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.
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
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.
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"
Which brokers do you use and why?
I keep this confidential for my privacy otherwise PR companies start calling me up.
What software do you use and why?
Metastock, Sharescope, plus numerous websites.
Do you have an opinion about trading systems sold to the public?
Not really, haven't tried them, but you should get a money back guarantee.
Do you feel a good system can compete with a good trader?
Yes.
In your trading experience, is there one particular trade that stands out as the most dramatic?
Yes, closing 4 positions and opening 3 and on one of the opening positions added a zero too many on a Nasdaq stock. Moved the market on it, took multiple fills to close the deal. Spotted it a few minutes later and made a small killing in about 10 minutes. Forrest Gump said he was proud of me.
What is the most prominent fallacy in the public's perception about trading?
That success depends on the right stock
How much of a role does luck play in trading success?
Probability is important. Luck is a function of that.
How important is gut feel?
Experience, not the state of my gut, although the latter expands with the former as the years go by.
How do you judge success in your trades?
By how much money I have left over after the wife stops spending. Also, by whether I followed my pre-trade plan of entry and exit.
What are the most important elements to becoming a successful trader?
The discipline of a Kung Fu Master.
Can you describe one of your most successful trades?
Every one where I followed my plan, even if I lost money.
Is the joy of winning as intense as the pain of losing?
No. Emotion is the sign of a bad trader. No emotion. Got it. Win or lose, detachment. Imagine you're Arnold Schwazeneger or the Dalai Lama, or both - and see a shrink if this is not a problem.
Why do most traders lose?
No plan, risk too much money, wrong risk/reward ratio, no discipline, little humility, overconfidence
When you do hit a losing streak, how do you handle it?
Three consecutive losses and I stop trading, use paper, re-examine what I'm doing wrong, and why I'm out of sync.
Is the ability to accept losses a characteristic of a winning trader?
You betchya bottom dollar matey. It's as important to a trader as winning in sport is to an Aussie.
What was your worst time trading? What went wrong?
Whenever I did not follow my trading plan.
Can you describe any specific trading mistakes that you learned from?
Don't press too many zeros when deciding on how many stocks you want to buy.
Are there any books you have read that you would recommend to people?
Mine of course. The Mind of a Trader and Diary of an Internet Trader.
What is the most important advice you can give the average trader?
Read everything on trading, start small, practice.
What advice do you have for the beginner trader?
Above.
What are the traits of a successful trader?
He makes money.
Do you enjoy working from home?
No, I miss the days of a one hour commute in an overcrowded train with the guy with halitosis sharing his oral germs with me. Capitalism is predicated on your being able to create more capital for the owner of the capital than you receive for your labour. That's a bum deal.
What environment do you trade in, for example do you have a separate office, multiple monitors and CNBC on the telly?
4 monitors, 3 computers, 3 phones, 1 assistant, 2 desks bolted together, 2 faxes, a wireless network so I can work from any room, separate office.
What effect has trading had on your personal life?
Curiously I have more interesting friends because I can lead the life I wish.
Do you sometimes need to get away from the market for a few days?
Every day. Do you know how boring trading can be? That's why I also write and do other things. The analysis is interesting. Price watching is not.
Is trading for a living firstly viable and secondly desirable?
Simple calculation. If you want 100,000 before tax then you need to produce 10% return on 1,000,000. Hmmmm.
If you weren't trading what would you want to spend your time doing?
Plotting revolutions. Actually do that now anyway.
Do you have any goals at this point?
Yes, to find a meaningful goal for the rest of my life to focus on.
Do you still see yourself trading ten or fifteen years down the road?
Differently.
Any comments about T2W?
Like it.
Any last words?
Boy, that was long. For those who survived to the end, thank you - and remember to smell the roses.
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"
Trading - The Tools (Brokers & Systems)
Which brokers do you use and why?
I keep this confidential for my privacy otherwise PR companies start calling me up.
What software do you use and why?
Metastock, Sharescope, plus numerous websites.
Do you have an opinion about trading systems sold to the public?
Not really, haven't tried them, but you should get a money back guarantee.
Do you feel a good system can compete with a good trader?
Yes.
Trading Experiences
In your trading experience, is there one particular trade that stands out as the most dramatic?
Yes, closing 4 positions and opening 3 and on one of the opening positions added a zero too many on a Nasdaq stock. Moved the market on it, took multiple fills to close the deal. Spotted it a few minutes later and made a small killing in about 10 minutes. Forrest Gump said he was proud of me.
What is the most prominent fallacy in the public's perception about trading?
That success depends on the right stock
How much of a role does luck play in trading success?
Probability is important. Luck is a function of that.
How important is gut feel?
Experience, not the state of my gut, although the latter expands with the former as the years go by.
Success & Failure
How do you judge success in your trades?
By how much money I have left over after the wife stops spending. Also, by whether I followed my pre-trade plan of entry and exit.
What are the most important elements to becoming a successful trader?
The discipline of a Kung Fu Master.
Can you describe one of your most successful trades?
Every one where I followed my plan, even if I lost money.
Is the joy of winning as intense as the pain of losing?
No. Emotion is the sign of a bad trader. No emotion. Got it. Win or lose, detachment. Imagine you're Arnold Schwazeneger or the Dalai Lama, or both - and see a shrink if this is not a problem.
Why do most traders lose?
No plan, risk too much money, wrong risk/reward ratio, no discipline, little humility, overconfidence
When you do hit a losing streak, how do you handle it?
Three consecutive losses and I stop trading, use paper, re-examine what I'm doing wrong, and why I'm out of sync.
Is the ability to accept losses a characteristic of a winning trader?
You betchya bottom dollar matey. It's as important to a trader as winning in sport is to an Aussie.
What was your worst time trading? What went wrong?
Whenever I did not follow my trading plan.
Can you describe any specific trading mistakes that you learned from?
Don't press too many zeros when deciding on how many stocks you want to buy.
Advice
Are there any books you have read that you would recommend to people?
Mine of course. The Mind of a Trader and Diary of an Internet Trader.
What is the most important advice you can give the average trader?
Read everything on trading, start small, practice.
What advice do you have for the beginner trader?
Above.
What are the traits of a successful trader?
He makes money.
The View From The Floor
Do you enjoy working from home?
No, I miss the days of a one hour commute in an overcrowded train with the guy with halitosis sharing his oral germs with me. Capitalism is predicated on your being able to create more capital for the owner of the capital than you receive for your labour. That's a bum deal.
What environment do you trade in, for example do you have a separate office, multiple monitors and CNBC on the telly?
4 monitors, 3 computers, 3 phones, 1 assistant, 2 desks bolted together, 2 faxes, a wireless network so I can work from any room, separate office.
What effect has trading had on your personal life?
Curiously I have more interesting friends because I can lead the life I wish.
Do you sometimes need to get away from the market for a few days?
Every day. Do you know how boring trading can be? That's why I also write and do other things. The analysis is interesting. Price watching is not.
Is trading for a living firstly viable and secondly desirable?
Simple calculation. If you want 100,000 before tax then you need to produce 10% return on 1,000,000. Hmmmm.
If you weren't trading what would you want to spend your time doing?
Plotting revolutions. Actually do that now anyway.
And Finally
Do you have any goals at this point?
Yes, to find a meaningful goal for the rest of my life to focus on.
Do you still see yourself trading ten or fifteen years down the road?
Differently.
Any comments about T2W?
Like it.
Any last words?
Boy, that was long. For those who survived to the end, thank you - and remember to smell the roses.
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