Long ago in a grimy smog stricken slum in Leeds, I decided to become a doctor or dentist in general practice, partly because of my antipathy to working for anyone else and my reluctance to have to crawl my way up through a company, hospital or any institution. In other words, I realised I was leaning strongly to being self-employed. There was no family tradition of being entrepreneurial and I admit the thought never really occurred to me beyond maybe being a small shop keeper, but that needed capital and we didn’t have any. I soon gave up on the idea of medicine and applied for dentistry and, years later, ended up graduating from Newcastle in the freezing North East of England.
Time rolled inexorably on and I became bored with general practice and wanted some sort of change, though I felt I was too specifically qualified and still wanted to work for myself. I wasn’t seeing enough of my wife and three rapidly growing children and although I had a decent profession, I wanted to change direction before it was too late.
Trading – the early years
I became interested in trading as a result of the Thatcher privatisations and began swing trading. Back then I was able to arrange a T25 account which meant I could go short as well as long and have in effect 23 days to exit a trade without having to stump up the money. I traded exclusively U.K.stocks then and proved to be successful. Essentially, I was looking at technical analysis with some fundamental and news driven hinterland to the trades. In a sense it was a way of reading sentiment in the market.
Before trading live with actual money, I had developed these ideas and then paper traded the consistently successful ones “live” in up, down and ranging markets patiently over a long period of time. I then tried trading futures, options and FX to broaden my knowledge and experience and did okay, but not as well as trading stocks.
One thing I noticed was that when London opened it was influenced heavily by what had happened the night before in the U.S.and I then started to think about trading U.S.stocks intra-day, as their hours were 14:30 to 21:00 U.K. time and I’d be able to trade on some evenings during the week. I did that and found I was more consistently successful using the methods I’d developed than with U.K.stocks.
Gradually I began to think about selling up my practice and trading for a living intra–day. It was a difficult decision, especially with three teenage kids, but they and my wife encouraged me to do what I wanted, though other people thought I was out of my tiny mind giving up dentistry. However, I eventually took the decision but kept my hand in, working two mornings a month until 2004, when I left dentistry forever.
I’ve been trading ever since and enjoyed every single day: no worries, a thirty feet commute to work, no early dark winter morning wake-ups, no icy roads, go on holiday when I like and so much else.
After a while I realised that instead of going to work in a dental surgery, I was still working in the one room and felt the need to get out and also do something else, albeit trading related.
After another while friends asked me to teach them how I trade and, having often said no, I got persuaded and found I actually enjoyed teaching and passing on my hard found knowledge and experience. I then got into teaching and have continued doing that for many years. It gets me out, it’s a change, I really enjoy it and I meet new and interesting people. I have also run a live alert and education web site since 2005 for people I’ve taught and a few others.
So that’s where I am today. As for the future, I intend to keep on trading and teaching. My methods have changed very little over the years, some have evolved and adapted as the market has changed and no doubt that will continue.
I use about a dozen different set ups, one of which is here on Trade2Win called “rising/falling candles” and I know from emails that many people have found it useful and profitable. Essentially, it’s one of the set ups I use on up or down trending stocks, whilst my other methods are used on ranging, bouncing and reversing stocks. Some of the methods can be used on different time frames and trading instruments. Personally, I just like intra–day, being completely flat when I stop trading for the day, but there are people who use the methods swing and position trading. I do think that if that is what someone prefers, they should be diversified over something like a dozen different trades as there is always the ever present danger of a collapse in the price of an individual stock overnight. In other words, keep your eggs in several different baskets, preferably unrelated, to reduce exposure and risk. For example, if you have two long positions open and one collapses by 40% (and yes, that happens surprisingly often) then, assuming the other trade doesn’t move, you’ve lost 20% of your invested capital in one fell swoop. If you are diversified over twelve stocks and the other eleven average out at no change, then you have an acceptable loss of 3.33% of your invested capital.
You can also hedge in different ways long and short, including options, to protect your capital against a sudden and violent move.
However, if you day trade there are huge advantages of capital preservation. You can use the same capital time and time again entering and exiting trades in the same day; it’s like a capital multiplier as your money is not locked up overnight and vulnerable. Of course you can also use margin to get an even bigger bang for your buck.
Tips to pass on
In terms of general advice based on experience, there are quite a few well believed myths about trading and the markets. They gain credence usually because they appear to make good sense and are logical; of course the more people who believe them, the more these fallacies become self-perpetuating. Their adherents simply cannot contemplate them being mistaken or at best not have more than a limited truth or value to them. They are also reasons why so many would be traders fail.
To be more specific, be very wary of attaching too much significance to volume. The apparent logic is that volume drives price, so the greater the volume, the greater the move. Unfortunately, anyone who suggests that is not always correct is regarded as being at best ignorant or more likely plain stupid. On a practical level, amateurs look at price bars and if the latest one shows greatly increased volume and is blue (or green with some data providers) they assume that all that volume consists of “buys” and is therefore highly significant. They forget that every single trade is a buy for one party and a sell for the counter party. The colour, blue or red, is merely a signal that the price is higher or lower at the end of the time period than at the beginning.
Talking of volume, people tend to think that a break to a new high or low on substantial volume is indicative of a strong move to come in that direction. Well, sometimes it is, but the time frame of the candle matters a lot. The longer the time frame the more likely it is that everyone who wanted to buy or sell/short has already done so by the time our amateur decides to enter. In any case, many people enter as soon as price hits a new high or low regardless of the actual price action and behaviour at that level. Unsurprisingly, those buy or sell stops are what produces the increased volume, NOT the supposed actions of professionals. Price can and does move on very little volume sometimes, especially if there is thin market depth or if some players try to manipulate the price to draw unwary punters in: the most well known of those plays being bull and bear traps, not to mention HFT shenanigans.
The simplest piece of advice I would proffer is that you should always trade on the considered evidence in front of your eyes rather than an opinion and never, ever trade on emotion, “wish” and “hope” are four letter words you should never use. If you can’t trade without feeling emotion (and few can), learn to ignore your emotions. Do you think a paramedic called to a horrific car crash lets their emotion control them? No, they just grit their teeth and get on and do the right thing.
Finally . . .
I’ve been on T2W since 2001, almost fourteen years and have not bothered to post on public boards elsewhere more than half a dozen times in all those years. Why? Because T2W is the very best of them in my opinion.
I’ve seen plenty of people come and go, good contributors and trolls/multi-nicks alike, but these days the quality of management, staff and moderation is the best ever and should be appreciated for their hard work and success.
T2W deserves to live long and prosper.