Unlike the big traders, Milman, a Russian immigrant who grew up in Queens, is trading his own money, managing roughly $2.5 million, much of which he’s accumulated over the past two years. He followed his brother Serge into day-trading just after graduating from New York University’s Stern School of Business. “I graduated in December of 1998, and in February 1999, my trading account was open,” says Milman. “I borrowed 50 g’s from my brother, and three months later, he was paid back in full. I never looked back.”
To manage risk, Milman practices what is known as technical analysis, a controversial method of prediction based on studying buying and selling patterns. In other words, he analyzes not the underlying value of companies but the movement of crowds. On any given day, Milman is trying to make an informed bet about how mutual-fund managers, hedge-fund traders, and assorted individuals like him are going to behave. To figure that out, he turns to charts of stocks or indexes like the S&P 500 to see if he can recognize shapes in their zigzag formations, like the “cup-and-handle” or the “head-and-shoulders,” virtual pictographs that signal that the market could break in a predictable way, up or down.
“By learning technical analysis,” says Redler, “you become a psychologist of the stock market and trading off the mood.” It sounds absurd, like divining astrological meaning from the Big Dipper or Orion in the night sky. But it’s not far removed from the age-old practice of “reading the tape.” Even Burton Malkiel, the Princeton economist who wrote the 1973 best seller A Random Walk Down Wall Street, which argued that technical analysis is a bogus method of prediction, admits that it’s a strategy that seems to be working now. “This is really a very unusual period,” he says. “Even though I’m known as someone who thinks a lot of this technical analysis is malarkey, there is evidence of short-run momentum, and it’s just particularly strong now.”
“Technical analysis has been thought of as a black art or voodoo,” says John Roque, a managing director at Natixis Bleichroeder, a Manhattan brokerage. “But it’s no different than a football coach watching film to prepare for his next opponent.” Certain trading “plays” are likely to show up again and again, decipherable in chart formations that technical analysts have given names like “dragonfly doji” (a stock that opens and closes at the same high) or the “abandoned baby” (a three-day reversal in which a stock goes up for a day, stays flat for a day, then crashes). “You need to see the same thing hundreds of times, imprinted on your skull,” says Milman. “That’s where you get your confidence. You’ve seen it a million times, that this has worked in the past and you don’t want to miss it.”
This kind of trading is not for the weak of stomach. Milman readily admits his system typically gives him only a slightly better than 50-50 chance at making the right choice, and several of Milman’s colleagues had vaporized their accounts on a few bad bets. The fact is, few traders are successful at this game. Don’t try it at home.
When I first watch Milman trade, it doesn’t seem like his system is working at all. The market has been open for an hour, and he looks deflated, unshaven and rumpled in a lavender-and-white-striped western shirt, his cell phone, wallet, half-eaten bagel, and cold coffee a gloomy still life on his desk. Asian markets and futures are down, and a number of poor earnings reports have Milman struggling in choppy markets. Having made an aggressive bet on Goldman Sachs at the opening bell—betting it would go up instead of falling further down—he has already lost $12,000. “It wasn’t as tight of a formation as I would have liked it to have been,” he says, beating himself up for not reading the signs correctly. “There are plenty of fake-outs. I wasn’t nimble enough to get out in time.”
Milman sits in the corner of a large open-air office owned by a company called Lightspeed Trading, which rents out trading terminals to independent operators and collects a commission for every trade. In exchange, each trader gets a bank of monitors and some special software that lets him (or her, although there is only one woman present) buy and sell quickly. Milman is loosely affiliated with a small trading group with the illustrious name Ronin Asset Management. In truth, it’s just his brother Serge and four other guys—Chad, Stevie, Mikey, and Perry—trading the money of one investor while Peter and another friend trade their own money at adjacent terminals. Together, they form an informal knitting circle in which they tip each other to whatever they’re seeing in the market or hearing from friends on their instant-message boxes. While they sometimes encourage each other to check out specific stocks or index movements, Milman admits that when they pile into a trade together, they also tend to lose together. “Usually, the more people that are in a position,” he says, “the less likely it is to work.”