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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 18 April 2007 Table of Contents (1) Quote on Making Things Happen (2) Interview - Brent Penfold from Australia (3) Technical Analysis full day workshop - Singapore (28 April) (4) MetaStock Programming Workshop - Kuala Lumpur (29 April) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ RSS Feed Stay up to date with all that is happening at Trading Plan, by subscribing to our 'Trading Blog' (no email address necessary). I am continually adding content and every update of this site is announced here, including minor content updates, page additions, and product releases. So stay plugged in by subscribing to this site's RSS feed. Copy and paste the address below into your RSS reader to receive the Trading Plan RSS feed... http://www.trading-plan.com/Trading-Plan.xml Not sure what RSS is? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Previous Issues Only just joined the mailing list? That's OK - you can read all of the previous issues of the Trading-Plan ezine. Visit http://www.trading-plan.com/ezines_previous.html to access the archive. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Filtering software may prevent you from receiving Trading-Plancommunication, including my ezines. To ensure that you never missan e-mail from me, please follow these tips... http://www.trading-plan.com/whitelisting.html ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Online Trading Forum Do you want to learn from the experiences of others in a friendly online trading forum? I now frequent and contribute to the online trading forum called Stock Meeting Place. Membership is easy and free. You can come along and ask any trading question in one of the numerous sections of the forum and receive a helpful response from one of the many members (approximately 2000). This forum is the only place online where you will also find Daryl Guppy, the well known trader and author. Remember, there is no such thing as a silly question so visit, sign up and ask a question. Visit http://www.trading-plan.com/trading_forum.html for more information. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -- 1 -- Quote on Making Things Happen “Good thoughts are no better than good dreams, unless they be executed. The world makes way for the man who knows where he is going.” Ralph Waldo Emerson (1803 - 1882) -- 2 -- Interview - Brent Penfold from Australia * Background Info / Introduction * Q. Can you please start by making a few comments about yourself to include your trading style and what products you trade, your experience in years, and what other things of a trading nature take your time on a regular basis (e.g. writing trading books/contributing to forums/coaching/speaking engagements)? I’m a short-term mechanical trader and I only trade index futures – the SPI, Nikkei, Taiwan, Hang Seng, Dax, Ftse, Mini Nasdaq and E-Mini SP500 contracts. I’ve been involved with the markets since December 1983 when I joined Bank America as a trainee dealer. To supplement my trading income I run a web site where I publish a daily newsletter IndexALERT™ and I make available a mechanical model called IndexTrader™. Because I’m a mechanical trader I find I’m usually finished each day by 9:309am, even after placing all my own orders, publishing IndexALERT™ and supporting my IndexTrader™ clients. As a result I still have plenty of time during the day to fill in, which I usually do researching. In addition I’ve written a book ‘Trading the SPI’ which has become a best seller for Wrightbooks (John Wiley) and I present at the Traders and Investors Expo around Australia, and recently I presented at the Malaysian and Singapore Trading Expos as well. Q. It is fair to say that most people are initially attracted to trading by money. Is this what initially attracted you or was it something else? Of course. I was 21 when I joined Bank America on a 3-month work experience job before my final year of university. During December 1983 I witness first hand on the money market desk the speculation going on the Paul Keating, the then Federal Treasurer, would float the Australian dollar. In those days the RBA had to sell Australian dollars to anyone who put their hand up and of course those new owners of Australian Dollars had to invest their new money in the short-term money market, which naturally drove down interest trades and present profits all round. During that week the money market desk made over a million dollars, when a million dollars was worth something. Well as a 21 year old you can imagine how impressionable the whole experience was. Well from that first week I was hooked on the markets. Q. What are some of your good and bad memories of your early trading days? Well the good times were due to the people I worked with. I was one of the youngest in Treasury and to me the whole area was like going to work each day in a three ring circus with each desk, Cash, Securities and FX, sledging each other and everyone else who walked in. It was a lot of fun and I met some really nice and professional people who have become super successful in the markets today. The bad memories was holding a huge bank bill futures position over a weekend following Paul Keating’s infamous Banana Republic comment. By the time I exited the position it had cost the bank over a million dollars. Now although I wasn’t solely responsible for the position, I still felt sick in the stomach for the whole weekend! Q. How would you describe a couple of your biggest mistakes in your early trading days? Well there are many mistakes I made but the biggest, which I repeated a number of times as I blew up twice and almost a third time, was poor money management. Taking too large a risk resulted over trading my account and giving me a statistical risk-of-ruin over zero percent which meant I had a gold plate guarantee of going bust (as it was only a matter of time) but I didn’t know it! Of course I had no idea of risk-of-ruin back then. Q. Looking back to the beginning, in the face of the usual challenges, what motivated or inspired you to learn to trade well? Enjoyment of the markets and making money. Q. On reflection, was there a single moment in time or situation that ultimately had the greatest influence on your trading? Yes. Two. The first moment occurred when I was a discretionary trader following Elliot Wave and I had just incurred another loss. I rang up to chat with my broker and got his partner Geoff Morgan on the phone. As a passing comment before requesting I speak with my broker I asked Geoff whether he knew when the SPI was heading because obviously I didn’t! Well Geoff calmly remarked that the SPI had recorded three higher closes and since it had reached its median move to the upside he’d be reluctant to buy it but rather look for opportunities to sell it. Well that turned a bright light bulb on for me and introduced me to the world of statistical probabilities based on short term patterns. Since then I have been a mechanical pattern trader. Secondly was attending Russell Sand’s Turtle seminar, and it was not because I learnt the legendary Turtle System. It was at the seminar that I really learnt the significant of money management. Before then I was aware of it, but had not really comprehend its importance. Attending that seminar was another light bulb moment! Now having said that I would not recommend the seminar to small private traders as the Turtle System is only applicable to people trading large accounts over $500,000. Trending trading is all about throw the widest net over as many markets as possible and experiencing drawdowns for the majority of time until you snag one or two run away markets like oil and gold in 2005/6. And believe me, you need a large account to suffer the pain of drawdowns. In addition there are far more books available today on money management then when I did the course. * Trading Plan * Q. We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both? Briefly, why? I’m purely a technical trader and I ignore fundamentals. I’ve learnt the hard way that I have a poor record at interpreting market action based on a discretionary basis, which fundamental analysis belongs to. So I’m simply no good at it. I prefer the statistical nature of mechanical trading where I can measure my methodologies expectancy and when combined with a sensible money management plan allows me to trade with a zero percent risk-of-ruin. Q. Do you have written trading plan detailing your approach? How would you describe it (e.g. long/short, detailed/broad, complete/work in progress)? Yes. Being mechanical I just join the dots every morning and follow the signals. I’m a directional short-term mechanical pattern trader. Q. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)? Do you have any comments on the simplicity or otherwise of them? I’d probably rate myself a 2 as I believe a twelve year old would be able to learn and trade like I do. Q. Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation? Start asking questions about a term called Risk-of-Ruin. People should study and understand it before they place another trade. Full stop. Non negotiable. If people reading this cannot answer the question ….” what is your statistical risk-of-ruin..?” then they have no right to be risking money through active trading. They should stop trading right away. Once they can understand and measure it they’ll be in a far more knowledgeable positions then they are now…and will finally understand why they keep losing…and it has little to do with that old chest nut of “psychology”. * Trading Mindset * Q. Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them? Psychology is important, but in my mind it ranks third behind money management and methodology. It’s not a problem for me as I average about one trade a day somewhere in the world and because I risk less then 1% of my account balance no individual result is going to get me too excited or too despondent. Q. Isabelle, 36 is a mother of two children and stays at home with them during the day. Her husband works full time and his salary meets all their financial obligations comfortably. Isabelle arranges an appointment with you to discuss trading – she has never traded before but knows you can help her get started with some initial guidance. What will be the 3 most important things you tell her in the appointment? 1. Learn about Risk-of-Ruin. This is the real door way through which you gain solid trading knowledge.2. Be patient. Don’t get sucked into having to trade right away as +90% of all active traders lose…so why rush to become a loser?3. Learn from a person who actually trades. Only take advice if they can show you their real time results of the methodology that they are going to teach you and that they personally trade. Q. Jack, 58 is a very successful business owner who wants to start trading as he slowly moves into retirement and away from work. He has arranged a similar appointment to Isabelle – would your advice to him be identical to Isabelle’s or different? Identical Q. Is trading as difficult as many people appear to make it seem? Trading is simple. It’s the knowledge to know what works that’s hard. Q. What are the 5 most important character traits of successful traders? Please feel free to briefly explain them. 1. Humility. The best traders are the best losers. And losing often is a humbling experience. They know their ability to take every loss is a keystone of their success as they know that being the best loser makes then long-term winners. Successful traders never move stops and accept losing as part and parcel of trading.2. Patient. They don’t look for a home run trade but are happy to chip away.3. Conservative. They under trade, under trade and under trade. They risk very little of their account on any individual trade. They know how to keep their risk-of-ruin to zero percent.4. Inquisitive. They are always looking out for new ideas as they know markets can and do change. They’re always looking to improve their edge and not be ambushed by structural change in market conditions. Q. Trading can be a very solitary existence – especially in the early days when you are learning, and often feel as though you have no idea what you are doing. Do you find trading a lonely experience? Does this sit well with you? If not, how do you deal with the loneliness? It would be lonely if I wasn’t running my web site. However since I have the business I find it gives me interaction with people and an opportunity to present at Expos, which gets me out of the house. I also have a couple of friends with their own hedge funds and we usually chat each week. Q. What would be or has been your most significant weakness in trading? Have you learned to overcome it or do you continue to work on it? Poor money management and being ignorant of risk-of-ruin. Applying sensible money management helps me keep my risk-of-ruin to zero percent. Q. Assuming you are now consistently profitable, do you still have times when you experience self doubt over your ability to trade? If yes, how does this make you feel and how do you overcome it? Certainly. I’m currently in a 6 month draw down and I can assure you its no joy. All I can do is follow my trade plan which includes measuring my models’ equity momentum. When they turn negative I step to the sideline and wait for things to improve. This is my fail safe system to ensure I don’t suffer a catastrophic event. Q. Ideally, we would like to be emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions? Do you get very emotional at times? Being mechanical helps to manage my emotions. Usually if people find they are riding the outcome of an individual trade they are risking too much of their account. Q. If you experience a large profitable trade, do you reward yourself in any way? No. Q. In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them? Trading with a statistical edge by being mechanical and learning about the importance of money management and risk-of-ruin. Q. To finish off, if you were to start trading all over again now, what would you do differently to what you did originally? Learn all about risk-of-ruin before opening an account! About Brent: Brent Penfold is a full time futures trader. He began his career 1983 as an institutional bank dealer and today specializes in trading global index futures. Brent is the author of the best selling book Trading The SPI and publishes the daily newsletter IndexALERT™. He is a popular speaker who has presented to the Australian Technical Analysts Association and the Traders and Investors Expos around Australia. Brent is a licensed futures advisor and holds a Master of Commerce (Finance) degree. For more information on Brent, go to the website http://www.indextrader.com.au -- 3 -- Technical Analysis full day workshop - Singapore (28 April) Amongst many other things, throughout this course I will be passing on to you all of the things I look for when entering trades. For the price of S$168 for the whole day, if you don't think this is the best value trading course you have ever attended, then I will like to know what is. This workshop last year sold out so don't hesitate for too long ... bookings and further details are available by contacting Dickson Yap on +65 9788 8141 or dicksonyap@dpr-intl.com -- 4 -- MetaStock Programming Workshop - Kuala Lumpur (29 April) I will be conducting a MetaStock Programming Workshop on Sunday 29th April in Kuala Lumpur. The Explorer is arguably the most powerful tool within MetaStock. The reason being, it allows us to perform in-depth explorations, scanning thousands of securities, to identify those securities that exhibit pre-defined criteria. It is the Explorer that sets MetaStock apart from most charting software. Not only can it scan for certain criteria, MetaStock can also use specific indicators to track your exits once in the trade. This is very special aid as it assists you in on the more important trading decisions you make – when to exit. Further, the powerful expert advisor can be programmed to calculate your position sizing, stop losses and all components of your risk management processes. It is unfortunate that many MetaStock users are not aware of the true power of the software and struggle to use it to its full potential. It is a great tool that can greatly assist the trader in a number of different key areas. Bookings and further details are available by contacting Dickson Yap on +65 9788 8141 or by email at dicksonyap@dpr-intl.com ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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