Every-Day Traders Australia

Every-day Traders Australia: Australians who successfully trade for a living

Nick Radge

Originally titled Every-Day Traders by Nick Radge.

First published in 2003 by Wrightbooks.

Republished in 2015 by Radge Publishing with minor changes.

Radge Publishing

PO Box 721

Noosa Heads QLD 4567

Australia.

www.radgepublishing.com

© Nick Radge 2015

All rights reserved. Without limiting the rights under the Australian Copyright Act 1968, no part of this publication may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without the written permission of the Publisher.

ISBN: 9780980812848 (EBook)

Cover design: Radge Publishing

Cover Image: Fotolia Stock Image

Disclaimer: The material in this publication is of the nature of general comment only and does not represent professional advice given by the publisher. It is not intended to provide specific guidance for your particular circumstances and it should not be solely relied upon as the basis for any decision to take action or not take action on any matter for which it covers. While the Author is a licensed financial professional, the publisher advises readers to obtain professional advice where appropriate and which considers your exact situation, before making any such decisions. The publisher makes no representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the contents.

EVERY EFFORT HAS BEEN MADE TO ACCURATELY REPRESENT THIS METHOD AND ITS POTENTIAL. THERE IS NO GUARANTEE THAT YOU WILL EARN ANY MONEY USING THE TECHNIQUES AND IDEAS IN THIS EBOOK. EXAMPLES IN THIS EBOOK ARE NOT TO BE INTERPRETED AS A PROMISE OR GUARANTEE OF EARNINGS. EARNING POTENTIAL IS ENTIRELY DEPENDENT ON THE PERSON. THE PUBLISHER DOES NOT PURPORT THIS AS A ‘GET RICH SCHEME’. ALL COMMENTS AND/OR METHODS PRESENT ARE NOT SPECIFICALLY ENDORSED OR PROMOTED DIRECTLY BY THE PUBLISHER AND ANY LIABILITY RELATING FROM SUCH IS HEREBY WAIVED AGAINST THE PUBLISHER.

Disclaimer

This book may contain advice that has been prepared by Reef Capital Coaching (AFSL 288200). Being general advice it does not take into account your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice in regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decisions.

This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

Past results are not a reliable indication of future performance.

All results are considered to be hypothetical unless otherwise specified. Hypothetical performance results have many inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity.

Acknowledgments

I would firstly like to thank those who gave their time and depth of knowledge to this project. It’s people like you that take traders to new levels of understanding and this book would not be possible without your patience and knowledgeable input. I would also like to thank those who declined to take part and I appreciate your professionalism and anonymity.

A special thanks to my soul mate Trish, the perfect trader’s wife, who is always barracking for me. It’s been a great journey so far yet the ride seems to have just begun.

Lastly to the many who have taught me, knowingly or not, the subtle lessons in life and in trading. Without every single one of you I would not be where I am today.

Contents

Acknowledgments

Preface

Part 1: SYSTEMATICALLY SPEAKING

Chapter 1: VAN OAYDA, Knowing the Indicators

Chapter 2: RICHARD PARRAMON, The Disciplined Trader

Part 2:THE SCALPERS DEN

Chapter 3: PHIL GEARY, Using your Emotions

Chapter 4: RYAN WATSON, Remembering the Big Picture

Chapter 5: SEAN TURNER, Trusting your Instincts

Part 3: TRADING WITH A DIFFERENCE

Chapter 6: SCOTT BARLOW, Outsourcing the decisions

Chapter 7: TODD MCKEON, Spread Trading

Chapter 8: RICHARD WYNN AND NICK STOTT, Warrants

Chapter 9: ANDREW AND MATTHEW KALEEL, Combining Analysis

Conclusion

Appendix: A BRIEF EXPLANATION OF FUTURES TRADING

Glossary

Preface

Since the late-1990s trading has taken a huge leap into the public arena, especially here in Australia. Hot on the heels of the technology boom, masses of DIY books, specialist magazines, courses, software, data, systems and almost everything else that could possibly help us move toward the so-called ‘desirable goal’ of becoming highly profitable and self-sufficient traders have flooded the market. With so much information at hand it’s becoming easier—yet more difficult at the same time—for a new trader to make informed decisions.

This book was originally released in 2003 by Wrightbooks. Whilst technology has continued to change since then the methods mentioned and the styles of trading still exist and we continue to learn a lot from them. The times and dates mentioned in the interviews relate to when the book was first released in 2003. This does not make the lessons any less valuable.

I didn’t originally set out to write a book. I am self-taught and through 30 years of hard work believe I have a good understanding of the requirements to be a successful trader. I have run my own commodity funds management business, traded on the floor of the Sydney Futures Exchange during its heyday and worked for major institutions in Sydney, London and Singapore. I now run a stock market advisory service, www.thechartist.com.au, with my wife Trish.

During 1998-2004 I was coaching and mentoring retail traders through the complete trading process and it was this hands-on experience with the Mums and Dads that gave me a wake-up call. I now have a firm opinion that trading, in its purest form, cannot be taught, certainly not through books and not through the widely advertised courses. I agree that these books and courses set out guidelines for would-be traders but they are only guidelines and many certainly will not make you a successful trader. They may offer an understanding of an entry or exit mechanism or an appreciation of a risk management theory but they cannot teach the most important thing. I firmly believe real trading can only develop from within and new traders must create their own sense of self. In the words of Ruth Barrons Roosevelt, ‘Find a method that works, verify that it works, then do it’.

We can readily find ways that work, as I did. We can verify that these methods work using today’s technology. But what about doing it? What exactly does that mean and what does it require an individual trader to undertake? Does it mean that I can trade when I feel like it or am most confident? What is needed to realistically execute a trading plan?

Whilst other books have interviewed big name traders, I wanted this book to come from the perspective of traders who can provide a yardstick and help set achievable goals for new traders working from a home office. Having three Bloomberg terminals, (one for the bedroom, one for the bathroom and one for the yacht) might be exciting reading but it’s also pointless in helping you achieve your trading goals. Can a Mum or Dad trader, here in Australia, really be successful without being backed by a bank or having to spend a fortune on technology and support personnel? In other words, can individuals make a living from trading Australian markets and if so, who really does it and how? What equipment do real Australian traders working for themselves use for trading? Where do they get their information? How did they start? What do they trade? How do they cope when they’re losing? What is possible and what is needed to be successful at this level?

With my experience I felt I could ask the appropriate questions for you and get some real answers from successful Australian traders. If you ask someone what they do for a living and they say they are a trader, it conjures up images of a glamorous, high risk and reckless lifestyle. But is it really like that? Maybe, maybe not.

Trading can take on almost unlimited forms. The variety of triggers to prompt a buy or sell decision; an entry, an exit; the use of indicators; and even the combination of secondary markets for confirmation are endless. Professional traders go to extreme lengths to gain an edge over the markets and other traders and this research of profitable trading techniques is simply limited by their imagination.

When it comes to trading styles and techniques I consider my imagination to be fairly limited compared to what I have witnessed over the years. To spark your imagination, I wanted to show a range of trading styles within different areas and have looked at futures trading, warrant trading, equities and foreign exchange trading. I have structured this book into three parts and have attempted to introduce you to some different styles without introducing overly complex strategies.

Part I deals with systematic trading. Probably the most well known case of systematic trading is the Turtles experiment run by Richard Dennis and William Eckhardt in the early-1980s. This was well documented in the various Market Wizards books by Jack Schwager, and continues to be of interest today—albeit using subtle differences. The vast majority of fund managers that specialise in futures trading use systematic trading styles that they believe add consistency to their trading and reduce emotion from the entire process.

In Part II, I have interviewed traders who probably fit the image that first appears in your mind regarding professional trading—a group of gung-ho risk-takers hunkered down together in front of high-tech gadgetry trying to take quick profits from the market. Scalping is not quite that but it is certainly a different style: more intensive and competitive.

In this section, I introduce you to a group of scalpers who work together yet operate independently in the markets using styles that have been created from pure experience. Not my style but one that makes for an interesting read.

In Part III, I decided to add a little bit of flavour and interview traders using some differing styles that a retail trader can easily understand and access. We visit spread trading, foreign exchange trading, the intricacies of warrants and a family of traders combining technical and fundamental for a low risk return. We also get some very strong opinions on technical versus fundamental analysis.

Many of the traders interviewed used futures (at the time of interviewing); namely, those listed on the Sydney Futures Exchange. I have added an Appendix outlining a brief explanation of futures in general and some relevant information about the contracts that are specifically discussed in the interviews. The FYIs that appear throughout the book have been repeated in the Glossary for ease of reference.

It is perhaps appropriate to discuss the general conditions of the markets and other factors that may have been influencing the traders when these interviews were conducted.

The old adage ‘don’t confuse brains with a bull market’ was certainly not appropriate at this time. The global economy was wallowing after the effects of September 11 and the threat of war on Iraq was increasing. In turn equity markets were very jittery and had been in bearish mode for quite some time.

I found it difficult to find willing equity traders for these interviews, which was also representative of the difficult times. Stock Index traders had been finding it tough as the daily trading ranges contracted and therefore limited the profits that could be garnered within the day. The jittery equity markets tended to keep the interest rate markets on hold from further rate tightenings. Some of the interviewees who traded these markets found it too risky to hold their positions overnight and this was affecting their bottom line profitability.

Commodity prices had been consolidating at extremely low levels, which also made it very difficult for those who make a living from trend following.

During these tough trading times there was one overriding belief held by these interviewees: the confidence that in the long run they will be successful, they will prevail through the good and bad. Even when doubt or adversity appears these traders still firmly state they will trade for the long term.

Nick Radge

Noosa Heads

nick@thechartist.com.au

The opinions expressed within the interviews throughout this book are not necessarily those of the author or publisher. This is not intended as advice. Professional opinion should always be sought before making an investment decision.

Part 1: SYSTEMATICALLY SPEAKING

It’s Friday afternoon and you’re setting off on your annual holidays. The kids are loaded into the car for the six-hour journey to a new beach hideaway up the coast. You’ve consulted the map. It’s told you the quickest route and what to expect along the way, given an indication of time between food and rest stops, where to refuel and other useful information that is critical to making the journey safe and comfortable for you and the family. You know what to expect and are prepared. Whilst this is a common experience—it’s something we take for granted and execute without a great deal of hesitation—what has it got to do with trading?

To be a successful trader we are generally taught to adopt a trading plan. We are told this trading plan should involve rules that dictate our buy and sell decisions, how much to risk on any given trade and contain other elements that we may consider appropriate in order to profit. Usually the trading plan evolves over time in our minds and perhaps even gets written down for further consideration. Yet, unlike our holiday road map, it won’t tell us anything about the journey ahead and it’s this great unknown that can bring new traders to their knees.

If we could get an idea, even an inkling, of what to expect from our strategy in advance—how many consecutive losing trades it will suffer, how much capital it will lose before it starts to profit and even if the strategy is viable in the first place. Wouldn’t that be nice? Wouldn’t it be better to get this picture ahead of time, even before we risked one dollar of our hard-earned money?

Systematic trading involves programming the trading rules into specialist software that in turn gives us our ‘road map’ for trading. This is the ‘verify that it works’ step outlined in the preface. This road map will alert us to the possible pitfalls, the bumps and obstructions, that make trading a difficult endeavour for the vast majority. Getting an idea in advance of what to expect gives us a better footing from which to proceed into that great unknown. A trading system can be as simple as ‘buy if the market closes higher on three consecutive days’ or as complex as the user desires.

This part of the book reviews two traders who have made systematic trading their life. Neither trade on a discretionary basis—commonly referred to as ‘gut feel’ or instinct trading —and both complement their trading with extensive ongoing research. Both began their careers on the trading floor of the Sydney Futures Exchange, which is ironic as the last thing a floor trader could access for trading assistance was a computer. They have developed their own styles within the systematic trading arena and the interviews provide a good example of how a trader can progress from simple beginnings to a successful lifestyle.

Personally I am an avid supporter and user of systematic trading and this type of trading, although not widely known in Australia, is very popular throughout the US and indeed professional trading circles globally. Whilst there are a few institutions within Australia that run systematic trading desks to varying degrees, many retail traders are not even aware that the necessary software is within their reach, most of it available over-the-counter. It’s on this basis that I thought it essential to highlight this unique style of trading that enables you to plan ahead and include a sample of systematic traders.

Chapter 1: VAN OAYDA, Knowing the Indicators

Van is a 100 per cent systematic trader who has been trading futures for over 15 years. Conducting this interview in his office was a great experience, even for me. Each and every trade executed through his trading platform generated a different noise and our conversation was constantly being challenged by a ‘ping’ here and a ‘plop’ there as the market traded up and down. As the tempo of the plop increased it would become apparent that sellers had moved in and activity was picking up, almost replicating the shift in tempo that used to be sensed on the trading floor of the SFE. Van is vibrant and excitable when it comes to discussing trading. He is sincere and generous with his knowledge and with a new family appears to have the perfectly balanced life.

How did you get into trading?

My dad gave me $300 in the mid’1980s to buy my first car. I sold it for about $900 a month later and I went ‘Hang on— buy low, sell high’. For the next year, as I was leaving school, I started trading cars for a living. I