PM: = Paul Mullen (Interviewer)
JP: = Joel Parker (Tape Reading Trader)
PM: What is it that you do related to trading?
JP: I’m primarily a trader but I do have a service where I educate other traders about price action trading and reading tape.
PM: What is it you trade and how long have you been doing it?
JP: At this point in my trading career, I trade futures – usually the emini S&P and crude; I bounce around a lot between other futures contracts depending on what clients want to look at. I started out trading back in the mid-nineties and at that time I was trading equities, a little longer timeframe, anywhere from a month to three or four months, what you would probably call a short-term investor. I quickly became addicted to trading and gradually became more and more active until I was primarily a scalper with a few longer term positions.
PM: How did you get started in the industry?
JP: When I started with my short term investing, it was primarily out of frustration with a money management firm. It was a large national firm, and I kept watching the statements – month after month they were earning more in fees than what they made me, and I finally got to the point where I felt it would be better just to put my money under the mattress than leave it with them.
At the time, I owned a couple of businesses that were very dependant on customers spending their discretionary income. I watched the sales, and I saw clearly the ups and downs in the economy. So I based my outlook on that as well as my own gut feel about where the economy was headed. That was a successful approach almost immediately.
I gradually shortened my timeframe up and started swing trading, holding for a few days usually, and then by ’97, ’98 the platforms were available to trade electronically, real-time. Commissions were reasonable, although looking back they seem pretty pricey compared to now. That was when I went ahead and transitioned into the intraday trading. I sold my businesses in ’97, ’98, and ’99 and started trading full time.
PM: As a matter of curiosity, what were your businesses before you became a trader?
JP: I actually had businesses selling window film, or window tint as some people would call it. I owned shops putting the films on automobiles. I had a flat glass business. So I really saw the rise and fall of peoples’ discretionary income with that business, which to me gave me good insight as to what equities may do, whether they were spending money elsewhere as well.
PM: So you said you sold your businesses in the late ‘90s and presumably that covered when you said you started becoming a fulltime trader. When did you start trading equities or did you move into futures straightaway?
JP: I traded equities up through 2001. By 2001, I had just gotten tired of the record keeping, and the platforms at that time were not very friendly as far as importing your records for tax purposes here in the United States. I had years of anywhere from 400 to 600 pages of Schedule D continuation sheets on my tax return from tracking all these trades.
I was watching the S&P futures as an equities trader and I would analyze the S&P futures and I would call it right, but then the instrument I was trading, whatever stock of the day I was trading didn’t run along with the futures, which was obviously frustrating. Then I found out the tax advantages in futures trading here in the US, that I could essentially just have one line on my tax return at the end of the year, which was gain or loss. I said ‘I already read the futures; I already analyze them well, so why not just trade them’. So from 2002 on, although I still owned a few longer-term stocks, I have never again traded equities. It’s just been straight futures.
PM: So I seem to remember that the platforms that were primarily used in those days were the likes of TradeStation. Was that what you were using to trade these intraday or was it a different platform?
JP: I used TradeStation for some charting early on. It was before they really started as an execution platform. The trading platform that was one of the most well-known and widely used among wanna-be professional traders at that point was called the Real Tick platform, which was what I used.
I got so frustrated, and it doesn’t matter now, but I got so frustrated with TradeStation and eSignal crashing at every news report that I finally just said I’m using the built-in charting. I very quickly gave up indicators, didn’t see any sense in them. I didn’t need real sophisticated charting, and the trading platform included enough tools to work fine.
PM: You’ve stepped right through a lot of things that a lot of traders do. One is that they still analyze charts, they still use technical indicators. You said you’ve abandoned that. So what is your approach to trading?
JP: I still use charts, but it’s very simple, very clean. I use one chart for any instrument that I would trade. I don’t look at multiple timeframes. I am very interested in support and resistance levels, where other traders might still have positions from yesterday, or the day before, but going back beyond that, not me. I’ve never paid as much attention or put as much emphasis on where it was two months ago. That contract has expired and nobody has a position in it anymore.
PM: What timeframe does your chart show then? Is it just the previous couple of days?
JP: By default I think it loads ten days, but 95% of my trades are based on levels from yesterday.
PM: Is it a daily chart that you’re looking at, and going back ten days?
JP: I don’t look at dailies. On most instruments I just use tick charts. I went through an extensive flirtation with Japanese Candlestick charting. I still use the candlestick charts but I do not look at the candlestick patterns any longer. I am 100% support and resistance levels, very short-term support and resistance levels. Then when we get into those levels, it’s using the time and sales and reading tape to filter the trades, or trigger the trade, and either make me decide to pass on it or get me in.
PM: Basically you’re a tape-reading trader from what you’re saying, and just looking at what’s going on around the support and resistance levels. I think there are probably not many people who do that particularly effectively. Certainly if you look at the number of traders which I’ve had contact with, very few are doing that. You talked also about the fact that you have an education activity as well. Do you want to say a bit more about that?
JP: When I got involved in that role as an educator, it was by accident. I had an acquaintance – when I met him I found out he was trading and we struck up a conversation. Traders don’t usually have many others to talk about trading with. When he found out what I was doing, he asked if I would educate him for a fee. I really didn’t want to mess with it, so I just threw out a high price and figured it would shut him up and I wouldn’t have to talk with him further about it. He then immediately accepted.
I did not realize how wealthy this gentleman was. He was losing in the vicinity of $125 -130 thousand dollars a month, and his plan was that he was going to do this for eighteen more months. He’d already been doing it for six months. He was going to do this for eighteen more months and that would make him decide whether or not he was cut out to be a trader.
I was stunned. I never dreamed — why trade hundred lots if you can’t make money trading two? But that was his mentality. He asked if he could bring along a trading partner and I worked with both of them for a couple of weeks. They were very impressed with what they learned. They started telling people. Most of their friends were pretty wealthy and they dabbled in the stock market as well. I ended up doing six or eight private mentorships a year that came from word of mouth.
Then about three years ago, back in early 2008, I was approached by a broker who asked if I would train his clients on a more affordable basis. I thought about it, and I’ve enjoyed the interaction in the past just because trading could be a lonely endeavor. I told him I would do it. His first request was that I needed a website so he could point the clients to the website.
I built the website, never anticipating doing anything with it other than for his convenience. Essentially, because of his referrals and a few other industry connections, guys in the industry that know I’m a real trader, and that I’ve been successful at it, it’s all been word of mouth. There’s a little bit driven by search engines, but I’ve never tried to pursue anything that way.
I’ve tried to model the education on the basis of working with what a trader already knows. Some are more comfortable with indicators. Others like Market Profile, point and figure, and so forth. One thing that can help any of them is understanding the order flow right at the time they’re getting ready to take their trade set up.
If they can see the order flow and understand the order flow at that point, it will frequently keep them out of losing trades. That to me is the real benefit of reading tape. I try to work with the existing knowledge base of customers, and then add to that an understanding of order flow.
I’ve found that’s been easier done with video, where they can actually watch it happening. They can rewind it, watch it again frame by frame if necessary. Technology has also changed the mentorships, since we can use screen sharing applications. This means I don’t have to charge as much as I used to, since there is no travel involved.
PM: That’s obviously a separate activity, the education side. For your own day trading activity, what are the hours like? What’s your working day?
JP: A working day for me typically, if I was just by myself trading, I start a few minutes before the broader market open at 9:30 Eastern. I am very rarely still sitting there two hours later – if I am, it is just managing a position. I do prefer to trade the first two hours of the day, be done, and quit staring at the screen.
If I’m working with clients I keep the same type of schedule – the first couple of hours each session. I may spend some time during the day putting a video together, answering questions, or answering email for others. But trading hours, it’s just a personal preference. I could sit there all day. I observed over the years when I was trading fourteen to sixteen hours a day that my broker made a pretty big chunk of commission from me. Realistically, today I make more money just trading the first couple setups and walking away.
PM: So quite a short time scale, and what do you do the rest of the time?
JP: It has changed somewhat over the last two years, where I may have three to five hours a day answering client emails or making a video for clients. I try to give everybody personal attention with their questions and problems. I enjoy going out and playing a round of golf, going fishing, and spending time with my family. I felt initially that I would make less money but get more joy out of life. It turns out the money stayed the same and I got more joy out of life.
PM: You must like educating people?
JP: I really do enjoy it. I have felt somewhat alienated as a trader. If you tell people what you do, you see most peoples’ eyes glaze over. They don’t want to talk about it. They don’t understand it. They think you’re greedy. Very few people would actually sit down and have a conversation. For most of us that trade actively, you’re kind of a pariah of sorts, where nobody does anything, wants to talk about it, or have anything to do with it.
I really enjoy the interaction with other like-minded traders. With my former business, even though it was based on window tint, I was essentially solving problems for people. They were too hot, their furniture was getting damaged. I came in and solved their problems, they were happy. I really do enjoy helping people solve problems – this is just a different arena. Like I said, I didn’t intend to spend this much time with it, but if somebody emails me, I will personally answer that email and try to help them through the problem.
PM: Have you found that there’s been any impact of the credit crunch on what it is you do, or is it exactly the same as it was beforehand?
JP: I have seen a lot more talk by the brokers who are having difficulty getting clients. One broker in particular commented to me that their burn rate was about a thousand clients a month that they had to replace. It’s very difficult for them to get new clients over the past two years, people not spending, not willing to take money and put it out there at risk right now because they’re scared. I have not seen it affect me as a trader, as a short-term trader I don’t care as long as it’s going up or down or sideways. In some sectors of the industry there’s definitely been an impact though.
PM: Has your role attracted much media attention?
JP: No it doesn’t. Every once in a while you see something about a trader in the news, and everybody’s badmouthing high frequency traders the same as they badmouthed day traders before them. Me personally, I am very low profile. I like to sit here and trade and keep to myself, essentially. There’s not much in the media that appeals to me.
PM: What advice would you give to somebody who wants to start trading in the style you do?
JP: The first thing that I always encourage clients to do is don’t trade. I try to be very upfront with people. I get fed up with the educators that come in and say I’m going to make you rich beyond your wildest dreams.
I am very realistic about it. Most people will lose, and it’s not necessarily the methods they’re using. I think that the psychological, the mental and emotional aspect of trading probably kills more people than the methods they use.
My first advice to people is don’t do it. If you still want to do it, get a good education from somebody who actually knows how to trade and does trade. Then be very cautious with it. There are ways that I have found, and I work with my clients, where they can come in over the course of three or four months and risk no more than fifty to a hundred dollars, total, at the end of that period, and still decide whether or not they’re capable of trading successfully. I tell people that. I don’t want to see people lose their money. There’s no reason to risk a ten thousand dollar account to find out if you can do it.
PM: That’s a good approach if you can be in a situation where you can minimize the risk while finding out if you’re going to be any good at trading.
JP: That’s an area where I see a lot of problems – everybody goes in there on sim and there’s no emotion. Anybody can make money on sim. I could make a million dollars an hour on sim if I want to do it, but there’s no sim lunch. You can’t pay your car payment with sim money.
I’ve always felt that individuals that come in and try to do their paperwork and initial learning on sim are setting themselves up for failure because they never have to deal with emotions. I do think people need to be trading with real money, but there are ways that a lot of people don’t realize that you can trade real money without risking more than the cost of dinner with your wife, over the course of three months. Again, if you can’t do it there, there’s no reason to ramp up the size. You won’t make more money, or all of a sudden become successful because now you can trade size.
Joel Parker can be contacted at PriceActionRoom.com