T2W Trading Community

Alpesh Patel is one of the best known traders in the world.  In this often light-hearted interview, he shares some of his experience and philosophy.

Starting Out

How long have you been trading for?
Bought gilt edged bonds at age 12 back in 1983. The Chancellor did not call me to thank me for buying Her Majesty’s Government debt, but a £100 probably did not save the nation.

How did you first get involved in trading?
Wanted to earn money whilst at school (and whilst my parents toiled 18 hours to send me to a public school) and the idea of company employees toiling to make me money whilst I avoided a paper round all because I bought some stock sounded like a darn good idea. Still yet to get a proper job. Viva capitalism – who has the capital rules the roost. Labour is abundant, capital, or rather the ability to get a return on capital is scarce.

Do you remember your first trades?
Yes, 19 years ago. Short-term government bond to expire in 6 weeks in January. Dullest trade ever.

What were your first few months like? Were you profitable initially?
Moved on to privatisation stocks, buying UK Plc – got paid for filling in forms and sending in cheques to buy stakes in companies and getting bigger cheques back a few weeks later. Was 13. Thatcher was in power. And felt very guilty, but disliked socialists too much to let them in on the secret. Ah, precocious youth.

Has your trading style changed radically from when you first started?
Yes, trade derivatives today.

How did you learn to trade?
By reading everything I could – which in 1984 was largely boring and technical. So then it became by practice and finally, Amazon came along and I could buy thousands of pounds of books, by which time I had no need of them because I had gained a decade’s experience. C’est la vie.

Are you a self-taught trader, or did another trader teach you worthwhile lessons?
Largely self-taught although to get better I interviewed 10 of the world’s best traders/dealers/brokers and put it in a book – The Mind of a Trader – which taught me a hellava lot about trading like a pro

Trading - In Practice

What markets do you trade?
US options, index futures.

What is your basic approach in analyzing and trading the markets?
MACD, Stochastics, Bollinger bands, newsflow. Waiting until I believe I have an insight the market will latch onto.

How would you define your trading style?
Swing when your winning: holding for 1-3 weeks. Although if the passion takes me, will trade FTSE futures for a couple of hours in the morning 9am-11am.

How often do you make a trade?
I don’t like holding more than 3 short term trades at any one time else can’t give each their due focus.

Do you prefer to trade long or short and why?
Up or down – don’t care.

How do you pick your trades?
Technical analysis scanning of stocks. (25 minutes daily unless have full 3 stocks on books) Narrow that down to 5 to focus on, then 2 or 3 to trade based on risk/reward potential. (25 minutes daily).

Is there anything you can single out as the most important element in deciding to put on a trade?
A clear overwhelming view that the odds are in my favour.

Do you use trading systems?
My own, I wrote about it in Net Trading.

How much do you risk on any single trade?
I should not lose more than 2% of my total trading capital. The Bank of England does not fear me. The Bank of Namibia does.

Do you use stop or limit orders?
Occasionally or with my locum (trade minder while I am busy on other things)

Do you use chart patterns such as reversals and breakouts?
Yes – both.

Do you use Level 2 data to trade?
No. Don’t need to as a swing trader. Plus not a good return on my time

Do you decide where you are getting out before you get in on a trade?
Of course.

How do you decide when to take profits?
Before entering a trade, set a level.

Is slippage/bad fills a problem in your trading?
Sometimes. Reduced by stops and a good broker.

Do you use the opinions of other traders in making trading decisions, or do you operate completely solo?
Solo.

Trading – The Theory

What are the trading rules you live by?
Discipline. Never get excited about trades. Don’t treat it like money, but like counters.

Do you believe chart reading can be used for successful trading?
Yes.

Are there any technical indicators that you have found to be particularly valuable?
MACD, Stochastics in my proprietary system.

What are your thoughts about using fundamental analysis as an input in trading?
Yes for longer term views.

Do you ever use contrary opinion as an aid to trading?
No, get on a bandwagon and jump off before it falls off the cliff.

How important is having a sound risk/money-management philosophy?
More important than ‘the right stock’