His web-based research approach (using early Internet resources) and his reference library of key trading books (including works by Marty Zweig, Harry Browne, and Larry Williams) provide context for his analytical framework.

Categories

  • Trading
  • Technical Analysis
  • Trading Psychology

Key Takeaways

  • Successful self-directed trading requires synthesizing multiple analytical methods (sentiment, technical, fundamental)
  • Extreme crowd sentiment is one of the most reliable contrary indicators for market direction
  • The 9-to-1 up-volume day is a historically powerful bullish signal
  • Trading as a profession demands psychological discipline, continuous learning, and careful financial planning
  • No single indicator or method is sufficient; the art is in the synthesis