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nega
 
Join Date: 14 2009
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Default Entrevistando a un trader  - 20 augustus 2010, 21:48
  #1

Tim Bourquin: Hello everybody and welcome back to another episode of Trader Interviews. Something a little bit different this week. We’re going to be talking with Mike Bellafiore and he’s got a new book coming out called, One Good Trade: Inside the Highly Competitive World of Proprietary Trading. And what I thought was interesting about this was that -- look there are a lot of people out there that write trading books that you can probably tell at some point that they don’t actually trade. And Mike is absolutely a trader first and decided to write about his experiences starting the Prop Trading Firm and his experiences watching other traders succeed and fail and I think it’s going to be an interesting read, and I want to talk to him about his trading strategies as well. So, Mike thanks very much for joining me on the phone today.

Mike Bellafiore: Thanks a lot Tim for having me.

Tim Bourquin: All right. Well, we’re going to talk about the book in just a second, but just to give our listeners a feel for your own kind of personal style. What kind of trader are you? What do you trade and timeframes, that sort of thing?because Mike Bellafiore: Well, I’m a short-term active trader. And one of the really interesting things about -- what I wrote about it in the book, is the last chapter where I talk about adapting. You know people always ask how we go about making money and if you talked to me in 2007, I’m going to have a specific answer and that’s going to be different than 2008 which is going to be different in 2009 and different in the way it is now. And one of the things that we do is we find the patterns that are working for us now and we’re humble enough to understand that what works for us one month may not the next and that’s just the way it is. Well there are some trades that may work last year aren’t working now and we have to find a way to find the patterns that makes sense to us today and exploit them.

Tim Bourquin: I’m glad you brought this up because a lot of traders want to find their strategy and trade it for years, trade it forever. So, if you’re constantly having to reinvent, basically almost relearning how to trade every year, how do you keep up with that?

Mike Bellafiore: There’s nothing to get as a trader and I think for new guys that’s frustrating. They learn a particular pattern -- I’ll give you a great example. One of our really terrific, bright new traders was killing it trading momentum stocks. And in fact he was getting a little arrogant to the point where I noticed that he stopped coming to our AM meetings that we hold every morning. And I took him aside and I said, well number one, “I’m providing the capital so get your ass into that AM meeting every day.” But secondly and most importantly, “The momentum trades that you’re killing right now are going to be out of flavor in a little bit and you have to learn different setups.” And sure enough, we tanked after that and there were some other patterns that really worked. But I love your principle in your question about making trades your own because that is what it’s about. I can teach somebody a consolidation play, but my brain thinks differently than yours. I’ll give you the standard as to how to do it, but then you’ve got to practice it and make it your own.

Tim Bourquin: We’ve talked to a lot of traders who -- the successful ones seem to be very good at reading the right side of the chart, in other words, the side of the chart that hasn’t printed yet. Everybody and I’m sure you’ve seen this in classes, we’re all very good at saying, “Yes, I see that’s the head and shoulders “and “Oh, that looks like a bear flag.” We can all see it perfectly after the fact. How do you train somebody, how do you get good at seeing it as it’s happening?

Mike Bellafiore: One of the things that we do is we read the tape so, it’s a little bit easier for us to get on the right side of a trade. Reading the tape is a leading indicator. The charts are a lagging indicator. But just to actually answer your question as you presented it, look learning how to read charts is probably one of the hardest things to do and I think that’s not understood in the trading community. It’s actually why we don’t think just trading off the charts is the best way to start your trading career. We combine intraday fundamentals with reading the tape and then technical analysis or reading your charts for new and developing traders, but it takes years. It’s an art form as to -- a great example is in IBM today, 120 is where there was a little bit of a level. One move on our charts indicated that it was very likely to go up and one move wasn’t. And, you know, we had a 15-minute discussion about the nuances of looking at charts and understanding that.

Tim Bourquin: When you get in these rooms and you talk with these traders and have discussions about that, I know that you invite all kinds of opinions about the charts and who’s right about it if there is such a thing. Is there such a thing as the person in the room who’s right about it and is that just the person who made money on it?

Mike Bellafiore: No. No, no. A lot of times you can look at a particular setup and there’s a trade to be made on the short side and there’s a trade to be made on the long side. And as long as your risk-reward is controlled, as long as the pattern makes sense to you, somebody can be short and somebody can be long and somebody’s obviously going to win, but trading is a game of probabilities. I know that sounds a little bit strange that everyone sort of thinks -- a lot of people think that if I’m right I’ve made a good trade. One of the chapters in “One Good Trade” dispels that very notion. Your job is to make excellent risk-reward decisions. Your job is not to make money your job is to find patterns that offer you a downside of 1 and an upside of 5.

Tim Bourquin: I’ve heard you say that before, 1 in 5 and that always strikes me as tough to find ‘cause you hear of a lot traders talk about 2:1 or 3:1 but 5:1 that’s how many trades a day do you find that offer that?

Mike Bellafiore: Probably three or four. You know, we just actually got out of a classroom session where we discussed the particular setup in IBM. And it was a little bit of a heated discussion because I challenged our guys when they see a particular setup like we saw in this IBM today around the 12380-ish level, stock fell 126 a little bit later that number one, they’ve got to identify how to get in that trade for them. There’s this voice that goes off in every great trader’s head that says, “This is it. I see it. This is an A trade for me.” And then the thing that they have to do after the close is replay that very trade and find a way to add size and hold that trade for longer. We become better as traders by finding the trades that make sense to us, as you were alluding to, and trading them with more size.

Tim Bourquin: The guys that you see achieve success and start making money faster than those that don’t, do you see any common thread there? Anything that you can point to and say --

Mike Bellafiore: Sure. They’re always the guys that work harder. There’s no secret sauce to any of this. The people that work hard -- and this isn’t just true in trading. This is true of any -- this true of people who run a prop firm. The people that work the hardest do the best.

Tim Bourquin: Okay. So, I guess the question then becomes what is hard work in trading? ‘Cause people think that the work is just being able to get better at identifying the pattern. So, what is hard work in trading?

Mike Bellafiore: I think that there’s a way to simulate each day. I think there’s a way to turn one trading day into 10 and this is really the way that I think you ought to go about being efficient with your day. So, let’s say that you made this trade in IBM, this consolidation play at 12380 today and you trade it live and that’s great. That’s one trading experience. But then you should journal about it. You should talk to other guys on your desk about this setup. You should think about this setup when you go home. You should videotape your trading of that play and watch it back. You should take it and go into a group setting like we just did and play back that scenario and talk about it. You should visualize this very setup. You should have a simulator where we can -- we have actually a special simulator. We can actually take that data, can it, and let guys trade that setup over and over and over again live and execute it. So, when people talk about working hard, I mean it’s really about simulation. It’s like being a professional athlete. If you were to become a great basketball shooter, you’d have to go out and practice, right?

Tim Bourquin: Yes.

Mike Bellafiore: And there are things that you can do as a trader to practice. And if you’re going to practice, you’re going to get better. And if you’re not -- you know at 4 or 5 if you’re going to shoot off an email to your buddies and say, let’s go grab a drink, and you guys are going to go and talk about LeBron James going to the Miami Heat and no one talks about this IBM trade, who are you kidding? Who are you kidding? You’re not going to get better.

Tim Bourquin: And you’ve mentioned that in blog posts about the fact that you see traders waste their time all the time either on a subway ride or whatever it maybe when they could be improving their trading just by talking about good trades.

Mike Bellafiore: That drives me crazy Tim. Look, when you get an opportunity to trade on a prop desk or any trading desk it’s the greatest opportunity you’ll ever have. And I talked about this in one of my blogs awhile ago how I got caught in the subway with three young guys, great guys, smart guys, terrific guys. And trading day had just ended -- working at a very good firm, on the subway with them up to the upper Westside and they’re talking about what? They’re talking about how much money all the partners in their firm have made that year. It was amazing to me how much detail and how much knowledge they had about how much money everybody was making. And how during this – after this trading day, where there was so much action and there was so much to talk about that they didn’t talk about trading. When Steve and I -- my business partner Steve Spencer and I get on the subway and we go home, I can tell you that we talk about trading. And you know that’s what -- that’s a really great indicator of whether or not you’re doing the stuff you need to.

Tim Bourquin: So, is there a time for getting away from the markets? Is there value in resting your mind from the trading game for awhile?

Mike Bellafiore: Absolutely. Absolutely. And I think that working out and being happy -- I mean if you’re miserable in your personal life, it’s going to come out in your trading. If you’re lazy in your personal life, it’s going to come out in your trading. If you’re undisciplined, it’s going to come out in your trading. If you’re inconsistent, trading is not the place to be while you’re trying to work on improving your personal habits. So, you want to be a well-rounded, happy, and engaged person.

Tim Bourquin: It’s funny. I’ve thought about this that people that talk about -- people who drink right when they’re -- they’re bad drunks ‘cause it just accentuates what their real personality is. It almost sounds like trading does the same thing. Your real personality is going to come out either way.

Mike Bellafiore: You know I actually wrote about one of my favorite traders of all time, a great guy. And he actually -- he isn’t trading with us anymore, he trades for somebody else, and he started to trade with us. Incredibly talented guy, I mean former college athlete, high school all-American athlete, gifted as can be, 99 percentile likable. But you know he loved to play Mad and football ‘til whenever he wanted in the morning and he would stroll in some days. He loved to go to Atlantic City whenever he wanted and stroll in for the open. And just in his personal life, he was not disciplined and it showed up in his trading. He was a great momentum trader during certain times and other times he’s a little reckless. And he’d have these great days and then he had these horrendous days. And it really all stemmed back to he was a little bit too young and little bit too reckless to find his potential.

Tim Bourquin: You talked about a lot of stories like this in the book. Talk about why did you write the book in the first place? What value is there for you to talk about these stories of traders that have come and gone?

Mike Bellafiore: I just wanted to share what the market has taught me. And I started writing this blog and you know all of this SMB started as just an idea. I had no idea any of this was going to happen. And I started writing the blog and Dr. Steenbarger reached out to me and encouraged me to think about writing a book and I was like, “Oh, you know come on. How could I do that?” And then he did it again and I was like, “Nah.” But then I started thinking about it and I said I enjoy writing and I really do have all of these materials from having traded and having trained guys and having sat next to successful and people who failed. And I thought that what I would do is -- and I had this interesting perspective of being on a prop desk which nobody has ever written about. You know, you get to see what it’s like to be inside a prop desk and this is really the first book about that. But then we found a way to tell very interesting stories with a teaching principle wrapped inside. And so the culmination of all of it is a look inside a prop desk that you haven’t seen before and a whole bunch of stuff the market has taught me and really interesting anecdotes and stories.

Tim Bourquin: Do you think that’s the best way to learn how to trade? It’s to listen to the stories of other traders who’ve come before you?

Mike Bellafiore: I think it’s a start. There are four ways you learn: One is domain knowledge which is what this book would be about. The second is motivation, how do you find a way to motivate yourself. The third is critical feedback. That’s what we were doing in our training room, talking to my guys about what they should be doing. The fourth thing is simulation. That’s how you’re going to get better as a trader. But picking up books and reading is a great way to build an impressive array of domain knowledge.

Tim Bourquin: All right. And then finally Mike, for the retail trader who’s at home in Nebraska, Seattle, wherever he or she is, and they don’t have the ability to have a morning meeting, is there any way to duplicate that online or any way to kind of get that same benefit either a chat room or something else with an at-home trader?

Mike Bellafiore: I mean -- not to talk about our firm, but there actually are ways to be -- we actually do offer the opportunity for people to be connected to our AM meeting through our commercial website and we’re not the only ones who do this. There -- T3 Live is another, had a great AM call. I don’t know. I think T3 and us maybe we’re the only to do that. There must be others. So you can actually connect to a prop desk these days. Look, I feel very strongly about this. Barry Ritholtz always writes about the fact that if you reach out to people in the trading community and ask them questions, they will write back to you. And I’ve always found that to be the case. I reached out to Dr. Steenbarger and now – he at one point became a trading coach to us. People will respond and you can build these relationships. And I think a great, great thing for you to do is build this online community of like-minded traders. StockTwits is a great place to find people that trade like you and there are a lot of great resources.

Tim Bourquin: Yeah, people are always surprised. They say, “Why do these traders talk to you?” And I say, “I just ask. I just asked the question and really it’s not that difficult.” They seem to think the guys don’t ever want to talk and really it’s just a matter of asking them and getting in touch with them and finding them. So, I think you’re definitely right there. All right. Well, the book is called “One Good Trade.” You can find the link to it right below the link to the audio file here. It’ll be at the top of the transcripts. Mike thanks very much for your time. Best of luck with the book itself.

Tim Bellafiore: Thanks a lot Tim
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Default 3 september 2010, 11:08
  #2

TraderInterviews.com: Hello, everybody. It's Tim Bourquin. I'm here today with Steve Palmquist and Steve got a new book out that we're going to talk about. He's been around the trading game for quite some time and he's got a website that he talks about some of his trading strategies and things that he's doing. The book is called How to Take Money from the Market. It's also got a subtitle that we'll get from Steve in just a minute, but we're going to talk to him about his overall approach to the markets and how he finds good opportunities. So Steve, thanks very much for joining me on the phone today.

Steve Palmquist: Well, it's good to talk to you.

TraderInterviews.com: All right. Give us that subtitle. We talked about it before we started recording, but it was kind of a long one. So why don't you tell us the full title?

Steve Palmquist: Well, the full title is How to Take Money from the Markets: Creating Profitable Strategies plus Six Ready-to-Use Systems which is quite a mouthful, but then trading takes a little bit of effort.

TraderInterviews.com: Okay. So let's talk about your overall approach to markets and how you've kind of come as your overall strategy and methods for finding good opportunities then we'll talk a little bit about the book as well. So what kind of trader are you? Are you a short-term day trader or swing trader? Kind of talk about that and the markets you trade.

Steve Palmquist: Well, I'm a profitable trader. I don't try to focus on a particular market or a particular holding time. What I do is I look at the market and say it can only really do three things, right? It can be trending up, it can be trending down, or it can be a trading range moving sideways, and I found through testing hundreds of different trading systems that different systems work in each of those market conditions. So the first thing I do is look at the market and if it's trending up, then I open my trading toolbox and I pull out the systems that have shown good results in up-trending markets and if it's moving sideways I open a different tour in the trading toolbox and pull out different systems. But the key is to read the current conditions and use a system that has been tested for that environment.

TraderInterviews.com: How about the specific market or markets that you trade?

Steve Palmquist: I have a database of about 2,500 stocks and what I do is I trade patterns out of those stocks. So I'm looking for a particular price in volume pattern and I don't particularly care what the stock is.

TraderInterviews.com: Okay, and the systems that you talk about, either the six systems or any system, are these automated totally or are they just giving you signals and then you actually decide which signals to take?

Steve Palmquist: Yeah, I run the scans every evening and they give me maybe 20 different stocks that have set-ups that have shown profitable opportunities in the past and then I prioritize those based on the market conditions. For example, if the market is in a very narrow trading range like we've seen in the last five days, I just stand aside. I will ignore the signals from the system because tight trading ranges are an increased risk kind of an environment. If the market is in a wider trading range then I will take and maybe trade half-size positions and if the market is trending then I may trade full-size positions.

TraderInterviews.com: The scans that you're running on a nightly basis, what ideally or how many stocks do you want to give you to be able to look at the next day? How many is too many and how many is just right?

Steve Palmquist: Well, it's interesting. I get that question from my subscribers to my newsletter and one guy wrote me and he said, "Well, you know, we had 15 stocks and they all triggered yesterday and that's just way too many." To my way of thinking, you can't have too many profitable opportunities. You can have too few perhaps but you can't have too many. So it's a question of prioritization. If in my portfolio in the current market condition, say maybe I want to hold a dozen positions and I've got 10 so I'm looking for two new openings, if I see a half a dozen stocks that hit a trigger point and are therefore interesting, then I'll prioritize them based on risk reward ratio. How far did they have to run to the next resistance area? The risk would be my entry point less where my initial stop-loss would go. I will also look at volume patterns. My research has shown that the volume pattern on the stocks is very important. So I use all the things that I have tested to then prioritize those and I just rank order. If I have two openings, I pick the two that filter up to the top.

TraderInterviews.com: Can you give us an example of one of these systems that maybe is your favorite or that you like to use in one specific market environment?

Steve Palmquist: Sure. When the market is trending either up or down, one of my favorite trading systems is to look for what I call a DV pullback. It's a declining volume pullback. So if the stock has been trending up and then you see a lower high three days in a row and you also see lower volume three days in a row, that set-up shows a very good statistical advantage in a trending market.

TraderInterviews.com: So am I going long or am I going short with that?

Steve Palmquist: If it's a pullback and an uptrending stock, then I would take a long position. If it's a retracement and a downtrending stock, then I would take a short position.

TraderInterviews.com: Okay. So when you're talking about these trends, give me a better sense of -- are you looking at a daily chart? Is that where you're determining where that trend is?

Steve Palmquist: I typically look at the daily chart for the last 12 to 14 months, and you look at the chart -- a lot of people say how do you tell if it's an uptrend? The best response is ask a fifth grader. If you have to question whether or not a stock is in an uptrend, it's obviously not. So I'm looking at stocks that are setting a series of higher highs and higher lows. It's a kind of thing you could easily draw a trend line underneath and see as clearly moving up over time on a fairly regular basis without wide erratic kind of swings, and then nothing goes straight up forever. Stocks don't go up every day so they run up for a little bit, they pull back for a little bit, then they run up again and they pull back again. I found in testing that when they pull back on declining volume every day the price drops a little bit and I see where people that are interested in selling kind of a thing. Then I look for a resumption of a trend. I look for another up day on increasing volume, back to where the volume was before to show that perhaps that trend is renewing itself.

TraderInterviews.com: You kind of led to my next question. So when you have these three days of declining volume and declining price, does that mean then you will buy on the open or what do you want to see to confirm that that's going to happen? Where do you decide where that interest is going to be?

Steve Palmquist: Again, it depends on the market conditions, but if it's a bullish market what I'll look for since I look for three days of lower highs, I'll look for that pattern to break. I'll look for the stock to make a higher high, go above the previous day's high, and if it does so on volume above the previous day's volume, then it started a new pattern. It's resumed doing what it used to do in terms of the uptrend and that's the point that I enter.

TraderInterviews.com: Do you try to pick a specific price? Is it right at the price where the high is or above that price? How do you kind of determine then very specifically where you get in?

Steve Palmquist: I set up with my online account to have it beep my cell phone when the stock breaks the previous day's high and then I go look at it. Now, sometimes I guess stocks, most stocks gap up in the morning so you don't get that price exactly. But if it's within half a percent or a percent of that price then I'll go ahead and pick it up. If it gaps up well beyond that price, I'll let it go. There's plenty of others to choose from.

TraderInterviews.com: You talked earlier about the risk reward ratio and how much profit is potentially in that trade. How are you finding a profit target on some of these trades if you're looking up one that's, say, in an uptrend?

Steve Palmquist: In swing trading, my initial target is the next resistance point and that may be a recent high, it may be the upper Bollinger Band, it may be a trend line, it can be either one of those things, and I'll look for the closest one because that's the easiest move for the stock to make. As the stock approaches that resistance area, I'm watching the volume. If it's moving up and the volume is increasing every day, then I say, okay, every day that stock has a higher price more people want to buy it, I'm obviously interested in continuing to hold it. If it approaches one of those resistance areas and the volume is tapering off, then I just exit the stock and move onto another one. I'm not trying to ride a three-month trend in any one stock. I'm trying to piece together a trend in my account by picking off the small runs in different stocks as they trigger.

TraderInterviews.com: How about if it starts to approach that resistance area with declining volume on, say, an hourly chart intraday, do you follow that or is it more just daily charts?

Steve Palmquist: You know, you got to dance with the one that rung you and all of this information, all of the back testing is done on daily charts so that's what I trade. I don't get caught up in watching the five-minute charts or the hourly charts or that sort of thing. I'm just looking for moves to happen on the daily chart.

TraderInterviews.com: All right. How about on the wrong side with the stop-loss, where would you place that and how far away from your initial entry are you looking at?

Steve Palmquist: Well, stops are topic for a whole interview by themselves, but in general with this particular pattern if what I'm looking for is a stock that's been trending up and then pulls back slightly and then moves out of the pullback by making a higher high, then I would place the stop just under the low of that pattern because if it drops below that point it would have invalidated the pattern. I would not have taken the trade; therefore, I exit the stock and go onto something else.

TraderInterviews.com: How many trades are you in and feel comfortable managing at any given time?

Steve Palmquist: It depends on the market condition. If the stock is in a strung uptrend, I might have 15 or more trades. If the stock is in a wide trading range, meaning it takes more than, say, four or five days to move from one end to the other, I might have seven or eight trades. If the stock market is in a very narrow trading range where it can hit the top or the bottom of the trading range within one or two days, then I just treat that as vacation time.

TraderInterviews.com: I was going to say, so you don't have to sit in front of your computer monitoring this position. You're comfortable kind of just putting in your stop, putting in your profit target and walking away?

Steve Palmquist: Yeah, trading is a statistical business. There is no magic formula. There is no feel of it. I've seen these ads for Ninja Traders and be the cowboy and all that kind of stuff, and that's just junk. It's a statistical business so traders make their money by researching a trading system and finding something that has shown an ability to win more often than it loses and have the average winner be larger than the average loser. When you find something that does that then over time you have a reasonable expectation of seeing profits. That doesn't mean you're going to make a profit every day or every hour or every week, but over time given those conditions you would certainly expect to see a profit. So the effort in researching the trading system is how a trader earns a living. It's not sitting in front of the screen watching the daily five-minute bars and that's what this book is about. It's showing people the kind of trading systems that have a statistical edge rather than just trading on some random input.

TraderInterviews.com: Now, when you're back testing and then you're investigating a new system, what do you like to see before you'll start to put into your nightly scan and start getting signals for you? Is it a 50% win rate or a 40%, 70%? What do you like to see?

Steve Palmquist: Well, it depends. I mean if I tell you that I have a system and it only wins 40% of the time, a lot of people say, "Gee, I don't want to trade that." But if every time you win, you get a thousand dollars and every time you lose, you lose a hundred dollars, it suddenly becomes a very interesting system to trade. So it's not one statistic that matters but it's the combination. Does it win more often than it loses and is the average winning trade larger than the average losing trade? If those two conditions are true, then I'm interested in the system. Most of the ones that I go through in the book show winning percentages in the 60s and that's over a period of time through a market condition not each and every trade. Because of the statistic when I enter a trade I have absolutely no idea whether that trade is going to be profitable or not and I don't particularly care. I'm just following the system. I know that over the long run I'm going to do quite well trading that system, and obsessing over what happens to each trade and watching the five-minute charts is just a waste of time.

TraderInterviews.com: One of the questions we've gotten about previous system interviews that we've done is my back testing shows that the maximum number of trades in a row that went against me were four and then all of a sudden I'm using the system and now I've got five or six in a row that don't work out. At what point do I need to start worrying about the system and either throw it out, figure out a way to tweak it, or just look for something new?

Steve Palmquist: Well, you need to do more investigation than just that. If you find a system that only shows four losses in a row over a wide range, you probably made a mistake 'cause there's very few systems that have that kind of statistic. The other way you can get in trouble with that statistic is the computer scans through all the trades and maybe you only had four losses in a row and then you had a winner and then you had another four losses in a row and then you had a winner and another four losses. So you need to look beyond just the number. When you're testing a system you need to go back and look at the trades and not just the summary numbers. It needs to be kind of like an old pair of jeans. It's got to fit comfortably, you got to understand that you got to know how it performs and it takes time. That's why I say traders earn their living when the market is closed, when they're getting to know a trading system not when it's open.

TraderInterviews.com: All right. Now, your book, there's a lot of trading books out there obviously for over the years and there always new ones coming out. How does your differ than what was out there already? Where did you feel there was a hole that you needed to fill?

Steve Palmquist: Well, I probably read 30 or 40 different trading books and I highly recommend that people read a book a month. It's like if you're a doctor, you're required to go to continuing education every year, and traders will hear something at a conference and they'll go out and trade it blindly and that's just amazingly silly. So when I looked at all the books I'd read they all showed four or five examples of a system and when it worked and then said go forth my son and trade your life savings, and I thought, well, that's ridiculous. What I wanted to do is I wanted to get to know a trading system kind of like an old friend. When you meet somebody new you don't know how they're going to react in a given situation, but after you've known somebody for a while you have a pretty good idea of how they're going to react to things. They surprise you occasionally, but you have a pretty good idea. I wanted that kind of familiarity with a trading system. So I took these trading systems and the book goes through and it shows when they work, when they don't work, what makes them work better, what makes them work worse, what kind of filters you should use with them, what kind of market condition you should use with them, and it's all based on some extensive testing of it. So by the time you're done with that system, you have a pretty good idea of what to expect from it.

TraderInterviews.com: People are always looking of the latest system or the hottest system that's working really well. How do you kind of avoid the hype of system trading and just be satisfied, I guess, with something that's working good enough?

Steve Palmquist: Well, actually that's pretty easy. It's the same answer. If you have really evaluated a system and know what to expect and, say, a system is showing on average 60% winning trades, a guy can eat just find off of that. I mean they built those big hotels in Vegas off a 2% spread. If you can trade off a 10% spread, you're going to have dinner, right? And people need to get away from this thing of always looking for something that is better, newer. More often the reason they do that is because what they have isn't working and the reason it isn't working is they never did what traders need to do to earn a living which is analyze the system and understand it. So what I'm trying to do in this book is share my years of research into what works, why it works, and when it works rather than just here's a system, give it a try.

TraderInterviews.com: If they've got a system that they're comfortable with and it matches their risk tolerance, should they try to totally automate it and have the computer take those trades for them?

Steve Palmquist: If you trust the computer more than your life experience, okay. That's an unusual thing. See, the computer will look at things like you mentioned, okay, number of losing trades in a row. Some people will look at that statistic, but I go through and I look and say, let's look at all the trades. When you had 10 losing trades in a row, what happened after that? Okay, did you have a couple of profitable ones and another 10 losing trades? If so, that's not a great system. How long did it take you to get your money back? How often did it show that number of losing trades in a row? If it was once every 10 years, it's not a big issue. If it was once a year, it is a big issue and you need to plan for it. So it keeps coming back to don't trade something you don't understand.

TraderInterviews.com: All right. Well, listeners, we will link to Steve's new book at Traders' Library so you can take a look at that, and we will maybe do a follow-up with Steve. Hopefully, Steve will do an additional interview with you down the road here to get some additional information about system trading, but I think we've sent listeners off in the right direction here. So thanks for your time.

Steve Palmquist: You're welcome
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Default 3 september 2010, 11:29
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gracias

Los árboles no me dejan ver el bosque ¿O es al revés?
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