Roger Middleton Interview
How long have you been trading for?
How did you first get involved in trading?
I was made redundant in 1992, and was in danger of losing everything, so decided that the ability to generate a second income which no one else could take away once I was back on my feet was a priority. It was what my daughter called my “get out of jail free” card.
Do you remember your first trades?
First trade was Tadpole Technology at 200 (down from over 400). Bought because I thought it couldn’t go any lower. Next day it went to 250 and I thought how clever I was. Eventually sold at 180 for a loss!
What were your first few months like? Were you profitable initially?
Apart from Tad, yes.
Has your trading style changed radically from when you first started?
Far more short term now. All you had to do in 1995 was buy and hold.
How did you learn to trade?
Bought “The Zulu Principle” by Jim Slater - still one of the best books around for growth and value investors in my opinion. Then bought Indexia as my first charting package, and a P75 pc for £1600. Having spent 40% of my “grub stake” on a pc and software I had a few sleepless nights wondering what I had done. Then lots and lots of reading.
Are you a self-taught trader, or did another trader teach you worthwhile lessons?
Initially self taught, but also learned much from other traders on bulletin boards, and am still learning from others every day.
Trading - In Practice
What is your basic approach in analysing and trading the markets?
Mainly TA based for the short term where sentiment is everything. But also use fundamentals for longer term investments and use TA to help time my entry.
How would you define your trading style?
Varied, according to current market. More inclined to be a swing trader than a scalper.
How often do you make a trade?
Options 3 or 4 times per month. US daytrades about 3 or 4 per day.
Do you prefer to trade long or short and why?
In the short term I have no preference. In the longer term I would prefer to trade long on the basis that in a long and damaging bear market people get dreadfully hurt through no fault of their own. I am thinking now of pensions. I miss the buy and hold, and multi-week swing trade, days of the late 1990s, but they are gone and we had better get used to it!
How do you pick your trades?
Trend following, patterns, breakouts and break downs thru support/resistance and gaps. Newsflow. Concentrate on picking longs from strong sectors in a rising market, and shorts from weak sectors in a falling market.
Is there anything you can single out as the most important element in deciding to put on a trade?
Risk/reward must be at least 2 to 1, and there should be a cluster of signals rather than a single one.
Do you use trading systems?
How much do you risk on any single trade?
Normally not more than 1% based on the stoploss selected, but have been known to increase this to 2% if the signal is exceptionally strong and there is solid support very close beneath for a long, or solid resistance just above for a short.
Do you use stop or limit orders?
All the time. I feel very nervous about a trade until the stop is “working”.
Do you use chart patterns such as reversals and breakouts?
Yep - all the time.
Do you use Level 2 data to trade?
Not yet, but this is something that I am determined to learn.
Do you decide where you are getting out before you get in on a trade?
Always with regard to stoploss. After that I have a mental note of where I expect the move to go, but will stay in long indefinitely while an uptrend is in place. “The trend is your friend till the bend at the end”!
What is the maximum percentage of equity you will risk on any individual trade?
The amount of capital risked will never be more than 10% of my total portfolio when the position is opened, but if the trade moves in the right direction I have no problem in that increasing.
How do you decide when to take profits?
I take profits on a short term trade if it stalls at overhead resistance or breaks its uptrend. I also take profits if it spikes up a long way above the trend, on the basis that it will most likely revert to the mean and I can always re-enter if it finds support at the trend.
Is slippage/bad fills a problem in your trading?
Not since I stopped using CMC!
Do you use the opinions of other traders in making trading decisions, or do you operate completely solo?
99% solo, but I value the opinions of others when formulating strategic decisions.
Trading – The Theory
What are the trading rules you live by?
- Rule 1. Stoploss, stoploss, stoploss!
- Rule 2. Never forget rule 1.
- Don’t open a long position when price is a long way above an established trend line in the time frame in which I am trading.
- Don’t go long close to strong overhead resistance.
- Don’t go short just above previously strong support.
- Don’t chase a price.
- When losing sleep, reduce risk until I find my sleep level.
- Look for clusters of signals.
- Trade in the direction of the market and sector, based on the timeframe in which you are trading..
- Have I mentioned stoplosses?
Do you believe chart reading can be used for successful trading?
I don’t believe you can trade without it.
Are there any technical indicators that you have found to be particularly valuable?
I use RSI and stochastics as a supporting cast, but secondary to s/r, patterns and trends. I love the market breadth indicators in AIQ.
What are your thoughts about using fundamental analysis as an input in trading?
Becomes more important for long term holds, but not relevant to short term swings. Newsflow is important though.
Do you ever use contrary opinion as an aid to trading?
Only once. In my former life as an IFA during the tech boom I took 3 calls in one morning in March 2000 from unsophisticated clients asking whether they should buy shares in lastminute.com because they wanted a slice of the tech action.
I immediately recalled the story about Rothschild and the shoe shine boy in 1929. I had been wary of tech for a couple of months, and in that moment I decided that if these people were becoming involved, everyone who wanted tech shares now had them, and there was no one left to sell them to. At the first sign of trouble there would be a rush for the exit, and it wouldn’t be wide enough. The party appeared to be over and I decided that I would leave early. I sold 90% of my tech stock investments that day - the main mistake being that I didn’t sell 100% of them.
How important is having a sound risk/money-management philosophy?
Have I mentioned the importance of an effective stoploss strategy?