[B]Aribitrager on Acid[/B]
1.Tell us something about yourself. Where are you from? What are your hobbies?
I live in the midwest US. I have skateboarded through most of my life. I enjoy beer, music, and reading about economics and topics related to trading and psychology.
I started a business when I was 24. I currently work for myself as an accountant and consultant. My clients include a microscope factory, an oil refinery, and a distribution warehouse for farm supplies servicing Missouri and Kansas. I help businesses collect and report on the right data for both managerial and financial accounting.
I spend a lot of time with my kids and my girlfriend and I have almost no one around me that has even a passive interest in trading or economics. So my only outlet to discuss this stuff is with strangers online. I finally decided to get into the blogosphere, twitter, babypips, other forums, and so on and I have enjoyed it. I think it is good for my psychology.
I want to put my whole forex trading career out there so that people can say: “Well he was a total buffoon and he eventually made it”. One of the dudes that gives me inspiration is Marty Schwartz. He lost for years before going on to be a Market Wizard.
I once heard a trader on a radio show say: “People always have the same question: ‘Should I risk it at my age?’ And I have the same answer for them all: ‘If your are just starting out then you have a whole life to make up the loss so go for it. If you are middle-aged and haven’t made your millions then this is your only chance so go for it. If you are already retired then you are going to die soon anyway so go for it.’” Perseverance is the virtue I want first to emulate both for my own sake and that of my kids.
2. How long have you been trading and how did you get into forex trading?
I started trading in 1998 when I opened an online trading account. It was all stocks. I studied technical and fundamental analysis and ultimately became a major skeptic about most of what passes for investment advice. I was scalping REITs during the rise and fall of the dot-com bubble so I was not effected much by it all either for good or bad. When decimalization came, spreads narrowed and crushed by scalping strategy. Besides, that strategy ate like a bird and **** like an elephant. (It took many small gains but would occasionally suffer a big loss wiping out many wins).
Focused on running my business, I quit trading for a few years but got back into it in 2009. It was hard to resist the insane fire sale on everything that winter. Almost everything I bought doubled. I even went to a local coin shop and bought junk silver from the guy during 2009 and then went back and sold it all back to the same guy at a nice profit in 2011. The whole silver trade was a straight cash deal. Good times. I didn’t decide to actually get into forex until 2013. The currency wars going on throughout the world made me want to get into it.
3. What’s your most memorable trading experience?
I have many. Certainly big losses come to mind. I remember getting completely emotional and diving into some trade back in the 90’s (some bio stock or something) that put my account up 20% in a day. I lost it all and then some over the next two days. That was before I knew a thing about position sizing (the most under-discussed topic in trading).
The most recent event was of course the SNB surprise which handed me thousands of pips in slippage between three positions landing me at a 40% loss of account equity. That taught me an important lesson about forex trading that sets it aside from most other instruments: Dealers offer you the ability to use leverage on small amounts and limit your losses to your total account balance enabling you to put only your at risk capital in the account while leaving the rest at home. I was not doing that going into the SNB storm and lost much more than I wanted to as a result. I now have accounts with multiple dealers and I am depositing with them only my risk capital and keeping my main trading cash in a bank account at home. When the next big slip hits, I will be one of the lucky traders getting a “negative balance forgiven”.
4. What were your first strategies in forex trading? How are they different from your strategies today?
I came to adopt a technical trend following approach before I started forex trading. I just adapted it to forex. It is based on Richard Donchian’s methods. I call it DMT. My rules are pretty simple. I buy 10-day highs above the 200-day moving average (which I call a medium denomination moving average or MDMA) and sell 10-day lows below the 200-day moving average. I get out of a long position with a new 10 day low and out of a short position with a new 10 day high.
Over the first few months of forex trading I fiddled with position sizing and different ranges (3 day, 5 day, 7 day, etc.) I wanted to trade more so I ignored the MDMA and traded every break both long and short despite the direction of the primary trend.
I even did some intraday trading in early 2014 buying or selling breaks of the 45 minute range on a 15 min chart. I actually could profit doing that but I can’t feasibly trade that way as I have to be able to adjust my positions just once a day and work a day job and be a single dad.
I am a firm believer that any method can profit if it fits the trader. That is why there is no holy grail, because there are millions of holy grails in the hearts and minds of the masses. Sadly, most go unnoticed.
I did all this live. I don’t paper trade. I did so with stocks in the 90’s and all it did was give a bad psychological set-up that had to be reprogrammed in live trading. John Carter has a chapter in Mastering The Trade about how paper trading is worthless. I found that it is worthless for me. It may be great for others but not for me or at least not for Fred.
5. What were your biggest trading challenges and how did you deal with them?
My biggest challenge is Fred. I have many voices in my head. Ed Seykota calls them or it “Fred”. Many think that traders should ignore Fred and cut him off. Fred just wants what he is experiencing to be acknowledged and addressed by your conscious mind. A few shut him up with booze or pills.
I think Ed has the right idea about Fred, he tries to get Fred to comfortably get everything off his chest until his emotional state hits the “zero point”. “At the Zero Point, Fred feels satisfied and no longer wants to communicate the experience.” So my efforts are largely to get Fred and my concious mind (what is left of it) to work together.
6. Describe your current daily or weekly trading routine. What do you do before and after you trade?
My actual time looking at charts and adjusting positions is about 5 minutes once a day. I do it whether at home or at a client’s office. I look at daily charts and ignore everything but the highs and lows. I do not look at all at the open, the close, or what the price action did throughout any given day. I even changed my settings on my platform to make all the candles the same color so I can more easily ignore whether any given candle is up or down. I have my rules on my desktop, but I rarely look at them as they are now completely engrained. I don’t break them. Fred is happy with them now.
I spend a lot of time reading and looking at things online. Perhaps I am too much online these days. I must admit that I have a stack of books that I am part of the way through on all of them, plus I am going back to other books I once read before. I am pretty scattered on that front. I will read something and be reminded of something else and go flipping into that. I am starting to make book reports on my blog about them to organize my thoughts on them all. The mere thought of doing so is daunting. I have read a lot of books. The one I am just now starting a report on is one of my old favorites: Methods of A Wall Street Master by Victor Sperandeo. I like Van Tharp, Jack Schwager, Nassim Nicholas Taleb. My stack currently next to me includes Vienna & Chicago by Mark Skousen, Double Entry by Jane Gleeson-White, Calculated Risks by Gerd Gigerenzer, and Trading Chaos by Bill Williams.
I also listen to YouTube videos and podcasts while working. I like Michael Covel’s Trend Following podcast. He has good guests. I am also a dedicated watcher of the Keiser Report. None of this really has much to do with trading and frankly it could upset Fred more than satisfy him. But I don’t hear a news report or an interview and suddenly think to trade on it. I think “if it moves the price action according to my strategy I will trade it, if not, then not.” Ed Seykota likes to say: “file the news”. I agree. I probably enjoy it too much and should turn it off.
7. Forex trading is not an easy business. What motivates you to continue trading when in a trading slump?
Frankly, the negatives, the hardships, the risks, and the labors of forex trading are extremely overstated. I think this is the case simply because dealers and sellers of advice have to put up a thousand disclosures to protect themselves.
But tell me some other business out there that I can go into that is somehow less stressful, less difficult, less risky. Most businesses require the purchase of illiquid assets that lose value quickly or in some cases instantly. Most businesses give feedback long after mistakes are made and by that time nothing can be done about them.
My first business was a retail store and I don’t have it in me to ever do that again, I turned it over to friends and they still run it today. Forex trading is way easier. Jim Rogers is fond of saying: “People should invest in things that they themselves know about.” I don’t know much. But I think I have enough understanding about trend following to invest in it.
The slump of a drawdown, especially one like I endured with the SNB yank, is simply the cost of doing business. Many businesses go years in a drawdown, they just don’t put a number on it in the same way traders do. Accountants like me put a number on it and the owner tries to ignore it.
Marty Schwartz said it plain: “Most people, in most careers, are busy trying to cover up their mistakes. As a trader you are forced to confront your mistakes because the numbers don’t lie.” How do I deal with those numbers that don’t lie? I traded live for over a year to get used to that number and the emotions that come with it. Now Fred has chilled out and so I may have a chance.
8. What’s that one important thing you’ve learned from spending a lot of time on the forums?
Often there are details that are right in my face and I still don’t see their whole implication. One forum member mentioned before the SNB ordeal that he only puts enough with his dealer to execute his trades in order to minimize his risk with that dealer.
I always liked the idea of diversification with dealers (open several dealer accounts), but I never thought to keep most of my real trading capital in a simple bank account. Today, that is the big lesson I am taking away from the forums. I also run into conversations which cause me to think about things I had never considered. I am very glad I started up on the forum. I did so on a whim.
9. Do you have any advice for forex traders and investors who are thinking of starting currency trading?
The advice I would share is not from me, but it has been the advice that has most benefitted me. It has actually circulated among traders for a very long time. It is stated by Jack Schwager in Market Wizards: "Most people think that winning in the markets has something to do with finding the secret formula.
The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach." Van Tharp has often said that the most important trait of a good trader is “personal responsibility”. My efforts have been to take control and find a way to deploy my strategy and trade my beliefs in manner that is true to those beliefs and compatible with my life and psychology. I take that advice as “find out what you are made of and how that can make you money in the markets.”
10. Non-trading question! What was the biggest non-trading-related risk that you’ve taken in your life?
I think we all take the biggest risk every time we try to avoid taking risks. Stagnant safety is more risky than anything. The golden rule is cut your losses short and let your profits run. Avoiding risk usually means cutting profits as much as losses. There were periods of my life that I did not have enough risk on. I don’t want to let that happen again.