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01

Edition

Featuring
Tricks of
the Trade
Brian Shannon
50 Pips
Linda Raschke
Joe Donohue
Charlie Burton
Joe Kunkle
Chris Kimble

Interviews with the world’s top traders

IN PARTNERSHIP WITH |

1 | EDITION 01
CONTENTS

W hile there’s some debate among


the trading community over how
much of one’s own style should
be shaped by those that have found success
before, there’s little doubt that learning about the
techniques and strategies used by other traders 06 | 50 PIPS­­
is an insightful experience.  The secretive independent FX trader
on clean charts, the purity of price,
It’s why, since the inception of Opto, we’ve felt and why failure is self-inflicted.
that providing a platform for traders at the top
of their game to share their ways of working, in 03 | BRIAN SHANNON
their own words, was an important one. And as The Alpha Trends founder on using
multiple timeframes and volume-
traders, we are extremely lucky: the community weighted averages.
is one that is incredibly generous with their time
and wisdom. 
This anthology of sorts includes conversations
we’ve had over the past year with traders
conducted for our regular ‘Tricks of the Trade’
feature in our quarterly magazine, plus three new
bonus interviews exclusive to this edition.  11 | JOE DONOHUE
A broad set of ideas, techniques and The hedge fund founder-turned trader
philosophies are explored in detail across on why following trends alongside
careful diversification is key.
these interviews – many of which support one
another – while differences in style illustrate just 08 | LINDA RASCHKE
how wide-ranging strategies can be within the The New Market Wizard on exploiting
trading community.  short-term swings and playing for
a better position.
At Opto, these conversations have been some
of our highlights while producing the magazine,
and we hope you enjoy reading the insights as
much as we enjoyed the conversations which
provided them. 
We’d like to take this opportunity to extend a
huge thanks to all of the traders who’ve given
up hours of their time to share their invaluable 17 | JOE KUNKLE
The ‘Options Hawk’ on growth and
experiences, mistakes and advice across these momentum in fundamentals, and
Tricks of the Trade.  why he’s ‘not into trends’.

Happy reading,  15 | CHARLIE BURTON


The FX trading champ on developing
The Opto team the right mindset, having a thick skin
and knowing when to hold
onto a trade.

CMC Markets is an execution-only service provider.


The material (whether or not it states any opinions) is for general information purposes only, and does not take into account
your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment
or other advice on which reliance should be placed. Nothing in the material included within Tricks of the trade constitutes a
recommendation by CMC Markets, the author or The Crown & Co that any particular investment, trade, security, transaction
20 | CHRIS KIMBLE
or investment strategy is suitable for any specific person. CMC Markets and The Crown & Co do not endorse or offer opinion on The pioneering technical analyst on
any trading strategies mentioned or used by commentators within Tricks of the trade. Their trading strategies do not guarantee using historical patterns to identify
any return and CMC Markets and The Crown & Co shall not be held responsible for any loss that you may incur, either directly or future opportunity.
indirectly, arising from any investment based on any information contained herein.

2 | EDITION 01
TRICKS OF THE TRADE

“I trade using


multiple
timeframes”
Alpha Trends founder Brian Shannon on multiple
timeframes, volume-weighted averages and why he
doesn’t like trading with other people’s money.
Illustration:

B
Paul Ryding

RIAN SHANNON STARTED my time horizon. Over the past five or might be good ideas. Each day I look
his career as a stockbroker six years I have gravitated back towards at the shortened list and seek out
at firms including Lehman swing trading. Now, I’ll only take a day what appear to be the low-risk,
Brothers in the early 1990s before trade if it’s in front of me and it’s high-probability swing-trade setups
moving on to trading full time. His first obvious; I don’t actively seek to be for the coming day.
trading gig was at a firm specialising a day trader all the time.
in leveraged trading. Next up, he I trade using multiple timeframes.
took a position at a “better-funded I primarily trade individual equities. I have a weekly chart, a daily chart,
competitor”, leading its proprietary I find my ideas by doing manual scans a 30-minute timeframe, a 15-minute
trading programme and creating a of large lists of stocks. I have some timeframe and a five-minute
series of courses. He started Alpha general parameters: they have to timeframe so I can view five
Trends as his own trading office before trade at least half a million shares on timeframes at once. This allows me
developing it into a subscription average over the past 20 days; price to see the interplay of bigger trends
insights service focused around doesn’t matter so much, but I tend to with shorter timeframe trends.
technical analysis using multiple trade most actively in stocks of $20-60
timeframes. He continues to trade per share. I don’t have a certain list of criteria
actively every day and is a prominent that I check off. What I’m looking for
voice on Twitter and StockTwits. Here I’m typically in a trade from three to is a stock that’s trending on a longer
are his tricks of the trade. eight days. Unless I’m wrong right away timeframe like a daily timeframe and
– then it will be an inadvertent day then it may have pulled back on the
I mostly swing trade. I don’t have the trade. Three to eight days is generally shorter timeframe. I’m not looking to
patience to be an investor and I don’t the point after which you start to see buy as it’s pulling back. I don’t guess,
have the concentration to be a day deeper pullbacks that I’m not I wait for evidence in the shorter-term
trader. But I understand the markets interested in holding through; it’s not timeframe to show the equity has
really well and how money moves in that I actually choose how many days stabilised and then as it begins to turn
and out of them, so that works best for to hold, I choose where to put my higher again – back in the direction
my personality; it’s active enough, an stops, and when there’s a deeper of the primary trend – I put my money
intellectual challenge and I still enjoy pullback within that trend, and then in with the stock. It’s all about looking
it – plus I make money. I’ll get bounced out. for alignment: the stock is in an
uptrend on the daily timeframe, it’s
Trading is a journey; you have to adapt to I have a master list of stocks that I pulled back, it’s gone sideways, and
your own personality. I started out as a predominantly look for ideas in. There now it’s looking like it’s ready to
swing trader, then got pretty active in are about 700 stocks on the list that re-emerge into that uptrend again.
day trading, but when I began to feel I review once a month. At the start It’s basically the concept I explore
like I’d lost my edge in day trading I of each week I whittle down the list in my book, Technical Analysis Using
listened to my results and expanded to a group of about 150 that I think Multiple Timeframes.

3 | EDITION 01
The volume-weighted average price
has become my primary analysis tool.
It allows me to say very objectively
where we are in reference to a previous
high or low, who has control, who’s
gaining control, or who’s losing control
at any given point. It’s a tool I’ve been
using for 14 years and the most
important piece of the puzzle for me
because it accurately measures true
supply and demand dynamics from any
point in time.

I set alerts on stocks I’m interested in.


For instance, if I think a stock is going
to break a near-term level of resistance
if it gets above $35 a share, I’ll set an
alert at $34.95. So if my eyes aren’t
on that stock, I’ll get an alert ahead
of where I think the breakout is, so I
can start to pull up a level two, look
at the shorter-term timeframes, make
sure that there isn’t something I’m
missing about the trade, then I’ll start
to watch it really carefully.

It’s important to understand the


personality of what you’re trading and
the type of people who are trading at
various stages. Take a marijuana stock
that’s going crazy and you’re getting
every kind of gunslinger in there;
that’s most likely going to be a very
emotional crowd, so you’ve got to be
prepared to move fast. “Trading is a journey;
I take partial profits when a trade moves
in my favour. I like to have that comfort
you have to adapt to
of being in a stock from a position
of strength, and then if I get stopped
out, I’ve already taken a little bit of
your own personality”
a cushion to absorb some of that stop
loss. But it doesn’t bother me at all
if I take a small profit and then it It’s up to the market to tell me if I’m right “It’s got to bounce” – essentially
continues to move higher because or wrong, it doesn’t care about my buying a pullback rather than waiting
that’s just part of the process, it’s opinions. I review a trade if it’s for the pullback to settle down,
all part of the plan. gone wrong to see if I implemented establish some support and maybe
something incorrectly, but I don’t have start to turn up a little. It’s why I
I don’t typically have price targets. I look at a grieving process. It’s business, so I don’t try to pick bottoms, but work
price as relative to where my risk is; if it forget about it, move on and look for to capture some of the resurgence
looks as if there’s an opportunity for the the next trade. of upward momentum.
price to move, where’s the potential it
has to go to? I’ll take partial profits if it I’m generally aware of the fundamentals I just want to do my own thing. That’s
does move in my favour, but then I’ll on a cursory level. I don’t do a deep why I have stopped trading with
continue to raise stops under what I call level of fundamental analysis, but other people’s money. I’ve had a
the most recent relevant high or low for a I’m aware of the general sales and couple of different funds I’ve worked
long position for my timeframe. That the earnings trends; that would be with as recently as last year, but it’s
way the market tells me when to get out what I’m most focused on when it different for me when I trade with
by breaking the definition of trend for comes to fundamentals. people’s money, I feel like my every
that timeframe. If it continues to make move is being watched. Also, as
higher highs and higher lows, then My biggest losses have always occurred difficult as it is to manage money,
I can raise my stop comfortably and when I’ve been fighting trends. When managing clients’ expectations can
I will continue to hold it. I’ve thought, “It’s down too much,” or be more challenging!

4 | EDITION 01
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TRICKS OF THE TRADE

“This isn’t a game”


50 Pips – the widely revered but secretive
independent FX trader – on clean charts, the purity
of price, and why failure is self-inflicted.

G OOD TRADING IS mechanical.


All the intellectual work
is done before. The act
of trading itself is simply executing
a small, fixed number of variables
and implementing the setups you’ve
decided to trade, with the leverage
you’ve decided to trade, and the trade
management rules you’ve decided
to apply.
There should never be the possibility
of responding to a loss by saying: “I’m
not going to take this, I might be able
to get out of it.” Your plan should cover
every eventuality: at what point you will
take profit if you’re right, or at what point
you will exit if you’re wrong. Improvising
shouldn’t ever come into it.

There’s no emotion in, or reason to get


excited about day trading. Anybody who
does, especially as an independent,
either doesn’t know what they’re doing,
or they’re trading too big.

I find my edge at the extremes. I engage


at extremes through asymmetric risk
opportunities. It sounds fancy, but really
it just means finding opportunities
where the potential reward is greater
than the potential loss if you turn out
to be wrong. It’s about getting your stops
in at the right point and giving yourself
less room to run at the point you could
be wrong. It allows you to be right less
than half the time, yet still be profitable.

My avatar is an Ensō. It’s a sacred symbol


in Zen Buddhism – a hand-drawn circle
in a single stroke – which means the
mind is free to let the body fully create.
It also symbolises strength and
enlightenment, and is an expression of
wabi-sabi: beauty in imperfection, so
the idea is that when something isn’t
perfect and symmetrical it can in fact, Illustration:
be more beautiful: I like asymmetry. Joe Wilson

6 | EDITION 01
I have plenty of down days, but I never
let them get out of hand.

Price is pure. Price does not lie. Price


tells me everything I need to know at
any given time. It shows me what the
market, the sellers and the buyers are
trying to do. Indicators on top of the
price are just adding granularity; they
are all a mathematical function of the
price. I highly recommend learning
how to read a naked chart and fully

“The cleaner your path from understanding what’s going on any


time before adding granularity.

A to B, the easier it is to repeat The market is always right – it’s playing


between support and resistance. I always

under pressure” look at charts with a view that, ‘if this


happens, or if it goes through this level,
then this is likely to happen; if that
happens, then that is likely to happen’.
So for me, the idea a chart is wrong,
I don’t like clutter on my charts. I’ve down because, if there’s no money on the or that the market is broken, simply
been trading since I was a teenager. line, I can’t focus”. For me, that’s BS. It doesn’t exist. You need to look at
I’ve studied every indicator, technique would be like taking a med student to a both sides of the coin and understand
and technical to make sure I have the morgue and them responding, “No, bring what the bulls and the bears are trying
most reliable and least conflicting chart me a live body to work on!” In short, if to do. If the market can’t move in the
in front of me. Over time I’ve stripped you’ve got money on the line, it’s very direction of the bulls or the bears, it’s
back the indicators so my charts are hard to be objective. But if you don’t, likely to stay sideways until somebody
now extremely bare. Essentially, you’re unbiased and it’s a lot easier to has the upper hand.
I only look at horizontal levels and learn. Only go live when you’re ready.
the previous day’s high close. I only look A lot of the success in technical
at what is necessary and actionable. Like I mostly trade forex and futures. It’s liquid analysis is a self-fulfilling prophecy.
in most sports, the cleaner your path with a tight bid-ask spread, and is also It’s not just that in the short term a lot
from A to B, or the simpler the capital efficient. I can use margin and of traders are using these patterns and
movement, the easier it is to repeat access leverage, so I don’t need to have systems, there’s also huge amounts of
under pressure. A lot of traders have too a lot of capital tied up. It’s also open money in algorithms and machines
many indicators on their charts, some 24 hours a day, five days a week, so I acting on these signals. In the long term,
they don’t even use. All that does is don’t have to worry about stocks closing just like the weather and the tides, cycles
increase the chance that two indicators gap up, gap down, or silly news like are present in the market. There are
are going to conflict, and you’re going to somebody going bust, or a CEO sleeping repeatable patterns in things like
have analysis paralysis. with their PA. purchase habits and the economy that
leads to price doing certain things.
I’m generally very active. Sometimes I I’m waiting for something very specific to
take 30, 40 or 50 trades a day. But then happen. I’m always following the action I pay more attention to the ‘what’ than
there will be days when I take no trades and trying to interpret what’s going to the ‘why’. Sometimes the why can be
at all. It depends on the market. If the happen. I don’t participate if it’s outside important, but mostly when you’re
market isn’t moving, there isn’t much my strategy or if it doesn’t fit my risk/ trading a chart, who cares about why
to do. We need volatility. [Volatility also reward requirements; if it doesn’t fit something is happening? That isn’t
increases risk]. what I trade and what I’ve decided are something you can influence, so spend
going to be my levels of engagement, more time tackling the things you can.
There’s no longer any practise involved. I don’t engage.
I’m doing this constantly. But I tell “Golf is like life… All the biggest
the students I work with: Do your I have one max limit down day and month. wounds are self-inflicted.” It’s a Bill
homework, know your markets, On any given day or any given month, Clinton quote. Trading is much the
instruments and trade mechanics, and if I lose X amount of my capital, I’m same. Whether it’s charting, trade
then practise with a dry run. Don’t be an going to stop trading for the day or stop management or trade selection, most
amateur flipping coins – this isn’t a game. trading for the month. But I can’t even people fail in this business because they
A lot of people say: “I need to put money remember the last time that happened; make it harder than they need to.

7 | EDITION 01
TRICKS OF THE TRADE

“The more time spent


in the marketplace,
the more risk
you have”
The New Market Wizard Linda Raschke on exploiting
short-term swings and playing for a better position.

Illustration:
Sam Green

8 | EDITION 01
L INDA RASCHKE STARTED her
career in 1981 on the trading
floor of the now-closed Pacific
Exchange in San Francisco, making the
markets in equity options. She became
a CTA in 1991 and a CPO shortly after,
before launching her own fund, which
she managed until 2015. “I had $150m
under management. But the regulatory
burden and costs for data and staff
were a deciding factor for me to simplify
and go back to trading for myself,” she
explains. Raschke recently wrote Trading
Sardines: Lessons in the Markets by a boundaries, a rising wedge or loss Everything is about relationships in
Lifelong Trader. She also features in Jack of momentum – that could indicate the marketplace. Is the price moving
D Schwager’s The New Market Wizards. a market is near the end of a swing, further away? Is the spread getting
or perhaps a sharp rejection spike wider? Or is it starting to contract?
I have to be very clear about what I’m that might tell me it’s time to start Because if I’m watching the price, a
going to do and why before the markets looking the other way. I use a 3/10 key thing that I want to measure is
open, because it’s easy to get tripped up moving average oscillator beneath the the current price relative to another
in cross-currents through the trading day. chart, though it doesn’t really matter data point, whether that be a moving
After the markets close each day, I what oscillator you use; they are all a average, an oscillator, previous day
log my numbers, plot the net change derivative of price. close, entry price, or the year high
and make a note on whether there’s or low.
a particular condition that would set I feel strongly that swing highs and
up a play for the next day. Can I find swing lows are the most visible points in The more time spent in the marketplace,
a directional bias for the next day? Is the marketplace. Whether it be a retail the more risk you have. It’s better to make
there an edge that tells me that I’ve trader or a huge institutional investor, a $5,000 trade in eight hours than it is
got a 65% chance the market is going everybody knows where that 20-day to make a $10,000 trade that keeps you
to trade from low to high or high to low? high is or a key swing low is. There’s in the market for four days. It’s about
nearly always an increase in play around identifying the spots I can get the most
My base indicator is a bar chart. I like these pivots. Even on the intraday bang for my buck in the least time.
price, so the first thing I do is use a bar charts you’ll see an increase in volume
chart to look for key swing highs and at swing highs and swing lows where I use the average true range (ATR) to do
swing lows as well as conditions – such algorithms and systematic strategies my modelling and define swings. Once
as established trends, trading range often enter. you’ve defined swings, you can model a

9 | EDITION 01
“It’s better to market’s structure. With my modelling,
the computer always comes up with a
definitive answer and there’s no grey
value those claiming to be a “master
trader” or saying they made millions of
dollars. It’s all nonsense. A truly great
make a $5,000 area. I always want to know what the
computer says. I make sure my models
trader wouldn’t be talking that way.

trade in eight are durable and robust; they are strictly


technical and ignore news.
I have four programmes that I trade;
each one is 100% technical, with the
opportunity identified by the price.
hours than it I look at market sentiment once a week
to get a bigger picture of where we are in
I’ve been organising my trading in
this way since 1990. By this point

is to make a the cycle. Market sentiment goes hand


in glove with monetary conditions,
because it’s another way of identifying
in the game I’ve done my research,
I know what works, I know what
doesn’t. Programme 1 is my S&P 500
$10,000 trade how much cash is on the sidelines.
If everybody’s bearish, they’re not
day trading on a short-term technical
basis. Programme 2 is short-term swing

that keeps you invested. If they’re fully invested already,


they will be bullish.
trading – two to three days in the US
liquid futures markets. I have a sheet
of 24 markets I look through each
in the market I track the average dollar range per market.
It doesn’t matter if it’s an uptrend or a
night, looking for patterns that I have
modelled over three decades. The next

for four days” downtrend, I like to see that expansion


of the average daily trading range. It’s
how I do my unit sizing and it tells
day I might initiate trades in two or
three markets while also carrying two
or three other positions.
me a lot about the current volatility
conditions. I can only focus on a few I use daily and weekly charts for
markets, so I want to go where the Programme 3. It’s based on overall
volatility and range is. market structure and consists of
position trades held for two or four
Short-term reactions against a trend weeks, maybe even longer.
can take your breath away. It’s why
even macro traders need a weekly The last bucket, Programme 4, is based
technical structure to support their on situations that I have observed from
outlook. They might have a rosy macro my experience as a trader. It’s using
bias, but if everybody is fully invested opportunities that often can’t be
and the weekly charts are showing quantified by a computer model. I
a deterioration in momentum and don’t make these trades very often,
participation, there will likely be a but it might be a seasonal trade, a
few bumps in the road. Of course the stock I like or when market sentiment
thesis with macro is that you shouldn’t is at an extreme.
be concerned with the short-term
swings. But for me, that’s a falsehood. My best tool is writing stuff down. I have a
And of course you should be concerned worksheet I use to write down my plan
with a potential 15% drawdown – you’d for the day, end-of-day statistics and
be an idiot not to be. The name of this daily notations. I occasionally update
game isn’t to be right; it’s about finding charts by hand; it centres me. People get
spots to use increased leverage and in trouble by staring at the screen like
making money. it’s a big videogame, but not by writing
out a game plan.
I don’t want to be influenced by other
people’s positions. I started out on A loss isn’t a loss; it’s playing for a
the trading floor, and if you’d ask a better position. It’s a key takeaway from
trader what their position is, they The Taylor Trading Technique by George
wouldn’t tell you. It doesn’t matter Douglas Taylor. This book is an
what their position is anyway – they awkward read, but at the start of my
could be wrong. It’s not necessarily a career it made me feel secure in the
bad thing seeing what other people do fact that I was doing the best job I
when you’re starting out, especially as could. If a trade isn’t working out, I
it usually takes at least three years to exit that position – whether it makes a
find a style that works for you as a win or a loss is irrelevant; it’s all about
trader. But please do not take at face vying for a better price in a market.

10 | EDITION 01
TRICKS OF THE TRADE

“Follow trends,
don’t make trends”
The hedge fund founder-turned trader Joe Donohue on why following trends
alongside careful diversification is key.
Illustration: Luke Waller

J OE DONOHUE DEFINES himself


as a long/short swing and
position trader who focuses
on stocks and ETFs. His career in finance
began in the early 1980s at investment
banks including Kidder, Peabody & Co,
the markets open. It’s a passion for me.
Some guys love fly fishing, I love charts.

My process is to first look at the monthly


chart, then the weekly. I then drill down
to the daily chart, which I really make
I use volume to help separate between a
pullback and a downturn. If the volume
on a pullback (after an equity has first
moved up) is light, it’s telling me that
the buyers are sincere and are holding
their positions. That’s when the moving
Lehman Brothers and Smith Barney. By my decision on. I look at the weekly and averages come into play. If the equity
the late 1990s he launched and ran an monthly first because sometimes stocks comes back and tests the 50-day or
alternative investment group at May are in 10-year patterns that are finally 21-day moving average – and it does so
Davis, before co-founding a hedge fund breaking out to the upside or downside on low volume – I’ll feel confident in
in the early 2000s which quickly grew to – gold would be a good example of that entering at that level.
$500m in assets under management. right now.
In 2004, Donohue made the decision to I’m a 10% stop person usually. Although
sell his stake and become a full-time My approach is technically driven. I try to get the best entry in the world,
trader. “I just wanted to do something However, before placing any trade, I as a position trader using longer-holding
different, on my own,” he says. “I’d always consider the fundamentals as durations I need to give my positions
done my time working with others.” He well as the macro environment. The room to breathe a little; the stock can
provides commentary, analysis, and final decision on hitting buy or going pullback 7% or 8% while on a daily basis
technical setups through his website short is always based on whether the the chart is still perfect.
Upsidetrader.com. His members include chart lines up the way I want it to.
hedge funds, portfolio managers and I don’t put all my eggs in one basket.
individual investors. I don’t chase stocks. If I’ve missed a As much as I might love a stock, I’ll
surge, I wait for a pullback to buy. If a never allocate more than 10% or 15%
Each night, I look at 300 to 400 stocks. sector has popped 10%, it’s likely that it of my portfolio to one stock. As much
I start by examining a sector or ETF will retrace before moving higher once as I might love a stock, I need to be
that’s hot or getting beaten down. Then again. I hunt for pullbacks of 5-6% in disciplined as a trader, so if I do have a
I isolate equities within that sector individual stocks within that sector. The blowout, it doesn’t kill me. The key to
that have the best potential for moving reality is, stocks don’t go straight up or winning the game is staying in the game.
higher, or lower. It’s a simple way of down, there are breaks along the way; Always diversify, always use stops.
narrowing down the search – I’m not ebbs, flows and natural retracements.
going to buy a stock that’s part of a The most difficult thing to do is be Uptrend and downtrend lines are very
struggling wider sector, or short a stock patient; it’s hard not to chase, because important. When I see a massive long-
within a rallying sector. I usually have a you feel you will miss the move, but term downtrend in an equity or ETF
list of 10-15 names that I narrow to three 90% of the time, there will be a pullback, that’s being broken to the upside on
or four the following morning before and that’s when I make my entry. two to four times normal volume, that’s

11 | EDITION 01
“As much as
I might love a
stock, I’ll never
allocate more
than 10% or 15%
of my portfolio
to one stock”

12 | EDITION 01
“Trying to pick top and
bottoms is a fool’s game”

usually a sea change and could signal I look for stocks that have been moving I’m big on alerts. If you’re in 20 or
the possibility of the beginning of a higher for the past seven to 10 years and 30 stocks, you need those reminders.
major long-term move. On the short are now showing a big topping pattern. If I’m getting a pullback to a level I want
side, I want to see if any key uptrend to buy, I’ll get an alert. If it hits a level
lines are being broken to the downside On the short side I’m starting to look I want to start scaling out from, I’ll get
on volume. This gives me a lot more at semiconductors and financials. For an alert. There are so many moving
confidence to enter a trade. I always the banks, I simply don’t see where parts, you must have alerts in place.
say that the stock market is the one they’re going to get the oxygen to go
place where following trends and higher in a very dovish, low interest I never try to pick a top or bottom: it is
not making them is cool. I follow the rate environment with global growth a fool’s game. The canyons of Wall
momentum and the money and try to slowing. I’m not quite there, but I think Street are littered with those who try.
identify sector rotations. there’s a strong chance the banks and I might never get the top or bottom,
semis could be a short play over the but I make as much money as I can in
I’m disciplined on when I will exit a trade. next 12-18 months. that middle zone.
I never give price targets when I’m long
or short, although I always have an Biotech is the sector I have traded most in My greatest influence has been burning
idea as to where it’s going to go, and I the last five years. It’s been a very strong myself on the oven a lot of times. I’ve
manage the trade accordingly. Say I’m performer relative to the market up been working in this industry for
up 25-30% in a name over a period of a until more recently and, despite a slight over 30 years. I’ve had tremendous
couple of weeks to a month or two, the dip, I’m still very involved in the sector. successes as well as significant failures,
first thing I’ll do is raise my stop so I’m I’m looking for significant M&A over the but that’s ok as I’ve learned from
protected if it turns lower. I’ll also begin next year or two, which should lift the every single one of them. Yes, it hurts
to sell pieces as the price increases. I’ll sector. The two ETFs I primarily trade when you lose, but learn from those
normally sell one-third at a time until are XBI and IBB, but I spend a lot of mistakes and it’s a life lesson you’ll
I’m out of the position – I raise stops time in the space on individual stocks (hopefully) never repeat again. Reading
and scale out. as well. The sector has some of the best books never helped me – you don’t
looking charts and there are always read a book to learn how to fly an
I’m net long, but I’m always a little short. great setups. It is very high risk though aeroplane. The only way you learn
As bullish as a market can be, there’s – biotech is as good as the market; if to trade is by doing it every day,
still broken stocks and chart patterns there’s a major selloff it’s one of the first putting in the hours and making
that have a hell of a time moving higher. stock groups to tank. mistakes. It’s a baptism by fire.

13 | EDITION 01
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TRICKS OF THE TRADE

C HARLIE BURTON HAS been a


full-time trader since 2001.
He is a five-time undefeated
champion of the live trade-off at the
London Forex Show. In 2013 he began a
challenge to turn a $10,000 account to
$100,000, which he achieved in 2.5
years. He is the co-founder of trading
educator EzeeTrader and recently
launched an investment fund for high
net worth investors.

I focus on trading FX and indices. I


stopped trading equities in 2006 – a
boring year for equities – and now
I mostly trade five or six currency
pairs and the S&P, as well as some
commodities. I don’t like spreading
myself too thin. Years ago I used to have
an extensive watch list of stocks that I’d
go through every single day. It means
I sometimes have fewer opportunities,
but I don’t mind that; making a huge
number of trades every day isn’t
necessary – one or two opportunities
each day is more than enough.

As traders we have so many technical

“Don’t choke
indicators, pattern recognition software
and assets to trade, sometimes we miss
what’s right in front of us. I had the
privilege of meeting the late Mark
Douglas [author of Trading in the

the trade”
Zone] in 2002. One of the most
memorable things he said was: ‘If
I locked you in a prison cell for six
months and gave you a 10-period
moving average, I think you could
find a way of trading profitably’. That
EzeeTrader co-founder Charlie Burton on developing always resonated with me.
the right mindset, having thick skin and knowing I swing trade and intraday trade. I’ll often
when to take a step back. use intraday opportunities to edge into
a swing trade. In my first five years I
was trading through the day and night,
but as you become a more experienced
Illustration: trader, you don’t feel like you need to be
Daniel Roozendaal watching the charts constantly.

15 | EDITION 01
My strategies are predominantly based
around reacting to other traders’ activity.
An example is targeting the point other
traders are getting stopped out. There
will always be a majority of traders
who put their stops just below a low
or just above a high, so if you look at a
daily chart for example, there tends to
be a build-up of stops below a turning
point in the market. Pairing this
sentiment with moving averages,
double bottom or double top patterns
can be very effective.

To identify an entry point I use a


combination of technical analysis and
sentiment. From a technical perspective
I can look at a chart and see that once
an asset has hit a low, bounced off of
that low and is starting to roll back over,
“Fear of rejection causes people
it’s likely it will come back down and
test that low. Then for sentiment I will
to jump out of a trade as soon
look both at whether retail traders are
net long or net short on any particular
market and what hedge funds are doing.
as they’ve made some profit”
Whereas many untrained retail traders
will find themselves on the wrong side
of a trend, most hedge funds won’t;
they’ll be riding it. But what hedge I use the Moving Average Convergence/ The right mindset means being able to deal
funds are bad at is missing the turn, Divergence (MACD) – a momentum with losers and winners. It can be highly
particularly with key levels of support indicator that enables you to look at the dangerous to become overconfident
and resistance. diversity between the different moving on the back of a good run because then
averages. It’s particularly useful when you lose your discipline. At the same
I’m a euro/dollar bull. Over the last trading double bottoms and double time, you also need to hold on to those
month or so [May 2019], most hedge tops, or when there’s a double top and winners. I know it’s a cliché but I still
funds were massively shorting euro/ market divergence going on as well – see it time and time again where people
dollar positions. I like that, because both of which I like a lot. are so fearful of losing once they get
I’m seeing lots of technical reasons into a winning trade and then they can’t
to buy. This position will likely be Mindset is more important than the specific hold it. Fear of rejection causes people
boosted when the big funds – which indicators and systems you use. You need to jump out of a trade as soon as they’ve
often do things as a collective – play the skin of a rhino because the market is made some profit.
catch up with the turn and close their constantly rejecting you. It’s like you’re
short positions. a young person in a nightclub going up Don’t choke the trade. If you keep
to someone and asking them out and moving your stops up higher and
I like the grace of using moving averages to getting rejected. A lot of traders never higher as the trade grows, you could get
look at support levels, mean reversion and, develop their mindset enough, but the stopped out as soon as there’s a slight
importantly, price targets. Assets like to right mindset – calmness, confidence, dip, which will mean missing out when
mean revert back to their average, and and having thick skin – stands traders it moves back up. There have been many
using moving averages can give a very in far greater stead than spending hours times I’ve been up £20k on a trade that’s
good idea of when an asset is following trying to become a Fibonacci expert. reverted back to the price I entered it.
a tractor beam back to its average. As But I won’t ever get the £100,000 trades
an example, if a market moves too far Do the thinking before the trade and once if I choke my trade when it’s only up a
away from a moving average but at the you’re in the trade, stop. The problem couple of thousand. It doesn’t matter
same time it has hit technical resistance most inexperienced traders have is that if it’s that sort of amount or £100 going
and is diverging, it’s often a good sign it as soon as they get into the trade they to £200 – traders need to have that
will revert back to that moving average. start thinking. Back-test, be confident in mindset, that confidence and the thick
So I find moving averages a great your strategy, and let it run. Measure the skin to trust in their figures and shrug
complement to price high and lows strategy over the outcome of the next off those times when the trade does
when working with moving targets. 20-30 trades not the next one or two. come back down.

16 | EDITION 01
TRICKS OF THE TRADE

“I don’t jump into


something just
because a big fund
has bought it”
Joe Kunkle is the founder of Options Hawk, a service that provides news,
analysis and option movement research. Alongside this he runs his personal
trading account and is head research analyst at investment firm Relativity Capital.

Illustration:
Bruno Mangyoku

J OE KUNKLE BEGAN his journey


in the trading room of Bentley
University in Massachusetts,
where he traded with the money
meant for paying for his undergrad in
finance. After completing a master’s
I’m able to take part without needing
to have the same level of resources.

To do this I use LiveVol. It provides the raw


data, not the exact information. To
monitor correctly I have to do quite a bit
I always research short interest. If you
see something with call options
trading but you see there’s also a bunch
of shorts jumping in, the call has a good
chance of just being a hedge rather than a
positioning for the stock to go up: they’re
degree in investment management, he more: determine whether it’s a buy or simply protecting a short. There’s a lot of
started working as an equity analyst for sell and when it’s tied to any stock– if it’s different metrics that go into determining
Thomson Reuters, before going out on a hedge. You can’t be 100%, but through exactly what a fund’s position is.
his own. experience I’ve become quite accurate at
He set up the Options Hawk company figuring out exactly what and why the big I carry out fundamental analysis by
in 2010 out of his apartment with “one guys are positioning in a certain way. researching the financials of a company.
extra screen and a table found on a I’m looking for quality companies with
street corner”. Once I find the what, I dive into the why. good management that are delivering
Kunkle says monitoring and analysing Identifying these movements is strictly on the numbers. I like companies that
option movements provides his edge, idea generation. It triggers me to look at least hit – but are usually exceeding
but calls himself an “equal opportunities into something further. I don’t jump – their own estimates, and are
trader”, taking elements from a variety into something just because a big fund consistently raising their guidance.
of methods and combining them. Here has bought it; that’s putting too much
are his tricks of the trade. faith in them. I dive into the story, I focus on growth. Momentum is
looking for the catalyst that has something that a lot of technical
I monitor options flow in the market. By triggered the position, whether that is analysts use. They buy because the
seeing what the big money is doing – an earning announcement, an analyst chart is going up. But I look for
with their huge spend on manpower meeting or, if it’s a drug company, a momentum through the fundamental
and time and algorithms and analysis – trial announcement. indicators in the financials; a company

17 | EDITION 01
“I’m not
driven by
strict rules
in managing
risk because
I monitor
the markets
24/7”
18 | EDITION 01
“Whether the last one was documents, see what markets they’re
attacking, check the size of that
market, then extrapolate their
good or bad, you have to move valuation based on their available
market and revenue trajectory. There’s

onto your next play” a lot that goes into it, but if you do the
work there’s no better way to make
money, in my opinion.

I love to reverse engineer. One way I


generate new ideas is by looking at
high-growth companies I missed. I plot
out the narrative and work out how I
with accelerating growth that’s doing a I’m always on top of my companies. I’m missed it. If, for example, it’s a small
smart acquisition and expanding its into trends. I often take a top-down cap that’s been bought out one day, I’ll
markets, for example. theme, such as an ageing population or look at its metrics, work out what made
security in cloud computing, and it an attractive acquisition, and set up
I look at the total available market; identify all the stocks in the space. I stock screeners based on those metrics
the potential size a company’s market then drill down to the quality in order to identify other companies
could be. It’s something that was easy companies that are experiencing the that fit a similar mould.
to see years ago with cloud computing. most growth, gaining the most market
People thought Salesforce.com was share, and, hopefully, have a strong Shorting right now is fighting against
expensive when it was trading 100 P/E balance sheet. I always want to find the the tide. I do short companies, but I’m
five years ago, but they didn’t realise it margin leaders, because it’s pretty safe mostly long because that’s what the
was targeting a market that was going to say that a company with better current environment calls for. Even
to grow to a couple hundred billion. margins than its peers is operating though there are some brief chances to
better than its peers. short, you have to be very good at
I use technical analysis for entry and exit timing, because you can be shorting a
points. I’m not a big advocate of using Panic selling is never the right move. really bad company and having success,
technical analysis to determine If I see something in a company’s but then a day comes where there’s a
whether to buy or sell a stock. But once results that tells me the fundamental short covering rally and it can wipe out
I’ve done my other research and story has changed, then I’ll exit. But if all your profits. Unless I see the market
decided whether to buy or sell, I’ll use the fundamental story – the reason I momentum shifting, focusing on long
it to help determine when I should got involved in a stock – has not is the way I’ll stay, until things change.
make the move. I keep technical changed, I won’t change my position
analysis simple: mostly just price on it. If there’s been a big selloff, but You’re only as good as your next trade.
patterns, trend lines and some uses the stock is still delivering the Whether the last one was good or bad,
of moving averages and a little numbers, then I’m not going to exit. you have to move onto your next play.
Fibonacci – nothing too advanced. There’s a lot of reasons people sell. I never dwell on a bad trade, which is
Often investors are simply taking tough psychologically, because the bad
I’m generally in names for three weeks profits. Every great stock in the trades stick with you more than the
to six months. I’m fairly active, but market’s history has had big good ones. I remind myself that I’m
I’m not usually a day flipper. Once in a corrections over time. If there’s no good at this and that I’ve shown my
while there’ll be some option trades reason to change, stick with your methods work; I look at the big picture.
that I’ll buy and sell within any given belief and don’t panic. As long as the account is always
day, but that’s only when the occasion growing and always hitting new highs,
calls. I’m usually in less than 15 For investing, I like finding small I don’t care which particular trade got
different stocks at the same time in my companies with a market cap of under me there, and which pushed me back
trading account. It’s hard to monitor $2bn. I hold these in my retirement along the way.
lots of companies at once. fund for the long term. I find there’s so
much more alpha generation I stick to the ‘keep your losses small’
I’m not driven by strict rules in managing possibility in companies that nobody is concept. Again, it’s a psychological
risk because I monitor the markets 24/7. following yet, but will eventually battle more than anything. When I
I’m pretty traditional with using become a company that everyone’s exit something because I’m following
various stop orders and using technical following. Recently I’ve found a my rules, and then it goes up a ton, of
analysis tools to set an exit at the point number of medical technology course I feel regret. But at the end of
I think a stock would lose all companies doing exciting things. To the day you have to stick to your rules
momentum. But when I’m not choose which I invest in, I look at their to keep your losses small, otherwise
sleeping, I’m monitoring the markets. revenue growth, read their corporate one day they’re not going to be small.

19 | EDITION 01
TRICKS OF THE TRADE

“My friends say I live


in a charting jungle”
A pioneer in technical analysis, Chris Kimble has an archive of charts
committed to memory dating as far back as the 1700s. This enables him
to spot repeating patterns and likely outcomes in current markets.

Illustration:
Luke Brookes

C HRIS KIMBLE GRADUATED with


a business and psychology
degree in 1979 and earned his
securities licence in 1980. He started
applying technical analysis in the 1990s,
longing and shorting mutual funds
mentor of mine, said it was the book
he learned the most about investing
from – he even wrote a foreword to an
edition in the late 1980s. Templeton
might be considered one of the greatest
fundamental investors of all time,
was cocky, while smart money was
concerned. Within three months the
confidence level of dumb money was
essentially zero and it was one of the
greatest periods of panic for outflow in
the market in the past 25 years. Smart
through Rydex Investments. It was in but when you consider that this is the money became very confident.
1998, when the S&P 500 had a strong book he looked to most, it shows that he
bout of volatility, the team at Rydex believed crowd behaviour and emotions The market’s job is to fool the majority
asked him to embark on a 60-city tour of to be just as important. I’ll never knock of people. And so when we saw
the US to teach technical analysis; they the fundamentals, but for me charts those extremes in play, it was a time
had noticed that despite the volatility, are able to show the collective to start taking advantage of the panic.
Kimble’s accounts were at all-time highs. emotions of all the people across the When everyone is on one side of the
After selling his financial practice in the world involved in a stock or trade at a ship, I’ll always move to the other side.
mid-2000s, he started Kimble Charting given point in time.
Solutions, a pattern analysis subscription When nobody likes something, it puts it
service, in order to reach more people That’s why I also add market sentiment on my radar. As you would suspect, if
than direct money management would extremes to any charts and patterns I’m something has been going down for
allow. He now specialises in finding looking at – I consider this to be my several years, the relative momentum
repeating patterns that occur at turning fundamental analysis. Right now (in is deeply oversold. I look out for
points in the markets, applying statistical September 2018) just 12% of people patterns to emerge that typically
probability to possible outcomes. Kimble have any concerns about the financial repeat at bottoms.
is also one of the most respected markets. The last two times there was
voices on StockTwits and his analysis so little concern was in 2000 and 2007, Patterns tend to repeat themselves.
has been featured by the likes of CNBC, both of which ended up being peaks in When I give talks I often lay two
Market Watch and Bloomberg. His tricks the market. Moreover, over the past 50 similar charts side by side. One is
of the trade were provided across two years, whenever consumer confidence from the South Sea Bubble in the 1700s
interviews, the first in September 2018, in the US has been this high, the S&P (through which Isaac Newton lost 90%
just before the recent bout of market 500 has, on average, fallen 15% over of his family’s wealth) and the other is
volatility, and the second in February of the next few years. [Soon after this the Dow Jones Home Construction
this year. interview, the S&P 500 lost 14% in the Index before the 2007 crash. Most
last three months of 2018.] people can’t tell the difference.
The Extraordinary Popular Delusions History never repeats exactly, but it
and the Madness of Crowds is one of my When dumb money is confident, it’s time can provide clear signals. Through
biggest influences. First published in to be scared. That’s what was taking 2018, for example, banking stocks in
1841, it’s one of the earliest studies in place during the last peak in the market the US were struggling, even while
crowd psychology. Sir John Templeton, a in September 2018. Dumb money interest rates were rising. In 2007,

20 | EDITION 01
21 | EDITION 01
rising bottoms. The odds of it breaking
out to the upside are 2 to 1. If you can
use the statistics to keep the losses
small, they can become insignificant
to your overall performance.

I use software to identify the emergence


of patterns, then I take it from there.
I usually pull out about 120 charts.
I don’t look at where they’re from,
I just look at the chart, using my
memory to match up current charts
with historical patterns. I’m going to
eliminate 90% of them, until I get
10 or so that I like the look of. Only
then do I find out what asset I’m looking
at, that way I’m less biased by global
news. I then use short and long-term
indicators to enter into a trade.

“When everyone is on In my 38 years, I have never seen so many


Fibonacci extension levels being tested
at the same time as now. If you apply
one side of the ship, I’ll always Fibonacci to the distance between the
2007 high and the 2009 low, and apply

move to the other side” the 261% extension level – 61% is a


popular Fibonacci level – between the
two, the Dow and the S&P hit those
levels in January 2018, stopped on a
bank stocks started turning down double top 18 years later. Another is dime and they’ve been struggling ever
ahead of the broader market. the Dow Jones Home Construction since. If you apply Fibonacci to the
Index. It was an early indicator before 2007 highs and the 2009 lows of JP
I’m looking for inflection points at the the last financial crisis. It started Morgan, once it hit the 261% level
extremes; when the narrative changes. peaking over a year ahead of the broad this year, it also stopped on the dime.
I got into the business almost 40 years market, and it had already fallen about When the 161% Fibonacci extension
ago when no one was interested in 50% before the market peaked in 2007. level was broken in 2016, the S&P rose
stocks – the Dow Jones was at the same by 50%. So my take is, if these would
point as it was in the mid-1960s. But Finding repeatable patterns with known all break to the upside, I think it’d
when interest rates collapsed, stocks odds of certainty puts the odds in my be bullish the world over, because
surged. Since then I’ve seen many, favour. If I’m confident a call is going we’d be clear from that 800lb gorilla
many major inflection points. That’s to be wrong one-third of the time, it of resistance pushing against new
why I find it fascinating to find charts allows losses to be managed. Take a highs. It’s really rare to see these
from the past that can help us look for rising wedge: a series of higher highs Fibonacci levels coming into play
major turning points in the future. that are softening and higher lows that all over the place.
are pulling up. When the bottom of
One of the most important indicators that wedge is broken, two-thirds of If I were alive for another 300 or 400
for me is the Semiconductor Index; it’s a the time that asset will fall a tradable years, I’d still be perplexed as to why
good example of a canary in the coal mine. percentage. On the flip side, a falling the markets create the patterns they do.
Right now it’s testing the 2000 wedge breaks out to the upside two Take the Fibonacci sequence. It of
dot-com highs, a very important thirds of the time course repeats in nature, from a
inflection point. If it can climb above Another popular one in bull nautilus shell and a typhoon to a
those highs, it would send a highly markets is an ascending triangle. pine cone and a cauliflower, and the
bullish message for tech. But on the In other words, if something has hit fact of the matter is that repeating
flip side, you wouldn’t want to see this the $100 level several times over the patterns like this are seen in the
leader run out of gas, and create a past few months, but has a series of markets, too.

22 | EDITION 01
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Spread bets and CFDs are complex instruments and come with a high risk
of losing money rapidly due to leverage. 75% of retail investor accounts lose
money when spread betting and/or trading CFDs with this provider. You
should consider whether you understand how spread bets and CFDs work
and whether you can afford to take the high risk of losing your money.

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