Linda Raschke “Stock Secrets. Trader interview: Linda Bradford Raschke Linda Raschke fb2
Is a world famous female trader with 35 years of experience. The beginning of her activity fell on the exchange hall, then she mastered electronic trading systems... Since 1993 she took up management investment capital in your own company LBR Group.
Since my school years, I have helped my not too lucky father to carry out technical analysis on price charts. Her father was not very successful at the stock exchange, and as the eldest of four children, she looked through many charts to help the family.
Since 1980, after graduating from college, Linda gained trading experience on the San Francisco and Philadelphia Stock Exchanges.
For the third decade now, she has been spending every working day on the stock exchange - the market is constantly changing, and the slightest deviations cannot be missed.
At the end of 1986, Linda fell off her horse and was physically unable to work in the gym for several weeks. The injuries forced her to equip an office in her home and switch to the Quotron electronic system. For the first time, the prospects opened up for her to tap into different markets. She liked the new one so much electronic system that she never returned to the trading floor.
- In 1992 Linda Bradford founded her own company, the LBR Group, where she became president and also a registered Merchandise Trade Advisor (CTA).
- In 1993 started managing investors' money, and in 2002 founded her own hedge fund, which, following the results of 5 years of work, took 17th place out of 4,500 hedge funds according to Barclays Hedge.
What does Linda Raschke trade
Most of all, Linda prefers to trade in futures, starting with them as a trader. She also successfully trades currencies, metals, crude, natural gas, grain, meat and German bonds.
The average short-term trade in the S&P 500 takes Linda about 10 minutes... But she also has longer positions. For example, in futures, trades are held for about two weeks.
- Linda makes two to six trades a day in the S&P 500, and three trades in other markets.
Trading style
"Placing initial protective stops should be a must."
When the market is on the rise and traders rush to buy, Linda sells. She waits for the market to bounce back and she can buy the asset at a price that is favorable to her.
In the 1980s, she mainly traded against the trend, but in 1993 she began to take control of other people's money and her trading style became more cautious.
“First, I set a rule - never average. I also started using much less leverage. I started looking for more trades that would be on trend retracements instead of trying to guess when the market would go too far to take a counter - trending position. "
Linda divided the trade into five parts:
- Organization and structure... You need to properly organize your business and work environment.
- Determining the trading method, strategy, choice of instruments.
- Money management... There are many rules for this category, and they are much more important than the amount of money in the account.
- Psychology... You should stay active and not give in to stress or depression. Sometimes it is very difficult to push yourself to get to the next level.
- Execution of the transaction... About 50% of the result depends on the degree of experience. You need to determine when to enter the market. When using a limit order, sometimes you need to skip a trade, which will allow you to get an additional few points. It is equally important to determine the exact time to exit the position. Sometimes traders exit a trade on a limit order, but the market sometimes does not reach that price two ticks and then moves 10 pips against them.
Linda attaches great importance to the price at the moment of entering the market. She believes that in short-term trading, a well-chosen price will give time to readjust if the movement changes course. If there is a loss, it still won't be excessive.
“Practicing a few hours a day helps build discipline and concentration — two skills that are very useful for a trader.”
When asked what is better for her in trading - price, indicators or strategies, she answered:
“Ninety percent of what I do is based on price. Indicators are just derivatives of the price. So the actual price action will always be one step ahead of any indicator. ”
“The best thing indicators do is signal the emergence of new highs, lows or the continuation of a trend. It doesn't matter if you use the Stochastic Oscillator or the Average True Range function. I use pure degree of change, and there are a million ways to get that signal. "
Linda's Favorite Indicators:
- 14-period ADX.
- Keltner Channels.
- 2-period ROC indicator for daily charts.
- TRIN indicator.
“Simpler trading ideas work better than complex ones. All you need to know is to understand bullish and bearish flags. If you can distinguish them on the chart and understand that these points have a more reliable reward-to-risk ratio, you do not need to look for any other method. ”
Linda prefers simplicity, bypassing complex indicators, and price-based methods of determining pullbacks and corrections within trends. It uses 30, 60 and 120 minute charts to monitor the intraday market. Linda Raschke has three priorities in the world of professional trading: “ Performance, Durability, Consistency».
Linda Raschke's Stock Exchange Secrets
Stock Exchange Secrets - Linda Raschke
Book " Exchange secrets »Overturns the traditional idea that big capital can only be earned on stock markets and long time positions. Linda Raschke herself rose in short-term positions from 10 minutes to 1.5 hours and, in co-authorship with Lawrence Connors, shared exchange secrets and tricks using examples 30 short-term strategies.
Much attention is paid to recommendations for risk management and trading psychology. Many of the strategies in the book are reversal and news based. From the feedback from those who read this guide, they really became better at understanding charts and correctly assessing the position on the stock exchange.
The strategies use only the most recognizable and reliable models. Moreover, each scheme corresponds to a certain state of the market.
Specific circuits are designed for a short trading time, although they can be used in any market for any period of time. Many of them are based on technical analysis. Indicators, as an auxiliary tool, are minimally used in these strategies. The authors believe that manual play sharpens intuition and makes the market better.
It is interesting that the authors do not suggest following the standard advice, such as: “if the stochastic has dropped below 25, and the ADX has risen above 35, then we should buy, if, on the contrary, sell”. The book is more guided by the psychology of the crowd of traders.
The book "Stock Secrets" offers swing trading strategies of three different concepts. Trading on fluctuations means focusing on support and resistance levels, and trading in a corridor between them. The support and resistance levels themselves depend on the degree of price fluctuation.
The main swing trading points are:
- tests
- retracements
- climax reversals
The Exchange Secrets book teaches you how to recognize the best patterns at these levels, when to mitigate risks, and when to take profits. For success to really come, the authors recommend taking into account the rules they have developed:
- To play on the stock exchange, use one chosen strategy, and follow it strictly.
- Study an unfamiliar strategy for a long time and carefully on paper. So it will be easier and faster to apply it in real trade.
- If the strategy seems unreliable to you, you should not study it, because during a particular trade, your inner voice will give a brake, and the strategy may not work.
- You don't need to go deep into all of the proposed strategies. Make only one of them the main one. Then it will work almost automatically.
- A prerequisite for each strategy is to place a protective stop order immediately after opening a position. If this is neglected, then even one unsuccessful trade will cancel out several winning previous trades. If each trade makes the loss as small as possible, then we can assume that you have already won 80%.
- The short-term trend always tends to reverse the long-term trend.
After studying this book, you will become better oriented in the market, feel the slightest changes. If some points in the book seem controversial or not very clear to you, they will still be useful. You will become better at predicting in which direction the price will move from the tipping point.
Time and experience have shown that almost all exchange secrets (strategies) presented in the book work.
You just need to make your choice and not stray to the side.
Linda Bradford Raschke was born in 1956 in the family of a financial speculator. It was her father who taught her the basics of trading from childhood: he made with her settlement transactions, showed charts with changes in stock prices.
Trader career
Immediately after graduating from college, Linda tried to get a job as a broker, but was refused everywhere due to her lack of experience in this position. Soon Raschke got a job as a financial analyst. Near her place of work was the Pacific Stock Exchange, which she often ran in in the morning and just watched everything that was happening in the halls.
One of the traders drew attention to the girl's interest and allocated capital for Linda to trade in the amount of $ 25,000. It was 1981. Raschke begins to actively engage in trading.
Although it has been 17 years since she stopped trading on the floor, Linda says the market principles and analytical methods she was developing at the time remain part of her trade today. In fact, some of the tools she uses today, like the 3-10 Oscillator, are essentially the same tools she got from her first mentor over 20 years ago.
The main goal of every trade is to minimize risk rather than maximize profit.
Linda says trade "At a higher level" required minor adjustments, although initially everything went well enough. Relying solely on "Quotron" (a simple display of price quotes that was common in the 1980s), she traded successfully for 45 weeks, in part because technology facilitated the use of her reading skills she acquired on the floor. ... But when she got her first software for a graphical analysis in 1987, she lost money in three months.
"It was crazy in a way." she says. " It was like a tennis player who always played on clay and switched to grass. ".
Failures and problems usually do not adorn the stories of professional traders, but Linda Raschke is quite outspoken about past missteps and failed trades, including the fact that she went bankrupt even earlier when she was on the floor and, even today, does not always hit the mark. Like many traders with floor trading experience, she focuses on consistency - smaller trades with high probability.
"It took me 11 years to make a big journey.", She says. “It was in the early 90s, on soy contracts - a short term deal that got big. There was a bullish divergence on the 3-10 oscillator. I bought at $ 4.80 expecting a move to $ 5. It was a flood year on the Mississippi River and I ended up holding the position with two more points ($ 10,000 move per contract). "
Some of what Linda talks about and tries at her trading place is realism in relation to individual transactions, as well as to trading in general - the above example is more the exception than the rule and mistakes happen to everyone.
"I always try to see my mistakes", says Linda. "People need to know that this kind of thing happens to everyone.".
Linda Bradford Raschke takes a hands-on approach to trading. She points out that many potential traders quit their jobs when they first try to trade professionally, and the stress of trying to make money trading can be very exhausting.
"It's like going to college." she says. “You still have to pay the bills when you go to school - you work in the evenings in a bar or somewhere else. It is very difficult to trade when you are worried about how you will pay the bills. "
Linda Raschke says she does not develop or test a complete trading system as most people imagine it - specific sets of rules for entering, exiting and placing stop orders. Piles of notebooks in her office, filled with statistical patterns and market trends, more like pointers she uses to make trading decisions at specific times.
"The things I mostly check include basic counting" or modeling a market trend. ", Says Linda.
List of used indicators
Here is a list of indicators that Linda Raschke most often uses in her trading and analysis:
- Oscillator 3-10. “I've been using the 3-10 Oscillator since 1981. This is the difference between a 3-day simple moving average and a 10-day simple moving average. Plus, there is a second line, which is a 16-period simple moving average of the 3-10 line. On the chart, I usually use the MACD, changing the parameters of the moving averages from exponential to simple and the lengths of the moving averages at 3, 10 and 16 ".
- 14-period ADX. This indicator is used to measure the strength of a trend.
- Keltner Channels, which are trading bands composed of lines placed 2.5 times the average true range on either side of a 20-period exponential moving average.
- 2-period ROC indicator on daily charts.
- Close latitude: 10-period SMA of stock rallies minus declines.
- Supply to demand ratio. Linda Raschke uses a five-period simple moving average of the supply-demand ratio. This is usually the TRIN indicator.
Don't leave a losing trade the next day
Therefore, we can say that Linda Raschke's strategy is strictly justified by a large number of indicators used.
Linda Raschke's books
Together with Larry Connors, she wrote a book titled.
We also suggest watching a video about Linda Raschke
The book "Stock Secrets" L. Connors, L. Raschki, has all 150 pdf pages, and if you remember that there are also illustrations, then in general it turns out that you need to read from the power of 90 pages. Personally, for me, for everything about everything , it took about a day and a half and this taking into account that I checked each strategy personally on the charts, and re-read some sections two or three times.
In general, do not be lazy, read. The information is very powerful. To be honest, I even feel a little offended that the book is so small. I wanted to absorb and absorb new information.
Quotes from the book "Stock Secrets" L. Connors, L. Raski
I wrote out some quotes for myself, which I really liked.
The first quote is related to an attempt to take every penny from the market. After some time, I myself came to the conclusion that it would be possible to do it vryatli, and this is perfectly confirmed by the example given by Linda Raschke.
No matter how long you trade, you will never be perfect. For example, I have a friend who is a retired market sorcerer. This man made over $ 100 million trading futures. He told me that his biggest weakness is that he never mastered the exit strategy!
This trader may have worried about the few times he exited too early, but obviously this was the right way to trade, judging by his profit! There may not be a perfect exit strategy, but you should take profit when there is one, even if that means your stop will be triggered prematurely due to a little reaction.
The second quote is for those who like to clutter up charts with a bunch of different indicators.
Many novice traders feel overwhelmed at the sight of so many technical indicators. As the old adage goes, give a man one watch and he'll know what time it is. Give him two hours and he will never be sure what time it is!
In most cases, oscillators and moving averages do not line up at the same time, indicating a perfect trade. Take small steps to the market and it will be more manageable.
Most of the time, even professionals do not have a clear picture of what is happening, but they have learned to have the patience to wait for specific chosen patterns to appear. You must learn to trade using only the most recognizable and reliable patterns. You should also learn to follow the signals that the market itself gives you.
The following quotes are more like tips for traders, or rather, mistakes that should not be made if you want to make money.
- Your biggest enemy is your own preconceived notions about where the market might go.
- Your next biggest enemy is the opinions of your friends or brokers.
- Don't carry over losing trades to the next day! This tip alone will save you thousands of dollars. It is much better to exit and try to enter at a more favorable level the next day.
- Correct mistakes immediately! If the market is closed and you realize you made a mistake, exit at the next day's open. Do not try to "bargain" from this situation. Chances are very high that the losing position will worsen over the course of the day!
- If the market offers you unexpectedly large profits on a trade, you should lock it in! This means either taking a profit or pulling an extremely tight stop to the position. When trading swings, it is vital to be alert and not give back profits.
And the philosophy that Raschke promotes can be put in a frame and hung on the wall in front of you not only for traders, but also for employees of any other profession.
K.I.S.S (Keep It Simple, Stupid) philosophy - keep it simple and stupid.
If I had the opportunity, I would spread the whole book into quotations. As for me, everything is said very correctly and it is immediately clear that traders are really successful and understand what they are talking about.
Trading strategies presented in the book "Stock Secrets" L. Connors, L. Raski
The book contains about 20 trading strategies. Obviously, I will not describe them, otherwise I would not have to read the book, but I want to express my opinion about them.
It is quite rare to read books that leave behind a lot of emotions. The last ones that come to mind are the book by Larry Williams "Long Term Secrets of Short Term Trading" and the book by Catty Lin "Traders Millionaires". These books really made my brain work and from reading, go straight to the graph to study the information received.
Linda Raschke and Lawrence Connors shared strategies with a very clear and simple algorithm. Take for example the Turtle Soup strategy (I described it in the article), nothing supernatural. The rules of entry are given, it remains only to follow them.
Of course, I already knew something, for example, how to trade on the Wolfe Waves, but I saw something, but did not use it until now. After reading the book "Stock Secrets", the authors opened my eyes to those patterns that I did not understand how to trade before.
In general, stop pouring water. In my opinion, the book is fantastic and you need to read it, maybe even more than once. I did it, now it's up to you.
The book "Stock Secrets" examines the models of trading on the price fluctuations of the market. Unlike strategies such as trend following, here a trader trying to profit from short-term fluctuations cannot afford to suffer losses or wait for maximum capital depletion. If trend-following presupposes big gains due to the correct emphasis on one trend, then swing trading is a series of small trades, each of which must, at least, go to zero.
One of the most important aspects which Linda Raschke pays attention to is the ability to manage capital and optimize her work style.
The book provides a compilation of ready-made, proven models that can be applied to any market and, subject to the recommendations, they will immediately bring income. But, according to the author, this is possible only if the trader knows how to minimize his emotions and exit deals on time.
As a result of applying the techniques described in the book, you will be able to gain an understanding of market dynamics, easy reading of analytical data, determination of resistance and support levels, analysis of price behavior at climax points. Particular emphasis is placed on the need to set initial stops and understand the exit points from the trade. If a trader does not learn how to set up protection, swing play threatens to fail.
In total, the book discusses three types of swing play models:
- samples;
- recovery;
- reversals.
Each of them must first be "felt" on paper, understand the mechanism of the game, and believe in it. If the model causes rejection, then it is better not to use it. Regardless of the strategy, a trader's success largely lies in the ability and desire to follow one methodological model. If you try to change your mind in critical points succumbing to emotions, the result will be disastrous. For this reason, if you do not believe in the model suggested by the author, it is better not to use it at all. Instead, work out all the directions and find the approach that suits you completely. After all, you only need one model.
The book is also interesting in that it equips the trader with the skills and subtleties that allow, under certain conditions, to beat large exchange-traded funds. Where a clumsy financial machine relies entirely on computerized trading systems and quite often does notable to react with lightning speed to market movements, a knowledgeable trader will always find profitable entry and exit points. The inability to use trading models mechanically with a deliberately winning result is a scourge of large funds and a boon for small players.
Linda Raschke offers the best way to minimize risks and increase the percentage of winning trades by approaching swing trading from the point of view common sense and the ability to bypass traps.
Found error:
Linda Bradford Raschke's career spanned stocks, options and futures, from floor trading to running her own firm. Her recipe for success after 20 years of trading: hard work, preparation and adherence to the basic rules.
Those fortunate enough to hang out with Linda know that she is a rare type: a professional trader who can simple language explain the practical concepts of trading. Colleagues know her as one of the hardest working and most dedicated in the business.
Her trading career has touched on stocks, options and futures both as a private trader and as a business manager. trust management money. She was featured in articles by Jack Schweger "New Market Wizards" Sue Herera "The Woman of Wall Street" and in many other magazines and articles. She is also the co-author of the popular book on short-term trading strategies "Fast Trading on Wall Street".
Raschke started out as a floor trader in the early 1980s, spending a total of six years trading options on the Pacific Stock Exchange and Stock exchange Philadelphia, before successfully moving to a higher trading level - a significant achievement considering high percent setbacks for floor traders trying to make a living outside of it. She began managing money in 1993 while continuing to aggressively trade in her own account. She trades in a variety of markets, but focuses on short-term S&P futures trading.
Raschke still spends long hours analyzing the markets and preparing every day, although she has traded professionally for 20 years. She is an ardent advocate of daily rituals and discipline that keep her focused on trading, even if it does not immediately affect her trading decisions. And she practices simplicity, avoiding complex indicators in favor of price-based methods that identify, for example, pauses or pullbacks within trends.
She took a break from her evening analysis work to discuss the issues that every trader should know, as well as her approach to the markets.
Question:Do you adhere to a certain system in your trading or do you act at your own discretion?
Linda: I have always, to a large extent, acted on my own. I come from trading on the floor, from an environment where you learn to read data, as they say, on the fly. But I've also spent years testing trading concepts, mostly with Steve More of the Moore Research Center. We've tested a million models and trends, and done a lot of designs.
I have come up with some great systems, but I use them as indicators, as I see fit, because I have to have control. Systems are predictive - they give me an idea of the likelihood of which direction the market will continue to move. This does not necessarily mean that I enter where the system shows or manage positions the way the system would. If a particular system signals a buy or sell, then I might consider scalping in the direction of that system's signal.
Also, sometimes the failed signal can be even more predictive than the original signal. I will give you a classic example - buying on a pullback to the moving average for a subsequent move back. I would think, "This is a fairly high probability trade if I can make a system in case this system fails."
Question:Do you usually flip positions?
Linda: I do not stop or roll over at all. But I look for failed signals because very often they can end in strong movements in the opposite direction. They do not occur as often, so your trading frequency becomes lower. But if you have something that works, say 70% to 80% of the time, there is a good reason why it doesn't work when it fails. You actually get more information from signals that don't work.
Let's just say I'm making a system based on a failed buy - one that the moving average can't hold. First, if a buy trade fails, then I know I am not going to buy on a pullback in that market. Then, since there must be a good enough reason for the system to go down, it may have predictive value for going down a certain number of bars or days. Therefore, I'm going to look at short trades.
Question:Do you think your trading style is a natural result of your experience as a floor trader?
Linda: Of course, understanding order flow is helpful, but it is probably more useful to understand the type of environment you are trading in these days. In a high volume market where a trend is developing, it is better to use market orders. If the market is sluggish and inactive, then you should be careful when using market orders. In a range trading situation, your entry price is more important, so it makes sense to use limit orders.
You know there are so many misconceptions about short term trading. Even as a trader on the floor, I could hold a position in a directional movement for two to three months.
What I would do is hold these long term positions with a lot of scalping.
This is what I am pretty much doing now. I will sit with positions much longer than one would think, but at the same time, I can still scalp the S&P on a five minute chart.
The general rule of thumb is that the greater the market volatility or the longer the length of the intraday line (the S&P is good example), the shorter the time period in which you can scalp.
Question:What do you mean by "intraday line"?
Linda: This is how much the intraday market swing captures during the day. Let's say the S&P rallies six points, declines ten points, then moves up another four points. The price did not change at the end of the day, but it moved, in general, by 20 points.
For a short-term trading style, you really need this kind of back and forth movement throughout the day and not much. market instruments have such a movement.
Question:How long, on average, are your short-term trades?
Linda: On the S&P, my average trade takes about 10 minutes. But I have positions in Nasdaq futures that I hold for about two weeks. The trend on them is larger than on the S&P, but the spread between buying and selling is very wide and there is a lot of market noise.
Question:Do you use limit orders in these trades?
Linda: I trade the market in 90% of my trades.
Question:You once said that you believe in predicting price direction, but not amount of movement. How do you manage your positions and take profits?
Linda: Let's just say I'm going long and the market starts to show some upward momentum. First, you want to see a specific price and volume in that direction. I watch for short-term continuation patterns.
If I am long and the market starts to break up, I want to see continuation patterns on the hourly chart - small bullish flags, triangles, etc. When the market breaks out and there is some momentum, there are usually three shocks. On an hourly chart, they can develop over a two- or three-day period. The market must continue to maintain its gains. The moment you see that it is giving more than it should be, you exit on the first recovery or pause.
Question:Are you adjusting position sizes?
Linda: I usually do my trades in two parts. I try to stay with the position as long as I can and shoot half. I usually don't average trades, I enter right away. I try to find best entry- where I can easily manage risk. Once you see this location, you can enter and open the entire position.
If you open a full position right away, then this is the closest to your risk point. When you average, it turns out that you will always average losing positions, but you will never add to your winning positions when they start to rise.
Averaging is actually a bad habit, unless you are in a very volatile market and you haven’t already planned to form a position in two parts. But in most cases, I find that averaging does more harm than good.
When it comes to exiting a trade, if the market hits a price target and you are not really sure if it is going to continue moving, then you should at least take half the position.
Question:Is your trading based more on direct price action or on the indicators and systems you mentioned earlier?
Linda: Ninety percent of what I do is price based. Indicators are just derivatives of the price. So the actual price action will always be one step ahead of any indicator.
The best thing indicators do is tell you when there are new highs or lows in dynamics, which signals a continuation. It doesn't matter if you are using an Oscillator, Stochastic, or the Average True Range function. I am using pure rate of change - there are a million ways you can do this.
At least you can define the number of indicators. It is difficult to test pure pricing patterns. So, for assessing market trends and model goals, indicators can be useful. But when I trade, I look at the price and think, "Okay, this market was down in the morning, now it is starting to make new highs in the afternoon" or "We opened below yesterday's low and now we are back up to the same price." I work a lot more with price levels and pivot points: can we test the 2-day high? Can we roll back to the moving average? This is what I am doing.
Question:What timelines do you see during the day?
Linda: To observe the intraday market, I use 30-, 60-, and 120-minute charts for each market that I watch. This allows for a fairly good assessment of the direction of the market. If you can't see anything on these graphs, then it's okay. On one of these time frames, you will always see either a recovery pattern, like a flag, or you will see testing. key level support or resistance. The market is either recovering or testing.
Question:What else are you monitoring during the day for your short-term trades?
Linda: For intraday trades, shall we say, I usually only observe price data. Sometimes I watch a one or five minute chart, but I usually watch levels and ticks and the TRIN indicator.
Question:Are you looking for something specific?
Linda: I use ticks like a dynamic oscillator: If the ticks make new highs, I will look for buying opportunities on pullbacks. For example, there has recently been an upward rally in the S&P for about two weeks, followed by a roughly five-day correction. Ticks reached -400, -500 yesterday and this morning (June 13) was the first time they corrected in a week and a half, which was a buy signal see diagram 1 below). This is similar to when the oscillator becomes overbought after a rally and retraces slightly. Ticks behave in much the same way. But I also use them to confirm the trend. For example, ticks continue to make new highs this afternoon, which confirms an upward movement.
Question:How many trades do you make per day?
Linda: Two to six trades in the S&P and three trades in other markets.
Question:How do you decide how much to risk per trade or where to place your stop orders?
Linda: You must have some starting point of risk. In almost every market except coffee and the S&P, I risk $ 500 per contract. This makes risk management really easy. This gives the position (in the markets I trade) enough room to work or not work.
You have to think in terms of market entry and space, so if your timing is a little inaccurate, you still have some time to see how the trade should be managed. But you need an initial insurance or risk point. So, even though I usually start at $ 500, there are times when I don't want to risk that either.
Once you have opened a position and established your initial risk, you are in control of the trade, which includes exiting the trade if it does not work or approaching a stop order. In the S&P, if the trade is to scalp quickly, when I try to capture two to four pips, I risk three pips. For longer position trading, I risk up to 10 pips.
But it also depends on variability. If the market is really swinging back and forth, you should give the position some room. I use stop orders of 100 pips on Nasdaq futures. That's a lot - $ 10,000 per contract, but I trade it over a longer time frame, so I go for it.
Question:How long did it take you to develop your trading style?
Linda: I've always been price sensitive. But in the 1980s I was much more inclined to trade against the trend than I am now. When I started taking control of other people's money in 1993, my trading style really changed.
First, I made a rule to never average. I also started using much less leverage. I started looking for more trades that would take pullbacks within trending rather than trying to guess when the market had gone too far to take a counter - trending position.
Question:What basic principles do you think traders should follow?
Linda: I try to break down the trade into four parts, each of which is important for the overall result.
The first, which is what everyone wants to focus on, is the initial trading methodology (setups, indicators, patterns) that determines whether to buy or sell at what level and when.
The second is execution. This is probably the most overlooked part of the trade. At least 50 percent of the result depends on your performance skills. When do you buy by market? If you are using limit orders, you will sometimes miss a trade, but this will give you a few extra pips. On the other hand, you don't want to be in the market all the time.
Also, what about exiting trades? How do you work with your stop orders? There is very little literature on this subject, but I see that a lot of money is lost due to poor performance. People can lose money even when they are right about the market. For example, they try to get out of a trade on a limit order, and the market doesn't get two ticks to that price and then goes 10 pips against them.
This is one of those things that only comes with practice. You have to go in there and make a trade and feel how it works. This is where you gain confidence as well. If you feel confident that you are buying and selling correctly, you will most likely do three times as many trades.
There is no right or wrong approach. I trade 90% of the market, but I have a friend who never uses market orders. It depends on the style of trading you are using and how good your primary timing is.
The third element is money management. There are many factors that fall into this category - much more than how much money you are risking or where you place your stop order. This also applies to when and what leverage to use. Are you getting a correlation in your portfolio? What will you do when your account drops by 10%? Are you stepping up your trade or cutting back?
Finally, there is psychology. It's not just "Oh, I can't pull the trigger" or "I'm overtrading." This refers to questions like how to stay active and not burn yourself out. Trading can be a burden and stressful. Let's say you have been a trader for 15 years. How will you push yourself to get to the next level? How to really challenge yourself?
Also, do you analyze your trends? For example, many people tend to make money in the morning and lose it in the last hours of the day.
You can add a small fifth category: organization and structure. How do you organize your business and work environment. Do you keep a trade journal? Do you keep track of transactions and analyze what you are doing?
Question:Are you talking about analyzing your trade execution?
Linda: Yes. But keeping a record is more of a ritual for me. I actually write a lot of data without looking at it afterwards. But simply writing them down, one way or another, leaves information somewhere in my brain, where I can get it later. I go over the trading plans for about 20 markets, even though I will only be trading a few. Routines and rituals are wonderful tools for managing anxiety and stress.
Question: Are you stressed when trading?
Linda: I feel the results of stress at the end of the year, end of the quarter and end of the month. So this year, I wrote in my business plan that I will close all positions at the end of the quarter.
Question:Do you exit on bad days or for a while if you have experienced a certain level of decline?
Linda: I never quit when I'm in a recession. Never. It's important for me to get that money back. I am angry that I lost this money. If I leave the office, I will not be able to relax. I'm so passionate about it that I don't even like taking vacations. If I were relaxing on the beach, somewhere on the island, then I would not know what to do.
But I have horses so I can go for a ride after the close. I spend time with horses every day. This helps to distract from the markets. After that, I can do my analysis at night, with a fresh mind. You must have something that allows you to get out of the office and completely disconnect from trading. Other than that, the only time I really get distracted from trading is when I speak at trading conferences.
Question:What do you say to those people who want to become a better trader?
Linda: Get a good basic education in technical analysis... By this I mean the study of basic charting patterns. Prioritize yourself and ignore all oscillators and neural networks and, instead, fully understand issues such as gap theories, trend lines, and continuation patterns. Understand the definitions of trend and the confirmation and non-confirmation principles put forward by the Dow. Explore graphic models to understand what is happening in the areas of distribution and accumulation.
These are really good principles that will work in any market and for any time frame. Understanding simple trend lines and chart patterns and when to trade continuation patterns instead of when you are in a trading range is probably the best thing you can do.
It is interesting. Those people wrote about the markets when there were no computers, so everything they wrote about the market was really price based. And you also find that these people spent 80, 100 hours a week studying the markets. It forces you to estimate how long it takes to truly understand price movements and markets. For me, this is the journey of a lifetime. I've been doing this for 20 years and I've learned a lot in the past year.
New traders seem to spend the first three years testing various things and finding out that they don't work. You should test many different styles and markets until you find one that works for you. But you need to be patient, because it takes time to find what suits your personality. And you will take something from everything that you learn in the course of this research.
Question:Given what you said about understanding basic charting analysis, do you think that simpler trading ideas work better than complex ones?
Linda: Absolutely. Look, all you have to do is understand bullish and bearish flags. see diagram 2 above). If you can recognize them on a chart and understand that these points have the best return-to-risk ratio than any technique - where you can make the most profit in the least amount of time and use more leverage - you don't need to have anything else.
To be continued