50 Pips (his alias) trades out of Europe and is happiest trading any market that is liquid, but generally trades Futures and Forex. As an independent trader 50 enjoys helping other traders get in a condition to succeed. 50 has been trading for the past two decades and as a low key kinda guy doesn’t like to blow his own trumpet or hang his hat on a bunch of accolades.
In the show 50 reveals:
- The element of a price chart he gives most attention to
- One thing he never did that most newbie traders do
- Tips to approach trading when you’re working a day job
- How fundamentals sometimes trip up novice traders
- How he saves time when placing trades
The Hour Between Dog and Wolf, by John Coates
Platform & Broker
Interactive Brokers (multi-asset) and Darwinex (forex)
Tell us a bit about you personally and what first attracted you to trading?
I was interested in the markets since a teen. That slowly led me to trading full time. It’s something I always had in mind even though I started in a traditional professional career. Ultimately what it boils down to for me is that it’s competing in a space which I know is populated by some of the brightest minds in the world but really understanding that the fight is not with them but with yourself.
Can you give the listeners some insight into your trading? Your trading style, strategy, time frames, ave. trade duration, % winner’s, typical risk reward ratio, typical yearly/monthly return, number of instruments you trade, maximum/average number of active trades, typical drawdowns you experience… those sorts of things.
What I like to do is buy red and sell green. I trade around support and resistance zones and I do so both in a static and dynamic manner.
I’m mainly an intraday trader who likes looking for a asymmetric risk opportunities and I’ll mostly focus on futures and FX.
In terms of performances, I’m not really trying to cop out. I don’t like people who talk about it that much because it sets an unrealistic expectation.
What does your typical risk to reward ratio look like?
I tend to like asymmetric risk reward but what I’m interested in is the trade. There may be a trade that is a much lower odds trade but has a huge risk reward, and I’d be interested in trading that very aggressively even though it has a low percentage win rate. And there may be trades that have an inverse risk reward but the percentage win rate it 90%+ or something and it means that on balance it’s profitable.
I think what you should look for is a strategy that, on balance, is net profitable. I like to shoot for an effective risk reward that is closer to 1:2, 1:3 but I’m absolutely not limited to that and over the months as te markets change you might get a market cycle where the market is ranging so tight that you are forced to play the hand that you’ve been dealt, you might not get 1:2 risk reward and it might be a couple of months where it’s 1:1. Then there may be times when the market is trending and you may be able to get 1:3, 1:4, 1:5. So, on balance, assuming everything is a coin toss and a 50/50 shot if it’s 1:1 and it’s 50/50 it doesn’t take a rocket scientist to know it’s not an interesting business proposition. So, skewed to 1:2 is better.
What does your typical trading day look like?
I’ll get to the office to get ready for London open. I’ll have Bloomberg TV playing in the background while I catch up on email, fire up all the screens and login to all the brokers and get a feel for overnight action. Half an hour into London open I’ll be trading. I’ll trade from London open all the way to New York lunch. During that time I’ll be in touch with students here and there, I’ll host my daily live webinar. Around New York lunch I’ll be pretty much done for part one of the day. Then I’ll work out. Then I’ll come back and watch the watch an trade the close. The last hour of the day.
In the beginning, what differentiated you from the average ma or pa trader out there? What traits did you have, what actions did you take? We want to hear your secrets to success.
If anybody in trading tells you they have a secret, run as far as you can.
The biggest difference is probably the commitment, in terms of time and energy I was willing to put into this because it was a real passion. Outside of that I’m probably pretty similar to a lot of the guys and girls listening to this podcast.
I was very active in learning and reading as much as I could. I was really hungry for information. I read up on a lot from the start. Anything. Even things I wasn’t really interested in or I thought I wasn’t going to use but I still wanted that knowledge. I think I approached everything with a very open mind and just wanted to gather as much information as possible.
I think probably the biggest difference was I never brought an indicator I never brought an EA, I never brought a zero to hero course, I never brought a “3 steps to a Maserati course”. Granted, I knew that it was a hard way to make a living and I’ve always believed in the grind, I’m always believed in hard work, so I’ve never had any false expectations.
If you were a retail trader working a day job, what 3 steps would you take to start earning an income as a trader?
- Don’t trade real money until you know what you’re doing and have at least traded whatever strategy you’re testing and been profitable with it live.
- Don’t work and trade at the same time. Be focused on what you’re trying to do. Or you’re going to be doing both badly. Pick the right time frame and strategy for your circumstances.
- Start small when you go live and scale slowly with a clear plan. Use the luxury of having a paycheck to get things right without adding any unnecessary pressure on yourself. There’s not hurry, the market is going nowhere.
Can you explain to the listeners your preferred trading strategy, the ins and outs of how it works and why you choose this type of strategy over others?
I don’t have a completely preferred strategy but I like to buy support and sell resistance. I like to trade where price has traded before, previous support and previous resistance areas. Experience has shown me that coupled with the right trade management these area’s are a lot more interesting (especially if you’re looking for asymmetric risk opportunities). I like a contrarian strategy, but not really because it might be counter trend within a bigger trend.
If you split your trading up into technical vs fundamental, what would that split look like?
Fundamentals do tend to catch up especially for junior traders because they don’t understand that it may take some time for them to catch up. They get caught up with correlations. They don’t understand that correlations change. Especially the guys focusing on Forex, they forget that there’s funding, currency risk, commodities etc…
But primarily I trade charts. I wouldn’t say I’m a pure technical trader because I have the fundamentals in the back of my head. But I don’t make a conscious effort to trade fundamentally.
Diving a little deeper, thinking about any price chart, what 3 things would you recommend a novice or intermediate trader educate themselves on when reading a chart?
- Focus on how price reacts at levels and don’t worry about the “Why?” so much.
- Hindsight is 20/20 and context is key. This is the part a lot of aspiring traders miss. The whole discussion around static versus dynamic analysis. The fact that everything is clear and obvious in hindsight but when you’re live it’s different. That’s when context comes into play. That also falls into live screen time is invaluable, live testing is invaluable.
- Never take anything anyone tells you as gospel, always check it for yourself. If it’s true it will help you ingrain it a lot more. And even people with the best intentions might make mistakes right. So, check for yourself too.
How long did it take you to go from trading newbie to consistently profitable trader?
It takes years to master this. I can’t tell you it was exactly 3 or 5 years but probably around that range.
What’s your mental approach to trading and what special techniques do you use to keep your emotions in check?
You have to have a healthy body, healthy mind and you have to stay curious.
If you’re listening and need a quick win, cut your trade size in half.
What’s your favorite entry setup?
I prefer setup when there’s a confluence of things that are stacked up in my favor. It’s a setup when I know I have an edge, not because I feel lucky. It’s because it’s a pattern I’ve seen before, it’s something I know my stats on, so I know everything is stacked up in my favor. It could be a counter trend trade, a trend trade, a whatever, I don’t care. But the fact that I know the odds are stacked up in my favor that’s what makes it probably my favorite.
What strategies do you use to exit and manage active trades?
I just have my orders in the system. So if I’m trading a 50/50 shot for a 1:1 reward there’s not a lot to manage. I’ve got my trade setup so that when I execute the trade my stop is in an my TP is in and it just does the rest. If I have something that has various TP’s then I’ll just put it into the system.
One thing I do to save time is, I’ll have a default stop and a TP already programmed on my trade so I can quickly modify it.
What’s your recommended “must read” trading book?
I’m going to offer you up something different. The Hour Between Dog and Wolf by John Coates. It’s about how risk taking affects your mind from a neurological and psychological way.
Do you automate parts of your trading? If so, what have you automated, why and how does it help you?
I don’t have anything automated per say, but I tend to be extremely mechanical with my entries and exits.
If there was one thing you would recommend any retail trader spend the next month mastering, what would it be, why and how could they go about mastering it?
Have a realistic plan and expectations and stick to them. You need to do this to take emotions out of the equation to maximize results.
What trading related internet resource, like bloomberg.com, do you always use?
Bloomberg TV in the morning and then Twitter (just for the news).
What’s the biggest mistake most retail traders make?
Unrealistic expectations – thinking it’s too easy, believing in the dream of trading from a beach, magical strategies. All this stuff leads to over leverage.
What’s your preferred broker and trading platform?
For a multi asset account it’s hard to beat Interactive Brokers and if you’re looking for Forex and investor capital backing I would say Dawrinex.
If there was one mantra or saying our listeners should reminded themselves of each day, to help improve their trading, what would it be?
No short cuts. Slow and steady. Make sure you’re here tomorrow.
If you could leave our listeners with one piece of advice what would it be?
Trading is an extremely hard way to make a living. Don’t let anybody tell you it can’t be done. But equally, don’t let anybody give you the false impression that it’s easy that there are short cuts or magical formulas. Don’t be in a hurry, take you time and do things the right way.
We’d like you to help us find a high probability exit point for our trading system. We already have a market to focus on (namely the S&P500), and we’re looking for specific standard indicators, candlestick formations, market events, those sorts of things… what “3 golden nuggets” can you share with us today?
Whatever strategy you may have and you want to try and automate and look for specific thing, focus on what happens the majority of the time.
You could probably use some extreme reversal candles on whatever time frame you’re looking at. Or you could look at moving averages (like the 50, 100 and 200). But I would say use something that gives you an indication that the move is extended, is extreme. The preferred thing is something around Standard Deviation. Different people will look at this in different ways. Some people will look at Average True Range (I’m not a huge fan), some people will look at pivots, some people will look at Bollinger Bands. Look at something around the standard deviation, around the assumption that you want to get out when something is moving into a territory that is not the norm.
Before we wrap up, what’s the best way for traders to get hold of you?
You can hit me up on Twitter @50pips or on the blog 50pipsfx.com and the comments section. That’s where I’m at.