Good trading is mechanical. All the intellectual work is done before. The act of trading itself is simply executing a small, fixed number of variables, and implementing the set ups I’ve decided to trade, with the leverage I’ve decided to trade, and the trade management rules I’ve decided to apply.
There should never be the possibility of responding to a loss by saying: “I’m not going to take this, I might be able to get out of it.” My plan should cover every eventuality: at what point I will take profit if I’m right, or at what point I will exit if I’m wrong. Improvising shouldn’t ever come into it.
There’s no emotion in, or reason to get excited about day trading. Anybody who does, especially as an independent, either doesn’t know what they’re doing, or they’re trading too big.
I find my edge at the extremes. I engage at extremes through asymmetric risk opportunities. It sounds fancy, but really it just means finding opportunities where the potential reward is greater than the potential loss if you turn out to be wrong. It’s about getting stops in at the right point and giving myself less room to run at the point I could be wrong. It allows me to be right less than half the time, yet still be profitable.
My avatar is an Ensō. It’s a sacred symbol in Zen Buddhism – a hand-drawn circle in a single stroke – which means the mind is free to let the body create. It also symbolises strength and enlightenment, and is an expression of wabi-sabi: beauty in imperfection, the idea that when something isn’t perfect and symmetrical it can in fact, be more beautiful: I like asymmetry.
“Sometimes I take 30, 40 or 50 trades a day. But then there will be days when I take no trades at all. It depends on the market.”
I don’t like clutter on my charts. I’ve been trading since I was a teenager. I’ve studied every indicator, technique and technical to make sure I have the most reliable and least conflicting chart in front of me. Over time I’ve stripped back the indicators so my charts are now extremely bare.
Essentially, I only look at horizontal levels and the previous day’s high close. I only look at what is necessary and actionable. Like in most sports, the cleaner your path from A to B, or the simpler the movement, the easier it is to repeat under pressure. A lot of traders have too many indicators on their charts, some they don’t even use. All that does is increase the chance that two indicators are going to conflict, and you’re going to have analysis paralysis.
I’m generally very active. Sometimes I take 30, 40 or 50 trades a day. But then there will be days when I take no trades at all. It depends on the market. If the market isn’t moving, there isn’t much to do. We need volatility. [Volatility also increases risk].
There’s no longer any practice involved. I’m doing this constantly. But I tell the students I work with: Do your homework, know your markets, instruments and trade mechanics, and then practice with a dry run. Don’t be an amateur flipping coins – this isn’t a game. A lot of people say: “I need to put money down because, if there’s no money on the line, I can’t focus”. For me, that’s BS. It would be like taking a med student to a morgue and them responding, “No, bring me a live body to work on!” In short, if you’ve got money on the line, it’s very hard to be objective. But if you don’t, you’re unbiased and it’s a lot easier to learn. Only go live when you’re ready.
"Price tells me everything I need to know at any given time.”
I mostly trade forex and futures. It’s liquid with a tight bid-ask spread, and is also capital efficient. I can use margin and access leverage, so I don’t need to have a lot of capital tied up. It’s also open 24 hours a day, five days a week, so I don’t have to worry about stocks gapping up or down, or silly news like somebody going bust, or a CEO sleeping with their PA.
I’m waiting for something very specific to happen. I’m always following the action and trying to interpret what’s going to happen. But I don’t participate if it’s outside my strategy or if it doesn’t fit my risk/reward requirements; if it doesn’t fit what I trade and what I’ve decided are going to be my levels of engagement, I don’t engage.
I have a max limit down day and month. On any given day or any given month, if I lose X amount of my capital, I’m going to stop trading for the day or stop trading for the month. But I can’t even remember the last time that happened; I have plenty of down days, but I never let them get out of hand.
Price is pure. Price does not lie. Price tells me everything I need to know at any given time. It shows me what the market, the sellers and the buyers are trying to do. Indicators on top of the price are just adding granularity; they are all a mathematical function of the price. I recommend learning how to read a naked chart and fully understanding what’s going on before adding granularity.
“Most people fail because they make it harder than they need to”
The market is always right – it’s playing between support and resistance. I always look at charts with a view that, ‘if this happens, or if it goes through this level, then this is likely to happen; if that happens, then that is likely to happen’. So for me, the idea a chart is wrong, or the market is broken, simply doesn’t exist. You need to look at both sides of the coin and understand what the bulls and the bears are trying to do. If the market can’t move in the direction of the bulls or the bears, it’s likely to stay sideways until somebody has the upper hand.
A lot of the success in technical analysis is a self-fulfilling prophecy. It’s not just that in the short term a lot of traders are using these patterns and systems, there’s also huge amounts of money in algorithms and machines acting on these signals. In the long term, just like the weather and the tides, cycles are present in the market. There are repeatable patterns in things like purchase habits and the economy that leads to price doing certain things.
I pay more attention to the ‘what’ than the ‘why’. Sometimes the why can be important, but mostly when you’re trading a chart, who cares about why something is happening? That isn’t something you can influence, so spend more time tackling the things you can.
“Golf is like life… All the biggest wounds are self-inflicted.” It’s a Bill Clinton quote. Trading is much the same. Whether it’s charting, trade management or trade selection, most people fail in this business because they make it harder than they need to.