Day Trading:

15 Secrets to Success
from an Experienced
Day-Trader
Sponsored by:

An interview with David Foale

 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014

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An interview with David Foale.

What is your background? How did you get into trading?
I have always been interested in shares and the stock market. How the prices of shares and the FTSE
moved up and down. I qualified as an accountant, and drifted into Investment Banking in the City,
then down to the trading floor, but still in an accounting role. I worked abroad for some years, then
when I came back I decided to try trading on my own account. I have to say that none of the above
helped me in the slightest with my trading. In fact you have to unlearn so much. I have found that
successful traders often have no background in finance at all. One very successful trader I knew used
to be a milkman.

Which markets and instruments do you trade?

Over the years I have been active in spread betting, CFDs, futures, options, commodities and ETFs as well as managing a small
portfolio of shares and more recently my SIPP portfolio and a Junior ISA on behalf of my son.

Secret # 1: Trade just a few shorts I held for too long in equities
have generally not done too well!
things you know well. What percentage of your
trades are long or short?

Do you stick to just a few

instruments that you know
well?
Yes. After trying many different
instruments, I now mostly trade the
DAX and the FTSE indexes. I also
trade UK banks, gold and oil. Each
instrument has its own personality
or individual characteristics. I dont
trade the DAX in the same way as I
trade the price of gold.
I try to follow the main trend of Secret # 2: Close day
each day, so it really depends on
that. I have no bias with trading trades overnight.
indexes, as sentiment can change
very quickly. The market reacts What is your trading
much more quickly to fear than frequency?
greed, with the market at times
Again this depends on the
falling quickly over a short period.
instrument. Futures and spread
2013 has been an unusual year in
bet trades are often several times a
that equities have rallied all year
day, although sometimes not at
without a major correction. So any all. With my SIPP being the other
extreme, where positions can be

PAGE | 1
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014
left for months with perhaps just
adding or reducing one or two
positions. Almost always I close
out any futures or spreadbet
positions by the end of the day.
Very rarely I carry them
overnight. To be honest if I add
up all the profits and losses from
overnight trading, it probably
comes to close to zero at best, so I
just look for the days main trend
then close out my position. I want
time that I dont have to think
about how unfolding events will
affect my short term positions.
What kind of daily loss
would keep you up at night?
Any loss! Thats why I dont like
doing it. Only if I had a position in
say the FTSE at say 8:45pm, and it
was clear the FTSE has not moved
enough given the huge move in the
S&P that evening, I would
consider holding it overnight, but
I might reduce my position size. I
very rarely carry positions
overnight. In futures it requires
extra margin also.
Secret # 3: Keep charting
techniques simple:
support, resistance,
channels, breakout,
simple momentum and
trend indicators.
What is your trading
strategy? Do you use
technical analysis,
fundamental analysis? What
charting techniques do you
employ?
Again the answer depends on what
instrument I am trading. If I feel
that the gold price has further to
fall, I have a part fundamental
approach, currently, with the start
of the tapering of quantitative
easing likely just weeks to a few
months away, and low inflation
expectations, has lead me to look
for good short entry levels for
gold. Looking at the charts, may
also suggest given the recent rally
back to the $1400 area was sold
into that we have lower to go. If
my technical analysis and the
fundamentals line up, that gives
me greater confidence in opening
and more importantly
maintaining a trade. These are not
day trades of course. I may hold a
short in a gold ETF in my SIPP for
some while, to allow events to play
out. If I am trading indexes, then
its basically a technical trade, with
entry, exit and stop levels much
more narrowly defined. I look for
a smaller move, maybe trading
both ways during the day as the
market moves, but never losing
site of the main days direction. I
use simple charting
techniques, looking at
channels and breakouts,
resistance and support levels.
Over the years I have used
many different indicators,
but I have found that simple
trend and breakout
indicators work well.
Do you use level 2 for UK
equities?
When I traded CFDs I found level
2 information very useful. For my
SIPP trades, and equities trading
in general I dont use it.
Secret # 4: Keep trade
sizes small.
What is the size of your
trades?
I keep my trade sizes small. It
depends of your size of account
together with appetite for risk and
while I might have positions in
both the FTSE and the DAX at one
time they are never large relative
to my trading capital. I am in this
for the long run. I don't try to
make a large profit from single
trades. I just come into each day,
flat and try to take out some
money from the market, or on the
losing days, try to minimise that
PAGE | 2
days loss, ready for the next day.
For me
its a marathon, not a sprint. It
wasnt always like that, and I have
the losses to prove it!
In my SIPP, I usually have a
maximum percentage of the total
portfolio that I will allocate to a
given instrument or group of
instruments. I might have
Barclays in it, but the Barclays
position may be smaller if I have
Lloyds in it too as obviously the
banks are correlated.
Similarly with indexes. Long
DAX and long FTSE can
create a large long index
exposure, particularly if the
instrument is a geared play two or
even three times the move in the
index itself. I may also add to or
reduce a position in a given
instrument within the SIPP while
still retaining some exposure.
Usually though in spread betting
or futures trades, size its small
relative to my capital as I focus
more on the possibility of a loss
reducing my account size, rather
than of a profit increasing it.
Secret # 5: Add to winning
trades.
Your highest profit or loss
from a trade?
Highest profits were probably
buying and holding lots of tech
companies during 1999 and selling
them in early 2000 just ahead of a
planned holiday. The timing of my
holiday was very fortunate, since
prices had already started to fall
heavily when I returned. I also did
very well trading gaming stocks in
the mid 2000s. I bought and
added to my position several
times, then sat back and waited,
then sold it in two or three
chunks near the peak.
Large losses occur, when I
stubbornly refused close a small
loss. Or worse, if in years gone by I
added to a position that was
already losing! Certainly being
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014
long the DAX in a falling market,
you can accumulate losses very
quickly. Better to close quickly,
accept your loss, and then
consider opening a position in the
opposite direction.
Secret # 6: Use stop-
losses and profit limits,
(move up stops to lock in
profits and extend profit
targets to increase gains).
Your stops level? Maximum
percentage allocated on a
trade?
As I mentioned above, I keep my
trades small, the percentage of
capital committed per trade is low.
For me, being flat during the
trading day IS a position. With
many charting platforms, you can
now see and amend your limit or
profit target and stop level, from
the chart itself, by clicking and
dragging the lines on the chart. I
find this useful, as although when
I enter a trade I may have a
certain number of points for my
profit and stop level, I can refine
this quickly around key resistance
and support levels, as my trade
appears on the real-time chart of
that instrument. I may tighten
the stop or move it to positive
to lock in a profit, then
extend the profit target, if the
market is clearly moving strongly
in one direction. You do need to be
able to analyse, decide and then
react quickly to unfolding events.
Do you coordinate trades
with other traders (work in a
team)?
No, personally I have never done
this. I like to work out my own
trades, take on and manage my
own risk. Its not that I think I am
a better trader, but when you see a
trade start to go against you, you
need to be able to draw on the
reasons why you are in the trade,
what you are looking for from the
trade and assess whether that
assumption is still valid. If it is a
collaboration, you might have to
evaluate the thinking of others
and how that might affect your
stop. If I start to feel the slightest
bit uncomfortable in a short term
futures or spreadbet trade, I just
close it, if I delay I almost always
regret it. You can always re-enter
the market.
Do you use bulletin boards
or other venues to
communicate?
I have done both in previous
years, I have met up with groups
of traders I have met and chatted
with on bulletin boards. I found it
very useful at the start, to network
with other like-minded people. I
do this less now.
Secret # 7: Successful
traders can have win
ratios as low as 40%.
What do you think your
win/loss ratio is?
Well actually, its higher than it
should be! That may sound
strange, but I should still stop out
more than I do. There is no point
having a high win/loss ratio of say
70 or 80%, if the ones that do lose
record large losses. Traders that
keep such a large proportion of
their short term trades open often
find cutting ANY trades at a loss
PAGE | 3
extremely difficult. When those
trades turn negative, these traders
are often slow stopping them out,
allowing them to run, in the hope
that they will be able to exit for
break-even, often eventually
ending up incurring large losses as
a result. Many successful
traders have a ratio as low as
40% to maybe 60% winners,
because they stop out trades
all the time, but remain in the
trades of the remaining
winners to ensure their
profits exceed their losses
overall and their account
grows over time.
What risk/reward ratio do
you aim for 1:2, 1:3?
Yes, somewhere around there. But
that is only for my initial decision
to enter the trade. I really focus
more on an acceptable stop level,
paying attention to the nearby
support and resistance levels and
then identify a suitable entry
point. Once in the trade though, it
becomes a more dynamic process.
I might end up getting out after 10
points where I had a 15 point stop,
because the profile of the trade
has changed. Or I might have a
tight stop say 10 -12 points, then
after a short while it becomes
obvious the market is making a
bigger move in my favour, so I
amend my target exit price to try
and capture more points.
Sometimes reducing the
position by half to take some
profits and move the stop to
positive; this reduces risk but
keeps me in the trade to
benefit from any continued
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014
move. Other times, I am relieved
just to exit the trade around my
original entry price, or even when
the stop takes me out of the
position, given the market
subsequently moves much more
against the direction of your
position.
Secret # 8: Stay away from
low volume, high volatility
times like at the middle of
the day, Mondays, Fridays,
Christmas and August.
What are your golden rules
of trading?
Trade small. Large trades
relative to account size WILL
eventually blow a hole in your
account. Don't overtrade,
especially after you have had a
successful trade. Its so easy to
give it back and more. Be rigid in
your stop losses. You can
always re-enter, but closing out a
loser quickly, saves you money in
the long run. Over time its the
tight stops and running the
winners just that bit more that will
enable you to grow your account. I
also stay away from low
volume days, prices can move
about with no clear direction
reversing sharply for apparently
no reason, and you can find
yourself with a succession of
losing trades. Christmas and
August can be quiet in many
markets. I avoid certain times of
the day, certainly around
important data releases where
volatility and sharp reversals are
common, also traditionally quiet
times like the middle of the
day for the FTSE. I trade less on
Mondays and Friday because
looking back, for me I have found
trades on those days difficult to
judge market direction, the size of
any move and unexpected
reversals.
Secret # 9: Never add to a
losing trade.
What are the major mistakes
traders make?
Overtrading, not stopping out by
getting too attached to the current
trade. Adding to a losing trade.
I never do this now. Sometimes
it would have worked as the
market reversed, but it only takes
a few times when the original
direction continues, to make a big
hole in your trading account.
Linked to this, is that novice
traders often look for turns in the
market, then get in too early
before that new trend is
established to try and maximise
their profit. This can be highly
stressful. Trade the direction
of the trend, dont worry
about getting the full price
move. Taking advantage of
the middle part of a move is a
great way to grow your
account, in a less stressful
way. Traders often have a
position that is too large relative to
their account, having focused on
how much money you could
make rather than how much
they could lose!
Secret # 10: Expect to lose
money when you start.
What advice would you give
to 'would be' traders?
Expect to lose when you start.
You WILL lose often, so trade in
the smallest size you can. You are
not going to make lots of money at
the start from it, so dont try to.
Think of it as a learning exercise.
You WILL make mistakes in
virtually everything, it will cost
you some trading capital,
minimise that by taking small
sized positions and limit the
number of trades that you do.
Traders seem to think that once
they master how to trade, they will
lose less often. In may be that you
lose MORE often; its just that the
PAGE | 4
losses are small, but the winners,
even if there are less of them, are
large, more than offsetting the
losers. You will lose money at
times throughout your trading
career. Just view it as part of the
trading process. Stay calm and
detached and you will get through
it.
Secret # 11: Let winning
trades run.
What is the hardest part of
trading?
For me running the winners.
I often close out too early, you
need to stay in those winning
trades to make up for the stopped
out ones.
Secret # 12: Like any other
job, separate your day into
trading time and non-
trading time.
How do you minimise the
emotions on trading and
keep a work-life balance?
This can be difficult. I have
trading time and a non-
trading time. I often do less or
sometimes no trading on
Mondays and Fridays. It gives
time for non-trading activities,
and on both of these days I have
sometimes found the moves in
equities to be less predictable in
both direction and the size of the
move. You really need to be
unemotional about trading. Try to
identify what is your emotional
thinking, greed and fear, stress
perhaps from non-trading
activities in your life and separate
that from your trading decisions.
For many this can be extremely
difficult to manage. It comes back
to knowing yourself. Trading can
be very time consuming. Many of
us have families and other non-
trading demands on our time.
They can and will conflict at times.
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014
Try to have trading hours,
that you clearly communicate
to others in your life,
particularly family members.
That you are at work, so that
they can plan their activities
accordingly. Recognise, like any
other job, that some people are
more interested about what you
do than others.
Secret # 13: Keep a trading
diary when you start out to
record your mistakes.
Do you keep a trading diary?
I did this for a while. It showed
me that I made the same
mistakes over and over, so I
was able to focus on attempting to
improve those. Its an ongoing
process!
The market has many patterns
and waves that repeat over days
weeks and months. Your chosen
market or instrument, market may
be busier in the winter, or
extremely quiet on Fridays.
Making notes is a great way to do
this. Realise when trading
patterns change and what the
causes are. The best example
recently has been the effect of
quantitative easing.
Secret # 14: Get to know
yourself - your strengths
and weaknesses,
understanding trading
psychology is very
important.
You hear people talk of
trading psychology. Is that
something that you feel is
important to traders?
Yes. This is very important.
After a while you will feel
comfortable with your trading
platform, and your trading
instruments. Take the time to get
to know yourself! What are your
trading strengths and limitations.
Working on your limitations takes
time, you will find that some ways
of working are extremely hard or
even not possible to change, you
need to recognise that. Knowing
you should have stopped out a
trade, that have clearly gone
against you as the market has
turned, is so much easier than
actually closing the position.
Can you recommend books?
Websites?
I am not going to mention specific
books. I read a lot when I first
started, and for sure you want to
learn about technical analysis, and
all the mechanics of trading. I
would recommend reading a
book on trading psychology as
successful trading is to a large
PAGE | 5
degree about you.
Secret # 15: Treat trading
like any other job.
What makes a good trader?
Treat it like any other job.
Prepare for your work. Have a
purpose that you want to achieve
from your trades. Realise that you
wont be able to achieve your goal
on some trades whatever your
timeframe. Some positions that
you had seen as medium term,
maybe a fall in the price of oil over
the coming months, unfolding
events may mean you have to
close it after a few days. Try not to
get distracted by non-trading
activities during the day. Have a
trading time and a non-trading
time. Don't get attached to your
trades. That one trade you are
sweating over thats losing money,
always be aware that its just that,
one trade, close it and move
on. Be patient, a lot of the time
the market does nothing, or
nothing meaningful and does not
seem to have a clear trend or
pattern. Often it does, but it takes
a while or a wider view, for the
trader to identify it. Be in no rush
to open trades. Take time away
from trading.
You ideally want to end up with a
net positive for the day or week.
But virtually every trading day I
have losing trades. In fact if I have
only winning trades, I am very
tempted to overtrade. So a losing
trade often keeps me
grounded. Also important is to
know yourself. Some people are
just not cut out to be traders. It
can be quite solitary. I like that. It
can drive others crazy! You have
to be disciplined in planning your
day, from getting up early,
preparing for the market to open,
thats 7am in the UK for the DAX
if you want to trade the open. Stop
out losing trades and if necessary,
walk away for the rest of the day,
especially if you are distracted.
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014
Trading is not for everyone.
Bonus Secret # 1: Trade for
points not pounds.
Do you worry about the level
of your account balance
during the trading day?
I have heard from several successful
traders that you in fact do the
opposite! Looking at your trading
balance fluctuate as you are trading
can be extremely distracting. I dont
look at my account balance during
the day and on most window based
trading platforms you can hide it.
Even better if you do not look at the
pound amount of gain or loss on
your open trades, but just look at
the points made or lost, on the
trades and the total margin used by
all the trades you have open. So you
are down 15 or you have made 20
points. I find this is better than
realising, while you still have your
your position open, that instead of
opening the position, you could
have replaced your smartphone! It
helps with managing your emotions
during trading. This approach also
helps when your account grows and
you decide to trade in a larger size.
You are still looking at making
maybe 25 points, rather than
worrying that your stop loss in
pounds is now that much greater.
Bonus Secret # 2: Be very
careful if you increase
your trade size once your
account has grown.
I have heard the term size
kills with regard to trade
size. Can you explain that?
Traders that have made good
profits and their account size has
grown face two choices. Withdraw
the profits, and continue trading
the same size positions, or is key to keeping yourself
increase the size of trades. detached, and your emotions in
Assuming you have wisely started check.
to trade in very small sizes, the
first option although great in
terms of the points accumulated,
may not be that significant in
terms of pounds.
You may decide to leave your
profits in your trading account,
but now trade in a larger size.
Two things to remember. Do it
gradually, dont just double the
trade size because you have
doubled your account size.
Increase your trading size by 50%
or even just 30% and see how this
goes. Traders often think, it will be
the same. After all, the risk is the
same as both the trading capital
and the size of each trade, have
gone up by the same amount. But
the second thing to note is the
psychological effect. If you have
traded at 5 a point and been
successful, moving to 10 a point
trades, can really affect how
comfortable you fell while
managing the trade. You find it
affects your decision making, as
you see the larger profit, and may
want to bank it earlier than if it
were a small position.
Remember its hanging on to those
winning trades, which over time
pay for the losing ones. Larger
sized losing trades often get
manually stopped out before they
get near your market stop, as
similarly you can see a larger
pound amount of loss
accumulating, which can be
unsettling. Traders may want to
return to trading in the smaller
size, even with their larger capital,
until they feel more comfortable. I
would not recommend trading
those that you feel are the higher
probability trades at the larger
points size, as this never works
out. This just adds to your stress
levels as you end up viewing and
therefore managing these trades
differently. Treating each trade as
just another trade, no more or less
important than any of the others,
PAGE | 6
 15 SECRETS TO SUCCESS FROM AN EXPERIENCED DAY-TRADER | 29 APRIL 2014

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