1. Tell us about yourself. When and how did you get into forex trading?
I got into financial markets ~2001 when I was working with a private client named Philip. One day at his house, he walked up and handed me a book. It was about currency trading.
He then said the following words which forever changed the direction of my life:
“I don’t know why, but I had this strange feeling you should read this. It’s about someone who becomes a currency trader, and I had the strangest intuition you could be this, so take a look.”
I did, and ~14 years later, here I am.
2. What type of frameworks did you use to trade forex in the beginning, and how are they different from the strategies you’re using today?
From day one, I started reading and trading price action, although with one major difference - I was using a line chart!
Eventually I shifted to using candles to represent the data, but I’m still reading and trading price action. As of today, I’ve spent over 45,000 hours behind the charts reading price action.
Back in 2004 I added two models: Ichimoku Clouds & Shadow Models, but I’m always reading and trading price action. Obviously what I can see and trade back then is a fraction of what I see and trade now.
3. Can you tell us more about how you manage risk? (e.g., how many positions, % or pips risk per trade, any hedging practices, etc.).
I do not manage risk by pips per trade which (by itself) is inefficient and ineffective. Nor do I limit the number of positions which should have no bearing on risk (by itself).
My model is based on the risk of ruin formula, thus we have to use a % variable per trade.
I have a max % risk per day, and a max % risk per month ceiling.
If I know I’ll be quite active on a day, I’ll reduce position sizes so we never eclipse the max risk per day. But this almost never comes into play (maybe once a quarter). We generally keep risk low per trade on a %-age base, and thus never really approach our risk ceiling.
4. How do you adapt to changes in volatility or risk sentiment, like what we’ve seen recently? Does the strategy change, risk management, or both?
Volatility is always changing, but by and large, the patterns are not. Hence the strategies will only change in terms of the price action context and environment.
Thus, if trend trading strategies are optimal, we’ll engage them more than our mean reversion models. If volatility is low, then we’ll engage more mean reversion methods.
Only in extreme volatility environments do we adjust risk parameters (to compensate for greater unpredictability/volatility).
A good price action trader can usually spot the changes in the volatility, as those changes will be present in the order flow, and thus in the price action. More experienced traders will adapt quickly, while the lesser will be a little later to the party.
5. What’s your take on the current trading environment? Are you expecting low or high volatility trading for the next few months? What economic factors do you think will move the currencies until the end of the year?
I could spend the next several hours talking your ears off on this one. But to give you the ‘cliff notes’ version, although volatility has spiked from the recent events (ebola, Scottish Independence vote, ISIS, etc), it is still marginally low.
My take on this has to do with the complacency amongst global investors, that the CB’s of the world (Central Banks) will continue with some form of monetary policy (e.g. QE). I feel this has created an artificial environment where the CB’s take the risk out, which is unhealthy long term.
Markets have to be markets aside from CB manipulation & monetary policy. Corrections, sell-offs, recessions, depressions, booms, busts all have to play themselves out without fear of people losing money in the stock market, or what really may lie underneath.
Qualms and ranting aside, I’m expecting a ‘high volatility’ environment soon, coming from an external event within the next 1-2 years, similar to 2008. Volatility should build up for weeks or perhaps a few months leading up to this.
Between now and that moment, I’m expecting volatility to remain low (at least till the end of the year) unless an external event shakes things up.
6. You started the Understanding Price Action thread, one of the most popular in the BabyPips.com forums (congrats!). What’s your motivation for sharing your strategy?
I’ve been trading Price Action for a long time, longer than most have even been trading. My background, training in Neuroscience, practicing yoga/meditation for 14+ years, all afford me a unique perspective into markets, price action and the trading mindset.
Most of the things I talk about in the price action you do not really hear others mentioning (impulsive and corrective moves, volatile and non-volatile trends, exhaustion, climax, accumulation, order flow, bids holding the line, sellers absorbing, etc).
Most of what you see is a carbon-copy/cut-and-paste version of price action, which all seem to look the same.
Hopefully we are providing an alternative method to understanding and trading price action.
7. As a mentor to many traders on our forums, you get to see many variations of evolution of many brand new traders. What is the biggest mistake that you see most traders are making? Is there one thing every trader should be doing or they should understand from the very beginning, no matter how they want to approach trading as they get better?
My sense is most developing and struggling traders are making two key mistakes:
1) They fail to engage in a structured learning process
2) They treat the learning process as ‘information based’, not 'skill-based’
What I mean by the latter, is you’ll hear the following mantra repeated a lot, the ‘you can learn everything on the internet for free’ mantra. This fails to understand what the learning process is about.
To become a successful trader (or piano player, or doctor, or mechanic, or martial artist), you cannot just take in ‘information’.
If information alone were the key to success, then every person who pirates trading material would be successful traders. Everyone who has taken all the apparent necessary information off the internet would be trading successfully now. Yet they are not, because the equation is reversed.
Trading has to be a ‘skill-based’ learning process. You have to properly train, and build your trading skill-set to trade successfully.
And there has to be a feedback process that comes from outside of yourself. I’ve never met a martial artist who became a black belt without training with a mentor. I’ve never met a world-class pianist who didn’t have a teacher. I’ve never met an Olympic athlete who didn’t train with a coach.
Regarding the first point, most do not engage in a structured learning process. They take in ‘information’, and then go trade on demo or live with little/no actual skill-based development.
And with every structured learning process, you’ll find elite performers in each field dedicating more time to the learning/training process than they do the actual live event, game or performance.
Struggling traders seem to have this equation reversed - they spend more time focusing on the live event than they do the actual learning/training process.
8. Based on your experience, what are the pros and cons of teaching others how to trade? Would you recommend it to other experienced traders?
I would only recommend mentoring to people who are highly passionate about this. If you are not, you’ll either fade away, never get any traction, never innovate, or produce any successful traders.
I only engage in endeavors which I’m highly passionate about. I’ve passed up many profitable business opportunities simply because I wasn’t passionate about them. When it comes to mentoring, money cannot be the primary focus, or you’ll lose interest, dedication and focus over time.
For some reason or another throughout my life, I’ve been mentoring or teaching.
When I was at the University, I was a Research Assistant, but also constantly helping students with the course material, especially during finals.
In yoga, I never thought about becoming a teacher. My teacher simply asked me to start teaching, based on a recommendation from her teacher that I should.
When I was working as a broker, I never thought about becoming a teacher. I was asked to do presentations on specific material. Based on how I did, I was asked to do many more.
When I left the hedge fund, many of the trainees wanted to keep training, so I created a format to continue the learning process for them.
Thus, teaching and training others, for whatever reason, seems to come somewhat natural to me.
I enjoy it for several reasons, but the main reason is impact. Meaning - there are many ways to make money, more than enough to do what you want. Making money is one thing, but to have a positive impact on people’s lives - that is another thing entirely.
If I can transfer my skill set, or train people to become successful traders, that to me is having a positive impact, because I’m giving them something which can change their life. Hence ‘impact’ is the main benefit to teaching. The rest to me are secondary, although useful.
The cons are many, especially the ROI in terms of time and money. But if money isn’t the #1 motivating factor in your life, and you’re passionate about it, then it matters less.
Besides all the typical cons one would think of when putting yourself out there like this, the main one is when the students don’t meet me halfway. For them (and I) to get the most out of this, they have to meet me halfway. Most don’t. Most expect me to do more of the work for them.
Each person is their own puzzle, and there is no one answer for each trader and how to help them. There are patterns in their challenges, just like the market, so many of the obstacles repeat.
But if the trader doesn’t meet me halfway, they’ll still get less of a result, because they are not putting their best foot forward.
When a trader does meet me halfway, those are the ones who have the greatest chance of turning the corner. They are an absolute joy to work with.
9. Do you have any final pieces of advice for aspiring and newbie traders out there?
Two quotes can sum my final message:
- “It is not the mountain we are conquering. It is ourselves.” Sir Edmond Hillary
- “For those who fight for it, life has a flavor the sheltered will never know.” Theodore Roosevelt
10. BONUS: What are your hobbies outside of trading, and do you find you get to enjoy them more or less because of trading?
Learning new Languages
The great thing about my ‘hobbies’, is they are all reflective and interpenetrating to what I do now. Meaning they all enrich each other, including my trading, training and meditation practice.
RE: Do I Get to Enjoy Them More/Less Because of Trading
Yes and no. The financial means are there to engage any of those, or do most things I’d like to. If I really want to sleep in, I can sleep till I’m done. If I really want to take off tomorrow and fly to some beautiful beach in the Caribbean, I can without any issues.
However, my life is highly focused. I am creating something much more than my training courses, and have been tirelessly working behind the scenes.
To build the future I want and create the things I am, I have a daily schedule I follow rigorously.
Behind every high-producer and elite performer, you’ll find a highly evolved routine. If I really need a moment of leisure to rest, I take it. But by and large, I’m trading, working, training, and building my future.