Floyd Upperman and Commitments of Traders


Tim Bourquin: Hello everybody and welcome back to TraderInterviews.com. Thanks very much for joining me for another show this week. We're going to be speaking with Floyd Upperman of Upperman.com and I've known Floyd for a long, long time back when I had my original day trading group that I talked about in the video that's on the homepage of this site. Floyd came and spoke a couple of times and has been in this business a very long time. So we're going to talk to him today about how he finds trades still today and maybe how things have changed over the years in terms of his trading strategies. So Floyd thanks very much for joining me on the phone today.

Floyd Upperman: Thank you Tim for having me. It's very nice to be here.

Tim Bourquin: Well, let's start off with the type of trader you are. How do you classify yourself in terms of day trader or swing trader that sort of thing?

Floyd Upperman: I'm definitely more of a position trader. I do, do some short term trading in the stock indexes like in the ES E-mini, but my bread and butter and most of my profits come from my position trading.

Tim Bourquin: Okay.

Floyd Upperman: So let's say 70% 80%, 90% of the time position trading. You know maybe 10%, 20% at most 30% of the time is in the short term trading.

Tim Bourquin: And the markets that you trade?

Floyd Upperman: The commodities. So about 45 different commodity markets that I track; grains, the metals, the livestock, the energy markets, the salts, cocoa, coffee, sugar, which I had a great trade on sugar this year so far. It's been moving lower. It's one of the biggest moves down in the sugar I've seen in a long time. About a third of the price of sugar has been cut off since the beginning of the year so it's been a major move down. But you know all the major commodities.

Tim Bourquin: Now, there's always been a really avid, passionate group of individual traders that trade the cocoas and sugars and things like that. But it's never caught on like the Emini has or other things that at-home traders are typically trading. Why do think that is?

Floyd Upperman: You know, it's interesting. There are you know niches in there. There are people that just love certain markets. Like I really love soybeans and I know a lot about soybeans and studied them for a long time. But why is that? You know, they're not as liquid for one thing as like the NASDAQ or the S&P 500 where you have a lot of liquidity and it's real easy to get in and out. There is just not as much trading that takes place. But you know this is kind of the chicken or the egg, which comes first. Why isn't there a lot of trading there? You know maybe it's because people don't know a lot about coffee as far as - like say coffee for example, you know how does that market work. And people are a lot of times afraid of commodities because of the risks involved. But when they do get into commodities, a lot of times they get into grains because those are the more popular ones like the corn and the wheat. But you know like I mentioned the cocoa and the sugar and coffee, why don't more people trade those? You know I don't know. All I can say is they are thinly traded, more thinly than some of the other ones. So that might be one reason why people shy away from them because they're not as liquid. But you know I can't say for sure why we don't have more day traders in cocoa or coffee. They make nice moves. But for day trading though, I would say they're probably not the best markets again because of the liquidity. You know, you can't get in and out as easily as you could like in the S&P 500. Where if you're day trading that one, you know, you can get in and out with hardly any slippage at all. Whereas in the cocoa and the coffee and the sugar, because of the fact that they're not real liquid they're going have slippage getting in and out and that can make it real difficult to day trade.

Tim Bourquin: Well let's talk about some of the things you watch then in those markets. If somebody is trading the stock market right now and they want to find something else to trade, let's talk about how you approach that each day. Maybe just start by describing a typical day. You get up in the morning, you turn your screens on, and what are you looking for? What are you watching? What are you getting a feel for in terms of the markets?

Floyd Upperman: Well, there are some markets I watch every day. Like the stock market of course because you know, it's always moving around every day so I always look at that. But then there are times when certain markets are real important like right now gold is a real important market and so is the dollar. Now five or ten years ago, the dollar wouldn't have been as important because it wasn't trading where it is the day wasn't - you know, we didn't have what's happening today with all the currencies, the European currencies for example. So certain times things are going on in the global world and the global events that call some markets to be more sensitive and more important at times just because of what's happening in the world. Right now, you know, the currencies are real important because of what's happened since 2008 with the global meltdown and the credit markets. So we have a lot of printing that took place because of that. And that's caused some of these currencies to be devalued, and you have gold prices moving up because of that. So today you know I really follow gold because that is one that's real important. It's kind of a leading indicator of what might be happening in the currencies and then what might be happening in the stocks. So you know ten years ago, I wouldn't have been following it like that. But 10 years ago gold was trading at like $280 an ounce. Today it's trading at $1100 an ounce. So you know it just depends. For commodity traders, you want to trade in the markets that are - you know, the ones that are really moving around and providing the best opportunities. Five years from now, it could be coffee. It could be the one that we're really trading because there could be some major event that happens and all the world's coffee supply gets messed up or something. You just don't know. But today, you know I'm focusing on the gold, the sugar right now just because we have had a big move on the sugar and we were positioned right and ready for that, and also in my currencies. But one of the things I look at - we haven't talked about that yet, but one of the things I look at every week is this commitment to traders report. And that also helps me as far as identifying the markets that I need to be focused on, on a day-to-day basis.

Tim Bourquin: Yeah. We hear a lot about commitment of traders, although maybe a lot of listeners aren't really familiar with how they can go about finding some good information there about trading. So how do you use it?

Floyd Upperman: Yeah. This is a report that the government provides actually. Every week, see the CFTC, which is the Commodity Futures Trading Commission and they're the agency that oversees the commodities, the futures and commodities markets. And every week they provide this report on their website and basically it's a breakdown of all the large positions in the futures markets. And just recently in September of 2009, they started releasing another report they called it the Segregated COT, which is just a more advanced COT report that just breaks the positions down even further. And it just gives us some insight into what the big commercials are doing, what the large managed money is doing like the hedge funds, and the large endowments for example that are very large nowadays. It gives us insight to how those big players are positioning in the markets and what they may be anticipating.

Tim Bourquin: And give us kind of an example of how reading it would give and maybe the trade that you would play off of that? Maybe just kind of a...

Floyd Upperman: Sure.

Tim Bourquin: ...even it can be hypothetical.

Floyd Upperman: Well I'll make it a real one. You know I've made a lot of money in gold recently in the last several months. You know I made thousands of dollars in gold. And the way I did it, a lot of it was based on this commitment to traders report. In October or November of last year, we started seeing changes in the gold as far as the large traders, what the commercial traders were doing in the large endowments. They were getting out of long positions. They were accumulating short positions these large traders in the gold and so it kind of tipped us of that gold might be setting here for a move down. Now gold prices had already zoomed up. By this time, prices have already zoomed up to about $1200 an ounce and so we knew they were already quite high, but they could go higher. They could go to $2000 an ounce. Just because the market has moved up a lot it doesn't mean it's going to turn back down. You just never know how far they're going to go. But the commitment to traders data gives us insight on that. So when we see the large participants positioning themselves a certain way, we know that hey this move has probably about run its course. And that's exactly we were getting out of the COT late last year. So around December, I started shorting the gold. My first position short was $1227 and in that position I made about $6000 on it per contract. And then we accumulated other positions later on into 2010. Right now we're looking at gold roughly around $1100 an ounce. So, it has gone from as high above - actually we shorted it at $1210. Its high was at $1227, I shorted it at $1210. So you know we've already had a pretty good size move down in gold. When you're trading the futures, it's leveraged. So $100 per ounce move down in the future that's $10,000 of profit per contract. But if this move is just starting to unfold as I think it might be based on the COT data which still is rather bearish. We could have another $100 per contract move lower and getting that would be another $10,000 profit per contract.

Tim Bourquin: Did it make you nervous when it hit it up to $1227? Did you second guess yourself on that trade?

Floyd Upperman: Well, I shorted it after that. I shorted it after it hit $1220.

Tim Bourquin: Oh on the way down you're saying?

Floyd Upperman: On its way down. Now see that's the other part of the way I trade is you know I don't just look at the COT data and then jump on a market based on what the COT is doing all by itself. I also have price indicators that I've been working with for you know a number of years now that I've been tuning and adjusting to get them just the way I want them. So everything was set up when gold prices were moving down through $1210 and that's when I got short. But you know so you have to look at everything. Because you know the COT a lot of times is early if you're looking at the large commercial traders. For example there are a lot of times we'll get in a market early before a big move happens and if you try to do that, you know if you don't have a lot of money for your stop and so you can stopped out. Because when you're talking about the leverage it can work both ways in your favor or against you, if it moves against you even a little bit. But yeah the data - you know directed me to anticipate this move down, the COT data. The price indicators are all set up and you know it has already started to unfold now this move down. And this can continue I think for a little while still.

Tim Bourquin: All right. So you made about $6000 per contract there. First of all how long did you have to hold for that?

Floyd Upperman: I'm going by memory here. That one was only a couple of weeks...

Tim Bourquin: Wow.

Floyd Upperman: ...which you know. But still that's why I consider position trading. Anything I hold overnight I call position trade. So you know that was about a couple of weeks.

Tim Bourquin: All right. And then what told you the move was finished when you decided to get out?

Floyd Upperman: Yeah. I use trailing stops. So, I have a system that I developed for just this thing because you never know for sure when the move has stopped. But you know when you have a nice profit on a trade, you don't want to let it get away either. And these markets they would test you. You know, they go up, they go down and they'll take away your profits before you know it. So you have to take profits when you got them. I always trade multiple positions for one thing. So that when I do have a nice profit I can take some contracts off, put that away, and then use the trailing stops for my remaining contracts. And that's what I did in the gold. I took profits off and then I held some. I held some contracts still short with the trailing stop. And the trailing stop is just based on technical formations on the where the lows are and where the highs are. And I've developed a strategy for this over the years that have some other things that I look at. But I just basically trail it up or down with the market everyday as the market moves up and down. If I'm short, I'm trailing my stop down with the market as the market moves lower. If I'm long, I'm trailing my stop up with the market underneath the lows as the market moves higher and higher. And then when it changes direction, and I let the market tell me that, and then when it starts moving in the other direction, it'll stop me out and then I'm out of the market.

Tim Bourquin: You mentioned other things you watch and take a look at besides those support and resistance levels. Can you talk about some of those things?

Floyd Upperman: Yeah. I mean there are no big secrets really here. It's not anything - I mean I don't have any top secret indicators or anything that I look at. But you know I'm looking at where the interest is in the market. Sometimes it's the psychological level. I mean it's never any one thing. Sometimes it's always different like recently it's $1100 in the gold. You just watch what happens around $1100. If the market gets under $1100 as it has a couple of times, you really got to watch what happens in there. And if it starts to sell off and it stays under $1100 then you know hey this thing is probably break on down to $1000. You know, just from experience Tim. Over the years, you do this long enough, you see things happen over and over and you develop an instinct. And a lot of it is instinct and experience. There is no one indicator that I use that I would rely on blindly. Support and resistance, I think you can throw it all out the window, it doesn't work. As soon you think your so called support is going to hold, it fails. If you think the resistance is going to hold, it fails. They just never work enough of the time that you can really depend on them. They work about enough of the time that they keep people interested, but at best are 50/50.

Tim Bourquin: So what would you say is your edge then in trading? What gives you the advantage to do this consistently I guess?

Floyd Upperman: Excellent question. Excellent question. And it's no secret indicator; it's not even the COT data. Really, it's my experience and the instinct that I've developed over the years. You know, you got to do this long enough. In the beginning you don't have any experience. If you're starting out as a trader, then you don't have any instinct yet really. But some people are good at developing instinct over time and some people aren't. And I just happen to be one of those people that have done good at this. I've been able to develop an instinct over time. I mean some people have a knack for it and some people don't. That's just the way it is. But if you do it long enough, you know, in the beginning you're going to be a little rough. You're not going to do real well because you're just starting out and you're just learning. But if you stick with it long enough, you're going to get some experience and you're going to learn how the markets behave. And that's what it is - I mean I've doing this now for about 20 years. When I first started out, I wasn't making profits all the time. I was making mistakes like everybody does. But I stuck with it long enough that now I'm profitable on a consistent basis. I would say it probably took about almost 10 years to get to that point. And most people aren't willing to stick with it that long. And they do it for a couple of years, you know, and they're gone. I can't tell you how many people that I've seen start within this business, get really excited, and they're on a day trade every day, and they're up every day before the market opens doing all their work and everything. And I know five years from now they're not going to be in it anymore. They can be doing something else.

Tim Bourquin: Why is that?

Floyd Upperman: Because they can't keep that pace up, you know?

Tim Bourquin: OK

Floyd Upperman: They're going to run into the facts of trading that you're going to have losses. They get discouraged when that happens. Maybe they blow out their account because they weren't managing it properly. And most of them within five years they're gone. And a lot of them within a year or two, they're gone. If you can stick to it, you know stick to it between five and ten years then you're going to develop some instinct and some experience.

Tim Bourquin: What is it that you think got you to stick through it? I mean you hear that all the time. That 90% of traders fail, that they get discouraged, and they blow out their accounts, and they go back to whatever they're doing before.

Floyd Upperman: Right.

Tim Bourquin: So what makes the difference between those 10%? What made the difference for you and is that what makes it for a lot of people?

Floyd Upperman: You really got to be you know wanting to do - I mean it all comes down to whether or not you really, really want to do it and whether or not you can. I mean let's face it, not everybody can do this. Not everybody is cut out for it. It is hard. It is not easy. I mean I know you can go out in the internet and you can read it. Maybe this isn't a good thing to say either because people are going to read this or hear this and think, "Whoa man this is probably too hard for me." But the fact is it is hard and not everybody is cut out for it. You know, it's grueling work and there are losses and it does get discouraging. And there are times that you will want to quit. And a lot of people ran out of money. They just simply ran out of money. They got to go do something else because they got to eat. So those are a lot of the reasons why. But you got to have a real passion for it and it takes time. Just like anything, it takes time. Doctors don't go out and become doctors overnight. I mean it takes eight years for a doctor just to get his education.

Tim Bourquin: So can you go back and think of your education in the market. Is there anything you did that really kind of took you to the next level? I mean we all do these little things along the way, but is there something you can point to and say, "Wow. I wish I had done this a lot earlier."

Floyd Upperman: You know what Tim, I don't think there is. I mean I don't even know when I got to the next level. It just happens over time. If you just continue to plug away at it and plug away at it and plug away at it and plug away at it, over time you learn things, you see things, you get it. But it doesn't happen overnight. There is no exact thing that I can point to that says, "Ah now I'm at the next level." . I may fall back even still. I mean you know anything can still happen. The markets are always changing. They're very dynamic. I constantly got to be on my toes here. It's not easy. You know I'm doing very well right now, but I go through periods too where it's up and down. You just don't know. They best traders in the world they don't constantly get great returns. They go through periods where it gets difficult. And look at what happened in '08 in the markets. I mean things happen. The unexpected things happen. It's not easy. I wish I could point to one thing. The only thing I can say is time. If you are persistent and you are passionate about it, you are studying the data - and I will say this too. I know a lot of people, I watch a lot of people that get into this and they get distracted. They get distracted by software a lot of times like see people that want to learn about the markets but they spend all their time trying to figure out TradeStation. You know learning how to write easy language programs and all that. They spend hours and hours tweaking and fiddling with indicators. But that has not helped me learn the market. You know, you got to look at the data. It's boring in a sense a lot of times. Really looking at the data and how the market behaves from day to day, it's not as exciting and as fun as a lot of people might like to think it is. But the exciting thing is playing with the software getting all the flashing things on your screen and all that. And that's what a lot of people spend their time me doing. But that just didn't help me learn anything about the markets.

Tim Bourquin: Yeah. I would guess that the majority of traders that I've interviewed at TraderInterviews.com that are successful, they throw in all these indicators at first and they slowly peel them all back. And eventually what they get down to is this very simple chart and this very simple method. And people sometimes the interviews can be 20 minutes because they say, "Look, I look at this pivot point and that and when it bounces off this I do this." And that's it and you know fantastic.

Floyd Upperman: Yeah. Such a great point. I mean you should have seen what my charts looked like fifteen years ago. I mean I had all the indicators and all the colors and everything. Today, I don't even have one single indicator on my charts. I use candlestick charts. I do have candlestick charts, but there are no indicators on my intraday charts. Now my end of day charts, I do look at moving averages and things like that. That are very simple basic things that are very important with the way the market behaves. And just for giving you information about how the market is behaving. You know, moving averages are really, really important. I find them to be anyway. But yeah, it really boils down to a few indicators that I find that are important. But then again from one trader to the next, they maybe a little different what one trader likes and what another trader likes. But the idea of having 50 to 100 indicators on your screen that somehow that's going to help you, it isn't. It's just not. It's just a major distraction and I can't tell you how many people I've seen over the years that get caught up in all that. You know trying to find that Holy Grail or something that it just going to provide you 100% reliability. It just doesn't work that way.

Tim Bourquin: What about being a swing trader, do you look primarily at daily charts or what else do you look in terms of timeframes?

Floyd Upperman: Yeah, well I do. I look at intraday charts and I look at end of day charts. You have to look at kind of both because nowadays the markets are trading around the clock basically, you know, 23 hours a day. So using these trailing stops methods as I use, I have to have them in place at all times. I don't like placing stops in the market and having resting stops in the market. So where you know you put a stop in there and you don't pay any attention to it anymore unless you get stopped out. I use trailing stops and I will adjust them a lot. But one thing I'll never do is once I have a stop, once I have an initial stop that has been decided upon, I know what that dollar risk is and I'll never exceed that stop. I'll never allow it to get larger to allow for a larger size of loss if I get stopped out. But what I can do and what I do is I lower it and I adjust it in my favor. But then I might adjust it out of my favor too as the things moves on, but I'll never get further than what that initial stop was. You follow what I'm saying?

Tim Bourquin: I do. And does that mean necessarily that you have the target ratio and your stop loss ratio in mind the moment you place the trade?

Floyd Upperman: Not necessarily. I know everybody says all that's really important and everything, but you just don't know where the market is going to go for sure. I mean you want to try to get in the trade that's going to make you some good profit and where your loss - you know, that this ratio makes sense. But no one knows for sure in all reality where the market's going to go. But you know you want to at least have what you think is a pretty good trade where hey you're going to risk $2000 or possibly make $10,000. Something like that you know. You want to at least see whether there's a possibility of that. But hey nobody knows the future. You might be risking $2000 to lose $2000 because it just doesn't go in your direction. But I mean I look at that stuff but I do not take a trade just because the ratio isn't exactly like I might want it to be. I just don't have any real hardcore things like that, that I get trapped into. I mean every setup is different. Every opportunity when there is one, it's always different. And you asked me earlier like what markets am I following. Right now I'm following the dollar, I'm following the gold, I'm following the currencies. Because those are real important right now, because the way - what's happened since 2008 where all the money has kind of moved to. But five years from now, it might be the coffee or it might be the sugar. You know, it changes. It changes.

Tim Bourquin: Whatever is moving the most or has the most momentum either way, that's the one you'll trade?

Floyd Upperman: Yeah. Well, those are the ones I'll pay attention too also because those are the ones that are affecting everything. Like if the dollar is to suddenly fall tomorrow, every single commodity will be affected company because they're all priced in dollars. So of course I want to know what's going to happen with the dollar because it'll affect every single market. Even sugar, all of them will be affected with what happens with that currency because all the commodities are priced in dollars.

Tim Bourquin: Now for the countries that are those commodity producers, are you following - when you're looking at oil you're following the Canadian dollar I assume?

Floyd Upperman: There certainly are relationships there definitely because those countries produce a lot of those commodities. Canada produces a lot of oil. They produce a lot of copper. So yeah there is a relationship there. If copper prices are rising, it's usually good for those currencies and you're going to see those currencies benefit. You're going to see those rise. But those relationships - those are known. Those are things you should expect to see. And again experience, over time, you're going to know that. Over time, you're going to have seen this enough that you're going to know to expect that. Now if it doesn't happen, if you're seeing gold prices or copper prices and oil all moving up and everything but you're seeing the Canadian dollar kind of moving down, then you're going to be thinking maybe something else is going on here. Why isn't the Canadian dollar benefiting from this? So then you know that opens up an opportunity where maybe something else is going on there and maybe there is an opportunity to short the Canadian dollar because it's not really going up when it should be, you see? I don't have a real system for that, you know? The COT might not tell me that, but just from experience I know that you see? And then I'll start looking at that then I'll start looking at the COT and I'll start looking at that and see if there is something there. Is the COT saying there's something there? Or the commercial is doing something there as well? And I start to build this case you know that there may be an opportunity.

Tim Bourquin: And we'll finish up with this. Basically do you see yourself - you are a position trader because you think that's where the most money is? Can you make more money waiting and holding on for weeks at a time than you can with a two or three-day trade?

Floyd Upperman: Well, I won't say that. I mean the short term trading stuff is extremely hard if you're talking about day trading. If you're talking about getting in and out in like 10 seconds or 20 seconds or where you talking like maybe in the market for 5 minutes and then out in the market. Is that what you mean by...

Tim Bourquin: You could. Yeah. Or even a couple of days I would imagine for a lot of people.

Floyd Upperman: A couple of days I call position trades okay? I do call that position trading. But this day trading stuff I call you know, where you're sitting in front of your monitor, glued to your monitor. You're taking the trade that you might be in for 10 seconds or maybe 10 minutes and then you're out right? That kind of trading is extremely difficult. Here's the thing. You can do it for a little while and you can be maybe profitable at it for a little while, but it burns you out. I mean try doing that for five years you know; in front of your monitor every day. It's just not realistic to think that you're going to be able do that for a long, long time and be successful at it. It comes and goes. I'll do it for a while but I don't rely on it. You know sometimes there are opportunities, I'll be short term trading gold sometimes because there are maybe some opportunities there and you know maybe I'll make a quick profit. I'll just say, "I'm going to grab it, it's Friday. I don't want to worry about this over the weekend. I'm just going to take it." I was in it for half an hour and made a good profit what the heck. I might be kicking myself Monday when it moves huge in my favor and I got out too soon, but we do those things sometimes. But you know the position trading allows you to relax a little bit. You know, you can put some positions on, you know where your stops need to be. You don't have to sit there glued to the monitor. You can't do that for very long. You'll burn yourself out. I've seen it. I've seen people do it. I've tried it. You know I've tried it. I use to trade currencies in the early 90s and mid 90s, day trading the Swiss franc. And up and down, up and down. Let's say you do that for a year, up and down, up and down, eight hours a day basically glued to your monitor, and maybe at the end of the year you're up a little bit or down a little bit. Look at all that time you spent every day glued in front of your monitor for hours at a time. And you better be up huge by the end of the year when you look at all the time you spent at it. To me I just don't - I mean I got other things that I would really rather do during the day than stay glued to my monitor. And I don't know very many people in all honesty that are real successful with the day trading stuff over time. They' usually do it for a little while then they burn out.

Tim Bourquin: All right last question. Do you set goals for yourself in terms of the amount of money you want to make from your trading as a business?

Floyd Upperman: I'm sorry what was the question?

Tim Bourquin: Do you set goals for yourself each year or each month about how much money you want to make for yourself in the business?

Floyd Upperman: Well yeah of course, you know. I mean I want to make money. But you have to be very careful about that because you can't force opportunities. You can't trade for the sake of trading or just trade because you want to make money or you need money. You really have to be careful that you're only trading when there's an opportunity to make money. You don't know always every month how many opportunities there are going to be. And I'll say that's another reason why I do the service that I do. Because that also provides an income stream for the times that there isn't anything in the trade or I might not be doing real well at trading for a period of time. And it happens. It happens. I mean I'm not always profitable. Well not every trade makes money. I have losses just like every trader does. So it's a good idea to have another income stream whatever it may be. You should have lots of different ways to make money, not just trading or not just one thing. You know it's a good idea to have lots of different ways to make money. But you know overall of course I want to make a certain amount of money every month or every year. But it's not just from one thing. You know I have other businesses as well, other investments that I'm involved in. I have a dozen different things that I got more on all the time than I'm having income from. And from all that then I set my goals. Yeah.

Tim Bourquin: All right well Floyd if somebody else wants to find out more about you, give us a website they can go to.

Floyd Upperman: It's pretty simple. It's my last name, upperman.com - www.upperman.com - U-P-P-E-R-M-A-N.

Tim Bourquin: Great. Well Floyd thanks very much for your time today. I really appreciate you sharing some trading thoughts with us.

Floyd Upperman: Welcome.

Tim Bourquin: Thanks very much.

Floyd Upperman: Okay.