In the realm of competent, coherent traders, few compare with Market Sniper. He stands out in many aspects beyond trading, notably real estate, disaster preparation, precious metals, macroeconomic issues, etc. Because my trading plan and approach to the markets have both benefited immensely from his input, I chose to focus this interview on trading. I could easily conduct 3-4 more pieces discussing other aspects. He is a great teacher to have on the Slope, and I feel very fortunate to have him around.
Biff: Did you have a previous career in a typical day job? How did you get into trading?
Market Sniper: I have always had an entrepreneurial nature. Both my parents were university professors. Sociologists. At a very early age I decided not to pursue academia. From the age of 13 on, I was making more than my father through various endeavors including a gardening route which I sold to a Japanese gardener at the age of 15 for $25,000 as my father had accepted a Fulbright Grant to teach at Ain Shams university in Cairo, Egypt. I worked my way through University of California, Los Angeles with a combination of the GI Bill and a great part time job for the Los Angeles Times in newspaper production. I was already doing some real estate by then as I bought my first house at the age of 17. Upon graduation I was hired on by Aetna Life and Casualty as a workman's compensation field representative. I managed workman's comp claim cases. I left them and went into the house painting business with a partner. During that time I had discovered real estate in a big way and started buying, fixing and selling houses. I got to the point where I decided to get a salesman's license just to save part of the commissions. I originated the concept of the 100% commission real estate office where the salesmen rented my broker's license for a fixed fee per month. That operation was bought out by what became White House Properties. I was already dabbling in the stock market with mutual funds at that time. In 1984 I decided to become a stockbroker with EF Hutton. I had both Series 7 (stocks) and Series 3 (commodities). During that 2 year period I did everything you’re not supposed to do and lost substantial sums. I went back to real estate then and swore off stock and commodity trading forever. I revisited that decision in 2001 and decided to devote full time, first to learning and THEN to trading.
Biff: What were the major trading errors you committed that made you swear off stock and commodity trading?
Market Sniper: Trading errors. LOL… you name it, I did it. NO trading plan, NO methodology. Also when positions went against me, I was stubborn and averaged DOWN. It got so bad, I was trading my commission checks. I did have the good sense NOT to tap into more than $100,000 of my capital so the on-going blow up was not as bad as it might have been. Towards the end I did have a couple of very "lucky" breaks. I found Larry Williams and bought an S & P futures mechanical trading system that did VERY well. I also had the good fortune to have had an insider as a client that traded off that inside information. In those days, you got caught doing that, they just took your profit away! At the end when I gave it all up, got back close to even. I was down nearly a million dollars. Redeemed myself with my clients as well. Trading other people's money can be the pits. When your right, it was THEIR idea. When your wrong, you’re the A-hole.
Biff: Since you re-entered the markets in 2001, has your trading style been consistent? What changes, if any, have you made to your trading plan over this span?
Market Sniper: Great question! My first step after making the decision to get back involve with the markets was to set aside a 6-month study period. Fourteen hour days, damn near every day. I did not even paper trade. What I did was get a hold of a tremendous amount of reading. First, to truly understand what goes into price and what creates it. An area most traders do not really understand. I read everything I could get my hands on about Jessie Livermore, including his hand drawn charts. I read Jack Schwager's Market Wizard books. Then I read everything I could find on trader psychology. Mark Douglas had just published Trading In The Zone and I also had his previously published book The Disciplined Trader. I tattooed BOTH books on the inside of my eyelids. Next was the search for method. I looked at a lot of different things. Martin Pring's Technical Analysis was a great help with that. Also, everything that Larry Williams had put out as well.
When I started trading with actual money, I started with an $8,000 futures account. The "plan" was to get it to $100,000 as fast as possible. IF the money got blown up, replace and repeat immediately. This is NOT a recommended way to go, by the way. At first, I leaned very heavily on seasonal trading. It is what took that account to 100K in 43 trading days. To Larry Williams, I owe a debt of gratitude for that. For my money, Williams is perhaps the premier seasonal trader out there. I then took a two week break. a vacation, to settle down. I did know that what I had done was to create a "few" bad trading habits. Most of all was poor risk management. After vacation, I calmed down and put together how I would manage risk going forward. Within a year, I found that pivot swing trading was the me
thod that resonated with me the most. To this, I added a lot of the work of John Carter for specific setups that were outside the pivot methodology. Basically, my method has evolved over nearly a decade, from pure seasonal trading and chart pattern recognition to basically a pivot broad market futures day trader. I use John person's methodology whether trading equities, futures and FOREX. It works for me in all markets that create a chart and in all time-frames I chose to trade. To that, I add specific setups such as trading the opening gap, extreme TICK fade trades, etc. Still on the constant lookout to discover trading edges (merely the higher probability of one outcome over another).
Biff: Poor risk management is the central cause of market blowouts for so many people, and is either absent in their trading plan or neglected. Will you talk about your approach to managing risk?
Market Sniper: First we need to differentiate between you trading business plan (yes, trading is a business) and trading plans. Risk management is part of your business plan and its elements are then utilized in your trading plans. Your business plan should include the amount of trading capital you are willing to risk in any single trade. This can vary widely as this is an individual decision. I have found that the more trading capital you have, the amount (as a percentage of the capital) I am willing to risk decreases. I would HIGHLY suggest that even for a small account, that percentage should NOT exceed 5% of trading capital. To risk a higher percentage courts trader ruin. You should already know the expectancy rate for ALL your trading setups. Each will be different. Expectancy rate is found over a long series of trading a particular setup. It should also be discovered for the broad methodology you chose to utilize as well. It is simply the expected return using that setup/methodology over the long haul. Included would be the maximum drawdown (longest series of negative outcomes) for that setup/methodology. You need to find that maximum drawdown. You can have a long-term positive expectancy but can have trader ruin long before realizing that long term expectancy. If you lose 50% of your account, you need to get a 100% return on remaining capital to get back to even. Risk management then must incorporate correct trade sizing.
Biff: Can you give us an example of this structure applied to a hypothetical trade?
Market Sniper: Let us say your setups calls for buying a certain stock at $100 per share. Based on your methodology, your stop loss is $95 per share. At $95 dollars per share, the market is telling you that you are on the wrong side of the trade. Let us use that mythical $100,000 account. Your trading business plan says that you NEVER take more than a 5% loss in any individual trade. How many shares do you buy? Potential loss is then $5,000 per your business trading plan. Based then on this example, the maximum trade size is 1,000 shares. Inappropriate trade size is a major reason for trader ruin as well. You will need to know what your entry strategy and exit strategy will be per your trading plan. Do you buy all 1,000 shares at entry? Do you scale in? If scaling in, what triggers additional shares being purchased? The same should be included in your exit strategy in your trading plan. Other than stop loss being hit, do you scale out as the trade moves in your favor? Is time in the trade a factor?
I personally manage risk by sizing different trades differently depending on the strength (long term expectancy) of the trade setup. The weaker the setup, the smaller the size. The predominate time frame I trade in is for a session. Going to cash at or before close is another method of managing risk. For swing trades that are directional, I tend to use long options. By their very nature, your risk is limited to capital in the position. Risk management is all well and good. However, if you do NOT have the discipline to honor your stops, it will not do you much good. The point, as a trader, that you should aspire to is to become just a trade execution machine. Your trading plan already incorporates all eventualities. We do NOT get any smarter once we are in a trade. Experience shows we actually become dumber! STICK to your trading plan! As the trade setup appears, you execute that trade according to your plan. At a certain point, you should be so confident of the trade expectancy, it no longer matters at all the outcome of any particular trade! When you get to THAT point, you have become a professional trader, extracting capital from markets at will.
Biff: With the increased role of algorithms and computerized trading has your style changed? Do you engage in automated trading?
Market Sniper: The increased role of "black" box trading has really not led to any change in how I trade. Since I went to mostly day trading before HFT started to hit the big time. Most HFT is to capture the liquidity bonus anyway. Now, if we are talking about upward market manipulation, that is NOT algo or black box generated.
I do engage in automated trading to some extent in FOREX markets. I have used off the shelf FOREX trading robots. These are mostly scalp programs. IF you’re the average FOREX trader, the dealer is actually trading AGAINST you. I had one account shut down by the dealer when I had scalped him for a bit over 42K using a robot. Since then, I have gotten a FOREX account with direct bank desk access. IF your FOREX broker is NOT charging you a commission, most likely, he is the counter party to your trades. This is especially true with mini and almost always the case with micro-min FOREX accounts. I have developed my own robot to deal with direct bank desk access. Had to as most robots trade off the MetaTrader4 platform and is not compatible with direct bank access. I am also currently working to re-establish a mechanical S and P trading system originally
purchased from Larry Williams back in the mid-1980's that I will automate once I get the kinks worked out.
Biff: Do you have any hobbies or other enjoyable distractions from your trading / real estate life?
Market Sniper: I am an avid collector of United States coins. A life long hobby started at the age of 5. I collect only coins that were meant for trade and commerce (no proof coins). I also further limit my collection to coin types that are no longer being minted. Therefore, my penny collections stop at Indian Head pennies, Buffalo nickels, Winged Liberty dimes, etc. I am particularly proud of my Morgan dollar collection, the coin I specialize in, including VAMs (different die and die pairs). I also have a very good collection of early coppers (1/2 cent and large cent) but I do not collect them by Sheldon type. Lot of history in those coins! Did you know that the United States has put out 2 cent coins, three cent coins (both in silver and nickel) as well as a twenty cent piece? Also, before the nickel was a nickel and made out of nickel, they were called half dimes and had exactly 1/2 the silver content of a dime? I am an avid reader of history and enjoy reading science fiction as well. I do some gardening with my gal which is her passion. I also use casino gambling as a hobby. The rest of the time I devote to my grandchildren. Wish I had more time to travel as that has always been a passion of mine as well.
Biff: What advice would you give an enthusiastic rookie trader to help avoid the grand pitfalls?
Market Sniper: 1. Work on what is going on between your own two ears while in a trade. Understand trader psychology. 2. Understand price and find a methodology that resonates with YOU. 3. Do NOT enter a trade without a full trading plan in place for that trade. 4. FOLLOW that trading plan faithfully while in the trade!
Biff: Thanks for sharing your expertise with us!