Timsk’s brief was to draw a pen-picture of my trading self – so I’ve attempted to show how I have adopted a trading style to suit my personality and character rather than vice versa. I was born into the post-war baby-boomer generation which benefited from grammar schools, free University, early retirement, easy access to the housing ladder and youthful participation in the 1960s – what a golden age! I spent my early years as a small cog in the Cold War machine having been attracted by an RAF advert showing a fast jet flashing down a Welsh valley at not many feet above the ground. It invited dreamers to cut out the picture and doers to send off the coupon. This I did, and some years later I came to relive that advert for real. I didn’t realise that what I was learning then would serve as a template for trading in the future.
Later on in life I ticked all the usual family boxes, ran my own business, and made a final career as an IT manager in a major government Agency. This was a revelation: civil servants running a multi-million pound business, some of whom I wouldn’t compare favourably to your average whelk stall proprietor. This was my final confirmation of the need for a healthy disrespect for politicians and anything connected with government. Nevertheless, I still managed the opportunity to retire early and with the kids off our hands it is now wonderful to lead life as we wish – ideal for trading and participation in the local community. Mrs 0007 is an academic historian who still brings me down to earth with comments like “your ranting over that politician’s behaviour will change nothing: XYZ was doing just the same in mediaeval times”. As a post-grad in IT & History myself, coding taught me to think logically and efficiently whereas History taught me to research, analyse, question, reflect and not to believe everything at first sight – these academic skills have been so useful to me in trading.
Trading – the early years
Until Maggie Thatcher gave me some British Gas shares I thought the stock market was only for important and clever rich people. The privatisations sparked my interest and I was soon on the road to untold wealth and all in my spare time too! Obviously, the yacht would come later! Technical analysis (TA) always fascinated me but even so, I stayed aware of fundamentals. My first charting software used an early Amstrad and you could actually watch the chart being plotted – it was that slow and its capability a fraction of what we take for granted today. I have always been keen on spreadsheets (the only software you need on your desert island) and very early on harnessed them to trading. This was pre-Internet and my quickest updates came via Teletext – I can still remember prices being updated every 15 minutes on the TV screen. Although I actually knew very little about trading I was nevertheless quite risk averse and cautious – characteristics I retain to this day. Consequently, I never lost very much through trading but on the other hand didn’t really make that much either. This turned out to be a reasonably long apprenticeship with the day job and family taking priority and it wasn’t until much later that I seriously began to examine where I was going with trading and what I wanted from it. Looking back, I now wonder why I didn’t get down to brass tacks earlier. Perhaps this is an area where a mentor could have helped? But there was no T2W then.
Once I made the psychological decision to get to grips with trading, things started to improve. I went back to first principles and studied everything I could lay my hands on; I forced myself to understand everything I read and to assess how it might/might not be useful to me. I had previously been through the apparently usual routine of using every indicator known to man (ideally simultaneously) and generally over-complicating everything. After much work and many blind alleys I came to the conclusion that simplest is best and less is more. I learned about the shortcomings of automatic back testing and concluded that the balls-aching process of manually advancing each trade candle by candle was my best teacher. It taught me that entries are important but exits even more so, and that eyeballing the chart is the best way to get in and out and also acquire the big picture. After a while it all started to make sense and I found that the comparatively slow pace of swing trading was right for me.
I’m now trading successfully in shares of the S&P 500 – they offer a good range of volatility and tradeable prices. USA market timings suit my lifestyle better since I’m a night owl and therefore not really awake in the morning. I don’t trade FX – the limited number of major pairs doesn’t really suit my analysis style. I’ve not explored other instruments because I haven’t found the need and at first glance many of them seem rather more complex: it would anyway conflict with my underlying philosophy of keeping things as simple as possible. In a similar vein I use IG spread betting without problem – I like the simplicity of everything they provide and their wide selection of shares. I’ve no doubt that DMA might have some benefit but spread betting also means no bother with tax returns or accounting – I’ve long believed that the less interaction you have with the tax man the happier everyone will be!
My basis for trading is very simple: jump on a trend and get off while the going is good, and don’t trade unless there is an obvious opportunity. Sometimes this means having to be patient – always a difficulty for me. I take profits as they occur, with trades lasting anything from 1-10 days on average. If it’s worthwhile I’ll go back in again but I do like to bank profits when they are there – I find it psychologically painful to see them shrink away on a chart. I prefer going short – quicker profits, increased delta, less risk and if the market tanks you are nicely placed. I try not to trade against the market trend so I pay careful attention to the S&P 500 index. All my trading is probability-based and Mr Spreadsheet is a wonderful friend for results analysis and assessing likely profits. Risk management is a top priority and I vary my risk in proportion to my profitability – but always within conservative limits. The cycles research of Millard & Hurst has always fascinated me; after much study I now have a proper understanding which enables me to trade suitable shares with great confidence and accuracy – especially when allied to conventional basic TA.
I’ve probably put as much work into stop placement as almost anything else. Swing trading with narrow stops allows spikes and opening shenanigans to get you whereas a too distant setting reduces profitability if risk is kept under control. My simple and effective solution uses a wide-ish (broker registered) stop sufficient to keep me in the trade and a much closer mental stop as an amber warning that action may be required. This works well for me and allows me to put the trade on autopilot – I generally check what’s going on at the open and close and perhaps halfway through the day. My major analysis and decisions are made after close when the end of day figures are available and there is no pressure. This also allows a trade to be left reasonably unmonitored but if I know that I’m going to be away I close out all trades and then there is no worry about anything.
In summary my overall trade management is comparable to flying a mission: have a clear objective, do meticulous planning beforehand, plan for emergencies, regularly monitor the execution, don’t take unnecessary risk and ensure sufficient capital (fuel). Effect post-trade analysis to ascertain mistakes, reasons for success/failure and lessons to be learned – all this is re-iterative.
If I were to change my trading style I would go for day trading using DMA in the mould of T2W’s Mr Charts. I like his quick in and out routine and the safety of not holding overnight risk. With day trading’s requirement for increased concentration and mental analysis of the order book I would regard this as my next level up in trading proficiency.
Tips to pass on
Study everything connected with trading that you can lay your hands on. Then think about it in depth and assess its relevance and effectiveness by trying it in practice.
A few of the authors I’ve found useful: Basics: Van Tharp, Elder, Sperandeo, Forman, Guppy, Murphy,Welles-Wilder. Beyond basics – Steenbarger, Ehlers, Elvin, Millard. There’s loads of other stuff for later on and much of it is available for free on the Internet. N.B. – There is also the T2W e-book which has a star-spangled list of authors – content list looks good but I’ve not had a copy to read.
- Understand your system and everything you do. Ask the questions: what? why? when? how much? what if?
- Keep good records – I use spreadsheets for analysis and PowerPoint for screen dumps and comment.
- Don’t evaluate trading methodology and psychological performance simultaneously – if you do that you won’t know which is responsible when things go wrong. Paper trade until you at least have the makings of profitability – then introduce very small amounts of real money and learn to cope with the psychological pressures. Effectively, run your own private simulator before leaving the ground.
Finally . . .
Becoming successful in trading has not been an overnight accomplishment. Although now consistently profitable, I find the attraction is in perfecting the trade rather than amassing money. Notwithstanding that I’m still working towards a bigger yacht! It’s important to me to have a life outside trading because otherwise it would be all too easy to become a traderholic. As a retail trader I suspect my life is much easier than professionals who may well be accountable to managers & stakeholders and likely work within parameters set by others. With complete control over my trading I can do what I want and always know exactly who is responsible for everything. All in all, not a bad life!