Trading Interview with Brent Penfold

Interview with Brent Penfold - Part 2

"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."

** 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. Beginning 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”.

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