How and when did you first become interested in the market?
My interest in the market started as a teenager in the early 1960s, by watching my father buy shares and track their progress on ABC radio. We all followed the amazing rise and fall of Poseidon mining shares. In my 30s and 40s I accumulated blue chip shares as an enforced saving, and in the hope or achieving returns higher than those available from cash held in term deposits.
And then what happened?
I discovered that holding so-called blue chip stocks was no guarantee of good returns. In the 1980s I had big disappointments with TNT, CSR and Amcor, but good results with ANZ Bank and what became Suncorp.
When I bought shares in Telstra T1 and T2 (when it was being privatized), the dividends were fine, but it took many years before capital losses were recovered. About six years ago, with retirement from work only a few years off, I became impatient and attempted to trade some of my CBA shares to increase the profits.
After noticing what traders call a sideways channel, I sold some shares at the fourth peak with the intention of re-purchasing them when the price fell. Alas! The fall was small and brief, and the shares doubled in value within a couple of years.
This experience taught me that I didn’t know what I was doing, and that I needed some training.
How have you been able to learn and educate yourself about the markets?
I have always enjoyed following world events, business and politics via the media, particularly newspapers. When I saw that Carlo Castellano from TradersCircle was advertising a free information night in Brisbane in 2009, I went along and signed up for the Introductory Course, which I attended twice.
This was my introduction to trading options contracts, which is what I do now. Later on, I attended an advanced training and refresher course. I have also found it useful to read books about successful traders and the psychology of trading, which is crucial.
Did you make mistakes when first starting out?
Everybody makes mistakes, and it is probably good luck to make some early, as I did, so that you don’t become over-confident. My first two small trades both lost money, mainly because I didn’t know to take a profit when it was available, before the trades reversed into a losing position.
This experience emphasized the importance of training, and development of trading rules. It also didn’t take long to discover that the psychology of trading is very important, and much harder to learn than the techniques of trading through leveraging.
Would you define yourself as a discretionary trader, a mechanical trader or a combination of both?
Like many others before me, I started trading options as a discretionary trader, but it is desirable become more of a mechanical trader as soon as possible. This takes a lot of the emotional strain out of the highs and lows of trading, and helps you to think clearly under pressure.
Can you give us a brief overview of your trading style?
I began by trading quite large numbers of individual stock options, but did not like the way that sudden movements in the share price could take away a big profit in the last days before expiry.
Now I trade only the ASX 200 (symbol: XJO) because it is simpler, more stable, integrates the whole market, and better matches my broad interest in the big picture. It suits me to do credit spreads, receive the cash at the beginning, and then try to hang on to it. I have lodged all my shares with ASX to provide the collateral for my trading.
I try to be a trend trader who follows sensible rules and is not too impatient, reckless or greedy. My aim is to emulate the successful traders: make the most of big opportunities for a profit, but also learn now to manage risk so that the inevitable losses are small ones.
Is there any one trade (win or loss) that had a profound effect on your development as a trader? If so, what did you learn from the trade?
Many trades have affected my development as a trader, but the losing trades teach you the most. I create a running sheet for each trade, and always analyse the losing trades and record the learnings on the page.
The use of trading rules helps to minimize these losses, and improves the ability to think under pressure. I continue to learn that mastering the psychology of trading is the biggest challenge. One aspect of that is that you must own your trades.
It is a great mistake to trade someone else’s suggestion or advice, and then become a little inattentive because that person is doing the thinking. It is much better to work out your own trades.
Can you tell us about your best and worst trades?
One characteristic of being a trader is the ease with which you can make a lot of money in one month, only to lose a similar or greater amount in the next. Thus reliability and consistency are key goals in trading. I have made and lost amounts in five figures in a month, and more than once.
Would you classify yourself as a short-term or long-term trader? What advice would you offer to people getting started as traders?
I am a short-term trader in the sense that I trade options that expire either in the current month or the following one. If I want to stop trading for a while because there are no suitable opportunities or I am unable to watch the market, I may open a strangle two or three months ahead to park the money. I am also a keen long-term trader in that the experience of others shows that it takes a few years to succeed.
My advice to beginners is to obtain introductory training from an organization such as TradersCircle, who provide on-going education and support via monthly membership, on-line classes and web sites.
Secondly, I would read books about successful traders and the psychology of trading.
And thirdly, I would start with small live trades so that you experience the psychological journey of trading from the beginning. Learning to trade in a market is a very kinaesthetic experience, and the rewards are proportional to the effort applied. I am constantly struck by the similarity between the tasks of being a winner in a sport and a winner in trading.
Once you have acquired the skills, the rest depends on how well you handle the psychological challenges.
What markets do you trade and which markets do you prefer? Do you have a favourite, and why?
I trade only the options market in Australian shares because it is the one that I know best. I also do not want to trade late at night, e.g. on the USA market. As explained earlier, I now trade only the XJO for its simplicity, relative stability and integration. That gives me more time to think about the pitfalls and challenges, and development of rules for greater consistency.
Do you have a favourite rule?
Rather than having a favourite rule, I like the fundamental truths about the experience of trading. Some of these are: every moment in the market is unique, and anything can happen; markets can remain illogical longer than you can stay solvent; trade with the prevailing trend, whether it is positive or negative; manage emotion, it’s your worst enemy as a trader; always know the risks of your trade, and plan for your view to be wrong before you enter the trade; managing losing trades is much harder than managing profitable ones, which look after themselves.
Has trading affected your lifestyle?
Yes, trading has quite a big effect. I trade in retirement as a hobby and to supplement my retirement income. Once you open a trade, you must follow the market every day. And, of course, trading exposes you to emotional pressures of highs and lows that must be managed. The positive side is that trading has supported my lifestyle in retirement, including overseas travel.
What books, seminars and courses have you read or attended, and which would you recommend?
I have attended Introductory and Advanced courses with Carlo Castellano of TradersCircle, and found them very useful. Although I have not read widely, two books that I recommend are: “The Little Book of Trading” by Michael W. Covel (Publisher: John Wiley & Sons) and “Trading in the Zone” by Mark Douglas (Publisher: Penguin Group).
The first book is by successful traders, and the second one is about the psychology of being a successful trader.
What does the future hold for you?
Since I am retired, I will continue trading in options as a hobby and as a source of supplementary income for as long as I am able to. I hope to keep on improving through experience, further reading, and perhaps the occasional refresher course. Trading suits me, and I am determined to become more consistent, and thus more successful.