Robert Donovan
1. How long have you been trading and how did you get into forex trading?
First, Thanks to meetpips.com for asking me to participate in their newsletter. I am always amazed that anyone finds my thoughts on trading useful enough to talk about.
I’ve been trading off and on since I was 22, while still in the Navy, but I’ve been using the same basic set of techniques I use now for about ten years. Bought Coca-cola after the change to New Coke caused their stock to tank. I had no real idea what I was doing (but sure thought I had). I wiped out three accounts in the six years I was in the Navy.
After I got out of the Navy, I became interested in trading stock and commodity futures. I made money, but the fixed lot sizes and high margins usually meant my account was just shy of under-capitalized all the time, and I was never able to stay way ahead for very long as a result. I was also not as focused on good risk control and money management at that time. I hadn’t learned yet that exits are more important than entries, so my performance was inconsistent. I found it frustrating that I didn’t seem to be able to figure out how to get more consistent performance from my trading.
I got so frustrated that I closed my account in 1997. I was starting my own network consulting company and decided to focus on that. I still kept watching the markets and testing trading ideas, even when I didn’t have an account open anywhere. I still traded stocks occasionally with mixed results. I was really not focusing on trading that seriously during the period from 1997 to late 2004 because my consulting business was doing fairly well, but I kept my hand in. Doing the consulting helped me to start looking at trading as a real business and I started developing and trading strategies with better money management techniques and risk control built into them. I made less money per trade, but the consistency improved and trading became less stressful. I considered that a real improvement.
When the economy started going badly, the consulting business suffered, and I began to approach trading as a serious business. Partly because I had more time, partly because I had bills to pay. I’m not sure whether it was insanity, ignorance, desperation, or brilliance that made me try trading as an alternative to a regular business in a failing economy, but I decided to do it anyway. Friends and family assure me it was mostly insanity. The trouble was, I didn’t have the money I’d need to go into futures or stocks, so I looked at Forex. When I started trading, if you didn’t have a couple of hundred thousand going in, they didn’t even want to talk to you about spot Forex trading in most places. I pretty much had ignored Forex up until about 2008 as a result. That was a big mistake, because it turned out to be a perfect fit. Low capital requirements to get started, you can do it from any place there is an Internet connection, you can’t get fired from it, and it requires no self-promotion to expand if your trading is successful.
2. What’s your most memorable trading experience?
The crash of 1987. Yes, I’m that old. I was in the Navy and bought S&P500 options spreads the weekend before the crash. I forget if it was puts or calls. It didn’t matter, everything got hammered. Spreads collapsed. This would be one of the accounts I wiped out by the way. I learned from that experience never to take anything for granted in the markets.
3. Was there ever a time when you suffered a huge drawdown and thought of giving up? How did you get through that phase?
Every time I wiped out an account, I wondered if trading was really for me. But I loved the mental challenge of it and always thought that I’d be able to figure out what I was doing wrong. Additionally, I have come to realize that there is really not anything else I’d rather be doing that has this kind of income potential. Granted, that’s a long shot, but the potential is there if I devote the necessary effort to developing it fully.
4. What’s the most challenging part of trading for you?
There are two parts, patience and discipline, that I find most challenging. I have traded many different instruments in all time frames. Intra-day trading enables one to pull money out of the markets more frequently, but not as much per trade.
Position trading allows one to make more per trade, but far less frequently. I recently decided to return to swing and position trading, after doing mostly day trading for years, because they allow you not to have to watch the markets all day, the biggest challenge I have discovered with going back to swing trading is that I am constantly tempted to try intra-day trading techniques in the middle of swing trades. I am getting a handle on it, but it is proving much harder than I thought it would be.
5. When would you say you feel you are successful as a trader?
My definition of success has evolved over the years. At first, I thought that managing not to lose my shirt was success. Considering the percentage of traders lose their entire account within the first year, you might call that the first rung. Later, I decided that I wanted to make consistent money, though not make my living, as a trader. I am still working on that. I regard the final success as a trader to be able to cover my living expenses entirely from my trading if I want to. I may never attain that level of achievement, but it doesn’t take any more effort to think big than it does to think small, so I prefer to think big.
6. Do you think anyone can become a successful trader? Why or why not?
If you can learn and practice the right temperament and are committed to learning to trade well, yes. That is a big if for some people.
I have a few friends who are engineers. I call them compulsive engineers. They are constantly trying to tweak the world into spec and are constantly frustrated that it just won’t stay there.
Psychologically, they just have a hard time dealing with an environment of uncertainty of the kind that is unavoidable in trading. That suggests a very low risk tolerance. I would say this type of personality would have the hardest time learning to trade effectively, but I think it could be done if they were committed to doing it.
7. How does your personality match your trading style?
My style is trend-following, technical. I discovered early on that I utterly lack whatever brain center one needs to pick market turning points or to do fundamental analysis accurately, so I no longer even try.
I’m pretty good at finding trend early and at letting profits run, so I play to my strengths. I don’t use profit targets as exits for the same reasons. I set profit targets based on the amount of money risked at the start of the trade. When I make so many multiples of that, rather than exit, I move my stop closer to protect more open profits. I don’t have a very high risk tolerance, so I set a risk limit of 1% of my account, and often trade below that unless I am really confident about a trade set-up or trading strategy.
8. If you could give just one piece of advice to newbie traders, what would it be?
Make sure whatever strategy you decide to trade with matches your personality and risk tolerances. I firmly believe that you could publish your best trading rules on the Internet and broadcast them over prime time news and you would be amazed at how many people simply can’t trade your system because it doesn’t mesh with who they are and how they perceive and react to market events and risk.
There is no secret technique, special method of analysis, or secret inside information that successful traders have that you don’t. This business is not about predicting the future. It’s about observing what’s going on right now, getting in synch with that as smoothly and dispassionately as possible, and managing your risk on each trade so as to survive the inevitable strings of losses, and it’s a marathon, not a sprint.
I tell people who ask me about it that it is not a matter of hitting a grand slam home run, but about being able to consistently bring in the singles and doubles. Risk control matters far more in the long run than what set of indicators you use. Find a set of indicators you like, learn to use them, and manage your risk.
You can’t control your profits; you can only control your losses. But if you can learn to respond to the markets consistently each and every trade and keep the risk to your account equity low, you can be a profitable trader. After that, you can define success any way you want.
9. Describe your typical day as a forex trader.
Since I have the luxury of working at home, I can trade all sessions, but I prefer the London and New York sessions. I normally watch the charts during the day and when I see a chart set-up starting to form on the intra-day charts. I arrange my schedule around whichever trading session I need to get into the trade. Once I’m in, I place an exit stop on the intra-day chart I got in on and then start following the daily charts.
If I’m still in the trade by the end of the daily session, I trail my stops based on the daily charts until I get stopped out, a reversal occurs, or major news might require exiting earlier. The exact rules are in my trading plans at meetpips.com for those who are interested. Feel free to use and adapt them to your particular trading style if you find them useful.
10. Who’s your favorite Forex character?
I don’t know about a favorite, but I’ve been influenced by and read just about everybody’s stuff. Principal influences that went into my trading techniques would probably be Larry Williams, Chuck Lebeau, Bruce Bab****, and Edward O. Thorpe, but I find useful ideas from just about everyone.
