sean-udall

Sean Udall is a 20 year veteran stock trader and investor who’s passion for the markets started at a young age. Since then Sean’s been able to get insider knowledge as part of working for Morgan Stanley and other big institutions where he managed over $350 million in client assets. These days Sean focuses on the technology sector, is a full time trader/investor and when he’s not managing multiple positions during earnings season he’ll be writing about technology stocks for well known publishers.

In the show Sean reveals:

  • What to ignore when analyzing a company
  • The 3 indicators he uses to manage and exit trades
  • What to look for when marrying fundamentals and stock price
  • The way you should approach a day in the markets

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16: Sean Udall on his Blend of Fundamental & Technical Analysis Trading Tech Stocks
00:00:00 00:00:00

Recommended book

Berkshire Hathaway Shareholder Letters

Platform & Broker

Tradestation

Interview links

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Transcript notes

Cam Hawkins:

Sean, tell us a bit about yourself, personally, and what first attracted you to trading?

Sean Udall:

I’ve been interested in stocks and analyzing stock since I was a kid. Late high school, early college I was lucky enough to start reading about some of the Warren Buffett principals. I’ve read every one of Berkshire Hathaway’s annual letters. I encourage everybody, regardless of their experience to read every one of those letters. It’s probably the best investment and trading tip I can give anyone.

Cam Hawkins:

What are the main take outs from those letters?

Sean Udall:

Here’s the thought, Warren Buffett is the grand master of investing. Well, the secret is that he built a big base of his wealth on good growth investing fundamentals. The caveat would be that there was a value bent, in that he didn’t overpay for anything. So in the early part of his career he was really just a growth investor, but at a reasonable price. Later on when he got to $400 billion plus, he just had to go after really huge deals. Then he switched his game and became more of a deep value buyer/distressed buyer of asset.

The 3 lessons from those letters are:

  • You learn the durability of a company. What I mean by this is, if you can figure out if a company is doing something pretty extra ordinary and producing cash flows an those cash flows are durable, you have more time to be paid and more time to be right.
  • Not to overpay for something.
  • Concentrate a little more and don’t over diversify.

So, that’s how I got started. I worked at corporate finance, I worked for VISA and I’ve done two stints as a pro trader of my assets and other peoples assets.

I had a real good stink in 2005 and ended up getting a job in mid-2007 and then at the end of 2011 I quit working full time and I’ve been doing my own thing ever since.

I’ve been in and around the markets at least from the early 1990’s and I’ve been trading dedicated assets off and on for the better part of 5-6 years.

How I would view my own success is if I never had to go work for anybody else ever again. And it just a case of tacking up zero’s on top of that and living the life you want to live.

I’m heavily common stock and I do sprinkle in a bit of Option activity. I’m more of an Option seller than an Option buyer.

If you’re really on top of your game you should really just focus on one or two areas.

Cam Hawkins:

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… those sorts of things.

Sean Udall: 

My winning percentage is probably quite a bit higher than most. I don’t think I can give you an exact number but I’d be shocked if it’s not 75-80%. The reason is, I don’t exit every trade I do within minutes or hours. My focus is two things. I want to be long term to ultra-long term. So, I’m in Apple now, that I’ve had since early 2013 and in 2013 I was selling Google that I’d had since 2006. I’m going to keep stock positions as long as I can and what I’ll do is I’ll trade around them. I like to build a position that has what I like to call TAM (Total Addressable Market Opportunity). I like highly disruptive companies/industries. I’m largely technology, tech stocks is about 80% of my focus. In a tech stock you can’t stay in it as long as you can in others like a Palmolive or Colgate. Because eventually the company has a high probability of being disrupted itself. My winning percentage is pretty high because I don’t want to put myself in a position where I get into a trade in any given day, and if it’s not working in 20 minutes or 2 hours, I’ve got to exit the trade.

My typical timeframe on a trading position is 4-5 days on the short side and 3-4 weeks on the long side. There’s an important reason why I don’t participate in the shorter term trading, it’s where the Algo’s roam. So, if you don’t have $100’s of millions of dollars and a team of algorithmic traders I don’t think you can beat those guys trading on a multi minute intraday basis. So, I want to figure out where Algo pressure is and part of my technical system is devised this way. My game is trying to figure out where I can take advantage of that. So I’m trying to figure out where I don’t want to compete with the Algo’s and where I can take advantage of Algo pressure.

A lot of times my risk reward is 50/50 but my favorite trade is at least 3:1, 4:1. So, for every buck down I see 3-4 bucks upside.

I have about 35 positions at one time which is a mix of portfolio positions and trades. 25 is probably low for me and 40 is probably high.

At most I’d exit 3-4 trades in a day.

Cam Hawkins: 

What does your typical trading day look like?

Sean Udall:

I have two types of trading day, an earnings season and a non-earnings season trading day. I tend to make most of my money during earnings season. So my earnings season day is typically comprised of having my list of who’s going to report. Out of that report I have my list of names that will most likely beat earnings.

I probably make 70-80% of my money during earnings season. I work really hard for 6-8 weeks. Off earnings cycle I’m not trading that much per day for a few weeks because I’m pretty burnt out.

So, the non-earnings days are nice, I get up, see what’s moving, analysts upgrades and downgrades. I’m more looking at my names in particular. Is something out there giving me a setup on the buy side or should I trim something because it’s gone up 20% over the last few weeks? So, in the non-earnings days it’s really about portfolio management and positioning.

I view it as a business from chart research and fundamental research. I’m on the West Coast which makes it tougher, so I’m up minimum by 5:30am. The market opens at 6:30. A lot of the time I’m up as early as 4:30. And there’s a lot of times I still have a laptop on my lap at 8-9 o’clock at night.

I’m big into fitness and things like that.

Especially during earnings season I’m probably putting in 14-16 hour days. In non-earnings season I’m still putting in 8-9 hour days.

Cam Hawkins:

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?

Sean Udall: 

Working for both publicly traded companies and privately traded companies that later became publicly traded gave me somewhat of an edge. I literally saw how corporate leadership teams steered a company through an annual and quarterly process. I read all the Berkshire letters, I had a finance degree. When I started trading I had to unlearn 70-80% of the finance/econ knowledge that I had in my brain. That doesn’t work when you’re trying to trade full time for a living.  I was lucky enough to know a lot of other people who were doing it and I was able to meet with them and talk with them.

Before I started trading full time I prepared for it for about 18 months. I viewed it as a business. To me it was serious business; I wasn’t just doing it for fun. During this time I spend hours working out which Technical studies work for me and why? What trading system do I want to employ? How am I going to trade around poor investments/positions? Things like that. I probably had to rip up and re-write about 50% of the stuff I thought was going to work, but at least I started with a pretty good game plan.

Cam Hawkins: 

If you were a retail trader working a day job, what 3 steps would you take to start earning an income as a trader?

Sean Udall:

I did that for about 5-7 years, so I lived and breathed that. Again it depends on your style. There are very good traders who are 100% technical. For me I think you have an edge in today’s world if you’re willing to know both sides, if you’re willing to know fundamentals and technical. And then the find a stock or sector you have some sort of an interest in. I had an interest in technology and from a very young age I started working with a lot of computing technology. So that was an easy transition for me.

I was a retail trader; I had a full time job. I was trying to make as much money as I could do trading. I was trying to make as much money as I could do investing. I learned a lot about what not to do.

So, if there were 3 things not to do. Be very careful not to over lever yourself. But I’d almost say you should just do it. You should start with a small account and over lever yourself and see how that goes. Because you’ll have a period where you think you’re the smartest person in the world and you’re making tonnes of money and then you’ll have a 4 day period where you lose half of your account. So you have to learn how to use leverage for you and your personality.

The second, I think you want to learn a blend of fundamentals and technical over time.

The third one, pick a way you can keep yourself engaged. Something where, no matter what your monetary success is, something that’s going to keep you in the game and interested in trading for the rest of your life. Because if you’re only going to be interested in it while you’re doing well and making money, you’re going to not look at your statements or open your account during a period where it’s tough, you may as well not do it.

Cam Hawkins: 

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?

Sean Udall:

I’ll just break it down to things that I really like, that’s the easiest way. My favorite trade or investment is when the fundamentals don’t marry with the stock price. So you get this weird variation between really good fundamentals and a cheap stock price. But then it’s not that easy just to buy it. I’ll use GoPro as an example. The company had be doing fabulous, they were crushing earnings reports, growth was really good, they had lots of cash and the stock was just getting killed. It got to a point where it went from being 4:1 reward to risk to an 8:1. So, what I did really well with that is I let the charts tell me.

I have certain chart formations and patterns I like. I don’t like late momentum but love early momentum. I don’t mind a stock that has stopped moving as long as it has quit moving down. And it’s tried to break to new lows 4-5 times and it won’t go to new lows any more. So I like a bottoming chart that looks like it’s going to reverse. I also like early momentum and mid momentum. If it’s late momentum I’m starting to prepare a short trade.

Cam Hawkins: 

If you split your trading up into technical vs fundamental, what would that split look like?

Sean Udall:

Probably 65/35; 35 being technical. But that doesn’t mean I’m not looking at charts. I’m literally looking at charts all day. I just try to figure out, what’s a stock worth, what’s a company worth, where’s a buy zone that I feel comfortable buying. And also a sell zone.

Cam Hawkins: 

Diving a little deeper on fundamentals, what 3 things would you recommend a novice or intermediate trader educate themselves on?

Sean Udall:

Earnings acceleration/deceleration are huge. Do not look at PE’s, I think PE’s are almost completely meaningless. Learn a bit about how to read, study and understand a Balance Sheet. Things like cash, versus net cash versus net debt is a huge deal. Then you need to engross yourself in some sort of technical system that works for you.

Here’s the key to technicals. I think you have to marry technicals with your personality. If you’re sort of a go for it person you probably want technicals that will help you find fairly explosive stock moves. Likewise if you’re a scaredy cat.

Cam Hawkins: 

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?

Sean Udall:

Here are my three favourite technical indicators. The DMI (Directional Movement Index). On Stock Charts it’s called the ADX even through it’s the DMI. I get to know the inner plays between how RSI’s work and how price patterns shift in a stock. So DMI, RSI and MACD (Moving Average Convergence Divergence).

If you get really good at recognising a confluence of those three indicators, what do they start looking like when a stock has risen 10-15%? Or a stock is having a number two break out pattern. Or a stock has a topping pattern.

There’s literally 60-70 chart patterns that work exceedingly well. I would say try and identify 3-4 chart patterns that work and what types of markets they work on.

Cam Hawkins: 

If our listeners wanted to find out more about these chart patterns, is there a resource you would recommend?

Sean Udall:

StockCharts.com is an unbelievable resource. So, if you want to learn about Elliott Wave, RSI’s, MACD’s, DMI’s, Momentum Patterns, Reversal Patterns, there is a massive amount of knowledge that they have put onto that site. I think most of this is actually free.

I like Elliott Wave a lot. I’ve basically taken Elliott Wave and redesigned it for my purposes.

Cam Hawkins: 

How long did it take you to go from trading newbie to consistently profitable trader?

Sean Udall:

I was consistently profitable right away, but then it took me 18 months to have a really rough draw down period. So I’m going to say it probably took me 3-4 years.

Cam Hawkins: 

What’s your mental approach to trading and what special techniques do you use to keep your emotions in check?

Sean Udall:

Stock market gains and losses don’t get me overly emotional. The biggest thing I have to control is stress. The first thing I do is work out at least 4 days a week. I also run hot constantly, so I have to control my upside emotion. I have to keep my aggressiveness in check. I don’t keep a dedicated trading journal, but every time I start running hot I start writing down, “I’m running super, super-hot right now, what happened the last time this happened with me?”

Cam Hawkins: 

What’s your favorite entry setup?

Sean Udall:

It’s where you have bottoming or emerging momentum. This can be a chart that has gone up a lot but has stalled a long period of time. If you get a pattern where they are throwing a lot of negativity at the stock and they just can’t take it down any more I really, really love that setup. The same works for the inverse. These will be accompanied with positive and negative divergences with various technical indicators.

Cam Hawkins:

What strategies do you use to exit and manage active trades?

Sean Udall:

If you’re going to trade Tech stocks a lot, one way to guarantee you’ll lose money is to put dedicated stops on all your trades. So I tend to use Portfolio stops. For me, I’ll try to hold something as long as I can. My best stop or exit is when I find a better chart setup somewhere else. It may be a winner that I’m closing or if could be a loser. This sort of drives my approach.

Cam Hawkins: 

What’s your recommended “must read” trading book?

Sean Udall:

I don’t know if I have one. I’m going to say the Warren Buffett Berkshire letters is my number one. The Market Masters is pretty good. Reminisces of a Stock Operator is pretty good. I would say, identify people on twitter, trading blogs. I think that’s more valuable than reading books. My honest assessment is that I don’t know if I ever read a trading book that changed my life or helped me that much.

Cam Hawkins:

Do you automate parts of your trading? If so, what have you automated, why and how does it help you?

Sean Udall:

I don’t let my computer system do entry and exit trades for me. I do have a lot of alerts that are automated.

Cam Hawkins: 

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?

Sean Udall:

In one month, I would say master at least 2-3 technical indicators and 3-4 chart patterns and, again, maybe use stockcharts.com or something. Basically, try to get yourself immersed in technical analysis because once you get into it you’ll love it and use if for the rest of your life.

Cam Hawkins:

What trading related internet resource, like bloomberg.com, do you always use?

Sean Udall:

I like Trading View, Stock Charts, flyonthewall.com and briefing.com.

Cam Hawkins: 

What’s the biggest mistake most retail traders make?

Sean Udall:

Over leverage is by far the biggest. I also think over trading kills tonnes of people and not understanding how to properly use stops. I think stops are over used and not under used in trading.

Cam Hawkins: 

What’s your preferred broker and trading platform?

Sean Udall:

Tradestation.

Cam Hawkins: 

If there was one mantra or saying our listeners should reminded themselves of each day, to help improve their trading, what would it be?

Sean Udall:

You do want a view that you are going into battle to a certain degree. I mentally prepare myself that I’m battling with Algo’s, money managers and hedge fund managers every day. Because in the short term it’s sort of a zero sum game but in the long term it’s not because everybody can buy GoPro, Apple, Facebook or something and participate in a stock that doubles or triples. So, I don’t have a mantra but if you don’t think it’s a little bit of a war every single day you’d better learn that it really quick.

Cam Hawkins: 

If you could leave our listeners with one piece of advice what would it be?

Sean Udall:

We can’t get good at everything. Even people who have a hard time with this should know that I’ve seen a lot of pretty mediocre people in life make a lot of money trading and they have gotten good at very specific things and they just stick to them.

Cam Hawkins: 

Perfect! For those not in the know, my mastermind community are working towards creating a profitable trading system. If you’re not in the mastermind yet, just jump on 52traders.com and join today while it’s free.

So, Sean, today your task is this:

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…

So Sean, to help us pinpoint high probability exit points for our trading system what “3 golden nuggets” can you share with us today?

Sean Udall:

Whether you call it the DMI or ADX, whenever you have an extreme over brought reading (and that’s your DI+ going well above 30, 35 or 40). You can just look at a chart over the last year and see where are your max points on the DMI.

Likewise, RSI is a little trickier, but the same kind of deal. You can get the RSI up 70, 75, 80 you better at least think about trimming the trade, if not selling the whole thing outright. In fact where was the last really good point to sell the S&P, was about the last time where the RSI hit 75-80.

The MACD, it’s kind of the same thing. You can just look at any of these things I’ve just mentioned and when are they in the top quartile, quintile or decile of the indicator trading range. This is a huge area where people make a mistake, they sell too soon.

If you look at the S&P right now, it’s breaking new highs. The MACD just went back above zero. So, the MACD on the S&P theoretically could go up a lot. A lot being 20 points or so before you get to an overbought rating.

Same thing with the ADX/DMI. The DI+ could go up 20-25 points before it’s at an extreme overbought rating even though the markets are sniffing an all-time high right now.

I use this a lot by the way.

It’s better when you get multiple indicators telling you the same thing because sometimes if you get one indicator telling you that and the other two don’t. There might be more legs in the trade.

If one of them is in a top decile or quintile almost all 3 of them will tell you the same story. Usually one of them will be more extreme than the rest. Like sometimes RSI gets more extreme than the MACD does.

Cam Hawkins: 

Before we wrap up what’s the best way for traders to get hold of you?

Sean Udall:

The best way is my twitter handle @Udalltechstrat. I also write a newsletter, that information is on my twitter handle as well.

Tell me what you thought!

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