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Tim - TraderInterviews.com: Hello everybody and welcome back to TraderInterviews.com. Thanks for joining me for another interview this week. We're speaking today with Austin Passamonte and he is a trader that I came across watching what he talks about on his blog and some of the articles that he's written that really attracted my attention. And we're going to talk to him about how he approaches the markets and maybe get some ideas for ways that we can look for good trades ourselves. So, Austin thanks very much for joining me on the phone today.
Austin: Well, Tim thanks for the invite. Happy to be here.
Tim - TraderInterviews.com: Thanks. Thank you. All right, talk about what kind of trader you are? Do you day trade, swing trade? What do you do?
Austin: At this stage in my career, I'm purely an intra-day trader and that's just by choice. I started out as a short-term swing trader with index options mostly the SPX and OEX back in the '99 and 2000 era. From there of course volatility sped up greatly. That and the rapid growth of the E minis, which were at fledgling stage back then and now they're all the rage for futures traders. So just the way the index has gone has kind of evolved me towards intra-day trading. But I can see in the future at some point that I'm going to evolve back towards swing trading and maybe even trend trading as time goes on.
Tim - TraderInterviews.com: And is that because you feel there's too much risk overnight that you don't take the trades or you just find that on a shorter timeframe you're able to make more money?
Austin: I don't know that it's so much risk as lack of opportunity and the instruments I trade are just not very trendy. , there's a lot of sideways movement and a lot of mean reversions so there's just isn't an opportunity to catch and ride a trend as much as there is trying to put on a swing trade, go some distance, back, stopped out; go some distance, back, stopped out. So, it's not necessarily risk so much as lack of opportunity too often.
Tim - TraderInterviews.com: All right. So, you've found that they trades that you were putting on would go your direction but then inevitably would come back, you'd get stopped out and you'd lose that profit that you had?
Austin: Exactly.
Tim - TraderInterviews.com: Okay. So, you're still trading the E-minis?
Austin: For the most part I trade the S&P 500, the ES. I trade the Russell 2000, the TF. I trade crude oil and as a secondary, I guess you could say distraction I trade soybeans a little bit and spot Forex some. I've traded spot Forex in 2003 through 2005 quite seriously and I'm just delving back into that now. Those are trendy. The challenge with Forex is they tend to start their biggest moves when I'm sleeping which would be the equivalent of midnight eastern to 3:00 a.m. eastern when the European sessions are active. That's usually -- not always but usually when the bigger moves will get started. So if I lived overseas, if I lived where my natural waking hours were conducive to spot Forex that's what I would focus on. As far as the E-minis go they're convenient to my lifestyle here, but recently they're just not trendy. , they'll make big sideways moves in a range, but unless you're catching the bottom of a range long or the top of a range short, there's not as much as opportunity of swing trading because of the frequent mean reversion back and sell that stops you out repeatedly.
Tim - TraderInterviews.com: Well, I want to ask you specifically about what you're looking for. But before that the first question would be, do you trade each of these markets when you do trade them the same way? Are you looking for the same things?
Austin: Yes.
Tim - TraderInterviews.com: So, let's talk about what those things are then. Maybe you'll start with a generic day for you. You get up in the morning get your computers on, you sit down. What are you looking for to start your day?
Austin: Well, I naturally get up sometime between 5 and 6 in the morning and those are Eastern Time zone hours. So, I'm not really in full work mode. I don't jump out of bed pull a pair of sweats on, grab a cup of coffee and say what five symbols can I jump into right now. So, I start my day slowly. I go down. The charts are always running. I simply pull them up and see what happened while I was sleeping. If there's some opportunity there that presents itself, usually in spot Forex, then I'll trade that. If what just as often happens, there was a 100, 150 pip move while I slept, it's just ending now or somewhere in the completion of so there's no opportunity there for me.
Then, I'm looking at crude oil from about 8:30 eastern onwards, that's as it nears the pit session and starts to pick up in volume. And sometime between 8:30 and 9:00, it will often set up a directional swing that takes off for a distance. And for the most part, I trade the E-minis after the cash session opens. In my opinion the TF is just too liquid and spastic in the pre-market, in the Globex to really seriously trade, ? It's my opinion that when the pit session opens that's when the opportunity starts.
[0:04:56]
But in all of them, to answer the second part of your question, what am I looking at -- , all of the markets at this point in time are computer dominated. Everything is algos, computer robots, quants; all that type of things. If there's a difference now ten years later from when I got started, is that there's a lot less deliberate oscillations in swings and there's a lot more congestion or sideways noise, and then a program push that will squirt prices higher or surge them lower before the next consolidation begins. And so whereas as price used to swing through to 1, 2, 3 oscillations and then it would go up and down, and occasionally when you would have breaking news, scheduled news something like that there would be a sharp V-turn. These days, the V turns come out of nowhere because the majority of volume being traded, the majority of price is program driven. So, that's changed the game and I know -- I talk to a lot of different stock traders who work for prop firms and they will say something like, ", a couple of years ago, five or 10 years ago, I used to make x amount of dollars, and these days I can't get out of my own way." the market has really changed.
For the futures traders like myself, I don't know that it's changed as dramatically -- there have been dramatic changes in stocks as far as decimalization of the bid-ask spread and all those things. For futures, it's just sort of that frog in the frying pan where the heat gets turned up a little bit. , there's more algo driven volume and there's less let's call it individual retail or discretionary volume. So, what we've seen and my observation over the past several years has been less deliberate price swings and oscillations and much more consolidation chop, chop, chop, bam as the program fires off to push price to the next level -- up or down.
So what I look for specifically are patterns inside of those consolidations, the lull before the storm the consolidation before the next wave's expansion. And that's true for all the different markets because they're just so interrelated. Whatever the Euro and the Dollar is doing, whatever the Dollar and the Yen is doing directly affects crude oil and all of that indirectly or it's highly correlated to different stocks and the indexes. So, they can all be looked at pretty much the same. , my philosophy is where is the consolidation, where is the energy being stored, and then where is the break from that consolidation the energy being expended. And that's the big picture of what I look for.
Tim - TraderInterviews.com: I like the fact that you talk about energy expended and stored 'cause I know a lot of traders look at it that way. Do you use candle charts? What would it kind of be if you can give me a garden variety of the energy stored, maybe the bars would like and then we can talk about the energy expended, what that would look like?
Austin: Well, I've used candle charts most of my career and not really because I'm a candle pattern trader, although I'm aware of the basic ones and a few of the others but I don't specifically sit there and say, well that straight or curl is doing something or whatever and so on. I'm aware of a bar -- a long body and then you have a Doji or a consolidation bar and then another expansion from there, so we'll add that into the next.
But basically what I'm looking for and it's not something that can be verbally discussed in great detail, but I'll give you the general gist of it. I'm looking for patterns inside of consolidations where buyers are consolidating to meet certain parameters and then breaking out of those parameters. So, what I'm looking for is the battle of stops, okay? Consolidation is nothing, but the buyers and sellers at a stalemate and so they're placing their stops somewhere. And it's those stops being clustered above and below that are the fuse on the proverbial fireworks, okay? So the analogy I like to use when I'm talking about trading is the consolidation is like fireworks and powder being compressed in a canister, all right? Sooner or later something is going to fire that off. It's an unstable storage container eventually it's going to explode. It might take awhile and sometimes you light a fuse and it fizzles, it misfires and then it goes off a little bit later, later than we expected.
So in looking at consolidation of price when the initial breakout comes, that is either the fuse being lit and the explosion or that's the fuse being lit and then a hang fire where it will blow off later. If there's one thing I tell traders now that I think is the universal law of trading -- this is applicable to everything --the second mouse gets the cheese principle, you can bank a career on. And that would be if you're using trend lines, if you're using horizontal or vertical trend lines and you have two them; if price breaks one and then it comes up and it touches the opposite side of that and it breaks the second time, the second move is usually the real one. If you have two vertical trend lines, one at say 45 degrees and another at 35 degrees, if it breaks down below the first trend line and then bases there, when it breaks that second trend line, that's the real move -- the second mouse gets the cheese or the second wave of the extension. That seems to be even more enhanced now than it was years ago. I guess if I had to hypothesize what that would be I'd say the different programs are getting triggered on the first wave and then the second wave, the second mouse of if you will, is the domino effect into the other programs, and so that's what the acceleration is.
Tim - TraderInterviews.com: When you talk about those two trend lines then are you talking about maybe one that is a horizontal trend line at a previous high and then maybe one that is the more vertical at an angle that goes from a low to as you follow the chart up to the real trend? Would that be something or how would you draw out those trend lines?
Austin: Let me try a verbal visual here. Let's say that xyz market has put in a swing low and then it's gone up way and it's put on swing high and then it comes down and it puts in a higher low. Okay, so you have a class of 1, 2, 3 pattern in formation. You have a low point, you have a relative high, and then you have a relative high or low to follow. So, drawing a trend line from the initial swing low to that higher low gives you a vertical trend line projecting up to the right. Price will go up again and it will put in let's say a double top and then it'll come down and it will put in a higher low than the prior. So you have your trend line in place and price has gone up a little bit more and it's come down and it's held a higher low. Then price goes up again. So you've drawn a second trend line projecting from the first low where you have your first trend line. Now, the second trend line is above the first because it's anchoring the initial low to the highest low yet.
Tim - TraderInterviews.com: Right.
Austin: Price sails up there and it comes down through that first trend line. That's the setup okay. And so it will usually pull back up in, sometimes it'll ride the bottom side of that trend line up or whatever. If the downside doesn't have any potential that's usually the trap in that particular circumstance and then price goes on up and does what it does. But if it breaks the first trend line and then dances around there, when it breaks that second trend line below, that's the second mouse eating the cheese. That's the one where the price well usually cascade lower. So, that's one example of a number of things that I look at, we look at as far patterns of price behavior. Always thinking about it's as if it's a game of tug of war.
if you go to a family picnic and you're dressed nice and you have a date and you see a tug of war game going on and there's a flag over the mud and it's a stale mate. And someone says, "Hey Tim grab one end of the rope. let's have some fun." You're not really excited about getting dragged into the mud. So, what you're doing is watching to see which team looks like it's going to prevail. And when one team is getting dragged into the mud, let's say it's the south side team, if you have a choice you're going to grab then end of the rope on the north end team so you pull the south end into the mud, you prevail, you look great, you're still clean, and your date impressed and on you go. The same thing with trading.
Tim - TraderInterviews.com: That's a great analogy. I like that.
Austin: Well, if you're looking at -- and we want you stay clean Tim, we don't want you dragged through the mud at the family event. So, if you're looking at price and consolidation it's that back and forth and back and forth and back and forth that's the tug of war between buyers and sellers. When you get that initial break that's the flag being stretched over the mud pit and that's the other side being almost dragged in. So, that's where you're looking to take action and sometimes that'll go back and forth a little bit, but eventually one side or the other prevails. that's the idea of trading out of consolidations.
Tim - TraderInterviews.com: If you see that second trend line where the second mouse gets the cheese as you said there, will you put an entry right above that? At what point will you decide okay it is reversing right there that is the real move I'm going to take that trade?
Austin: Whatever timeframe chart I'm trading, the rule of entries is always the same with a few exceptions. And that is, I want to see a bar close on the opposite of whatever I deem to be important support or resistance. So, in other words if I draw a line on a chart for whatever reason, and I draw a line through a number of reasons they all have to do with consolidation, I need to see a bar of whatever timeframe I'm trading close on the opposite side of that for me to consider it confirmed rather than just a pinch through - a fake-out.
[0:14:58]
So, I don't take momentum trades through something. I very seldom stage an entry stop to catch something running away. There are a couple of exceptions to that, but no need to confuse the facts with a few exceptions. The moral of the story is once support or resistance is broken, the vast majority of times, not always but the vast majority of times, there's going to be some sort of re-test, some sort of pause there if the break was close to the line or if the break was considerably on the other side of the line up or down price is usually going to come back and retrace near, at, or slightly back inside that zone. So, what I'm looking to do whatever I designate as an important point on the chart, I need to see a bar close on the opposite side of to tell me okay one team just got dragged into the mud or they're about to. And depending on how far away that close is from the designated spot of support and resistance I want to see a pullback into it. If it closes just above or just below then I'll take the entry of the next bar. But if it closes outside a distance further than I deem fit, I wait for the pullback. Most of the time you get one or the other; you get a close near or you get a close away from the pullback. Occasionally, it just blows right through and keeps on going which is just an example of a trade that didn't happen or just didn't sell.
Tim - TraderInterviews.com: And we should probably talk a bit about the timeframe because that makes the difference based on where these closes of these bars are.
Austin: Sure. Well, it's relative to anyone's trading. If I'm in it, it's all about what you're trading. If someone is working with a 60-minute chart of Forex and they're looking at support and resistance and they get an hourly bar close on the opposite side of support and resistance, the magnitude of the chart they're looking at is going to give them the same pullback the same number of times as if I'm looking at a 5-minute chart seeing the same sequence of event 1/12 smaller. Okay, so the principle is the same. It's not the fact that well I'm using a 500 tick chart for the S&P and so these principles of price action hold. For somebody using a 5-minute chart, those principles don't hold. The fact of it is you're just looking at swings or waves on a bigger scale, but price behaves exactly the same no matter what length of chart from a 500 tick chart in the S&P to a daily chart in the S&P. The mechanics are the same, but the size of the move is all that differs right? You're just looking at different waves.
Tim - TraderInterviews.com: Right. And what kind of size do you typically put on at this time? Are you scaling in to kind of test the waters first?
Austin: I've always liked to piece in to my trades and exit in one piece and there are people who like to do the opposite. They like to enter all at once and then take a piece off as price goes in their favor to some degree, and then take whatever other pieces off as price goes further or as it comes back to where they got in. What I like to do is limit my risk on the way in because before price has gone anywhere at all is where maximum risk of loss exists.
So, let's say for the sake of the discussion that I'm trading the E-minis, I'm trading the S&P and I'm using let's say a 1-minute chart which I do, and I'm looking to get long at the 1100 handle. So, price gives me the signal and it gives me a sole opportunity at 1100.25 and I take that. I'd like to enter that with my half of my position and then as I see price --of course to me an entry zone is never a spot on the chart, it's an entry zone. So, support or resistance gets broken and then if I can get in within a few ticks range of somewhere that's fine. I'm not a trader who says all right 1100 even is my entry, I'm putting my limit there and if that doesn't get sold then I'm off the trade. Because when I used to do that, I had a lot of trades that traded to 1100 even wouldn't sell and they go to 1115 and for the price of a tick I wouldn't sell on a 15 handle move.
So these days as I watch price, I have a couple of different sequences that tell me where to get in within a number of ticks. I like to put on part of the position there and then have it go a little bit my favor before putting the second part on because then what I've done, price has gone a little bit in favor, I'm able to reduce risk on at least half of that trade so the cumulative sum whatever the whole parts are half and half has something less than what let's say a full unit of risk would be, but it gives me leverage to full profit.
[0:19:55]
What I'm giving up in that equation is a little bit more favorable entry, but in my case and in everyone's case, you're never going to exit at the extreme swing or extension of a move if someone gets long in this scenario say at 1100.25 and then you add the second half at 1100.75 or 1101.25, it's not like price goes to 1121 and you get out right there and you say, gee that's addition there caused me four ticks. Somewhere between 1101.50 and 1114 we're going to take profit and everything that goes past is the difference in those couple of ticks we waited to get in if you can wrap your mind around that example there.
I know a lot of traders will say, "Well, I prefer to get in at the possible price then when the market goes a little bit my favor, I'll take half the trade off and I'll let the other half run for a distance." Well really what they've accomplished there they've assumed full risk from the entry to price coming right back to the full stop so you have 100% adverse leverage if it doesn't go in your favor. If it does go in your favor, you've deleveraged your positive result. When you take part of your trade off really early, now you've eliminated half of your potential reward so--
Tim - TraderInterviews.com: That's interesting.
Austin: --I'm not going to say there's a right way and a wrong way or an only way to do something because there's different rationalizations of why to do whatever. But for me, I prefer to limit my risk coming in and maximize my leverage coming out. That's just overall management approach you take.
Tim - TraderInterviews.com: that makes perfect sense to me and I've never quite heard anybody describe it like that. So, I like the way you think of it as minimizing your risk coming in and then maximize to get on the outside rather than maximizing your risk coming into it. I mean that makes a lot of sense to me. Of course, it depends on your personality as a trader and what works for you, but I think for somebody who's kind of searching for the right strategy that makes a lot of sense to me. How many trades do you put on a day?
Austin: Let me finish that part and then I'll go--
Tim - TraderInterviews.com: Sure.
Austin: -- on to your question.
Tim - TraderInterviews.com: Sure.
Austin: That works for me because of what I'm searching for in the market. I'm looking to trade breakouts or pullbacks following breakouts from consolidation. I'm looking to trade directional moves or extensions with the strength in price, if you want to call that a trend. The trend could be two minutes all day. And so what I'm doing is probing my way into that trend as it's in the embryonic stage and then when it looks like it's emerging, when the trend looks like it's being born, then I want to put the rest of my trade on.
That approach doesn't work for someone who's a mean reversion trader who's trying to catch tops and bottoms and scalps and so on. So that reason we get into and out of the trade - let me say it differently -- the way we get in and out of a trade has to do with the mode or what we're trading and I'm not a mean reversion trader most of the time. The majority of time I'm trading breakouts from consolidations or breakouts from reversals or pullbacks from those situations looking to ride with the price for some distance. And now that goes into how many trades I put on in a day. It could be as few as two or it could be as many as 15 or 18 depending on the day. There's one universal rule to that; the fewer trades I put on the better a day I'm having. If my trade entry count gets up into the 10, 12, or 15 range then it's a very sideways, choppy day where I've been stopped out small, I've been scratched out of cards and so on and I'm struggling to catch something going anywhere.
There are traders who are comfortable just hockeying 50 or 100 entries a day doing scalping stuff and so on. That's just never been my style emotionally or physically. It just doesn't work for me. So I trade - you'll learn in this profession over time it's a lot about math, it's a lot about probabilities and stats, and it's a lot about human emotion and self-management. Really the guys at the World Series of Poker who reached the winning able, they work as hard or harder on managing themselves as they do on reading the other people around the table and the stats of their hand versus what else was probable and so on.
Tim - TraderInterviews.com: Right.
Austin: So that's what works for me.
Tim - TraderInterviews.com: And I'm talking to more and more traders that say this too that they may not have above 50% winning percentage, but they're good enough at finding the trades that give them the big moves that they're plenty profitable. Do you track your winners versus losers and do you kind of know that percentage?
Austin: Not really because that varies with market conditions. stats will tell you a whole lot or they'll tell you nothing at all it just depends on what contexts are being taken. In my case, my success comes from either markets that are directional biased like the Russell 2000 or the TF, crude oil, CL, -- very rangy, very directional. They make big swings more days than not and some of the days they don't. When they chop sideways they're horrible and you really have to able to filter them in order to navigate that. When they're on a normal to a good day and crude oil is at $3000 or $4000 per contract range, so picking off $500 or $1000 in pieces from inside of their range is certainly possible with the right knowledge and skill and self-management. Same thing with the TF, it will commonly make $1000, $1500, $2000p per contract range intra day so picking off $300, $400, or $500 a contract inside of that, that's a lot easier than trying to accomplish the same thing inside an S&P range that's $500 a day.
So, a lot of it has to do with either the session's behavior or the general mode of the market. This week is a good example. Between last week's - this is of course the end June and last week went triple which expiry, rollover of E-minis, rollover of crude oil recently, we're coming into a two-day FOMC, we have the G8 meeting today, the V20 meeting tomorrow, the markets had very muted, very sideways, very thin volume, a lot of spikes on whatever maybe said or uttered that has to do with the US dollar and so on -- just generally tough trading conditions for my style. A couple of weeks ago, next week, the following could be more expansive and directional and , volume filled and they could be spectacular. So I might have five days strung together where I just kind of scratched along and then the next five days, deliver a month's worth of average income.
So trying to follow steps and say, "Well today I underperformed." Well underperformed relative to what? what were the conditions of the market versus the systematic approach that I use? So the only thing, the only rule that I adhere to is trading, as far the E-minis go, from 9:30 to 11:30 eastern then leaving them alone until about 1:00 eastern and especially 2:00 eastern into the close. Once in awhile, there's a great move in the middle of the day, sometimes it'll happen two or three days in a row. Those are the ones we remember like, "If only I had been there at noon. If only I had been there at 12:15, I would have caught that any maybe rich" and so on. What we tend to forget is 20, 30, 40, the other days nothing happened but sideways chop and if we tried to trade at all, in the end we would have made no money or possibly even be in the negative.
So that's one statistic that I've kept and I look back on and I said, in let's a year's time, in a year's time not only didn't I make any headway from 11:30 until 1:00, I actually lost money. Some of those days were great but so many - , there's such a majority of them that weren't. In the end for an entire year, I wasted an hour and a half of my life losing money. So there are some statistics that are important to be aware of -- , important to keep in mind and then to take action upon.
Tim - TraderInterviews.com: Yeah, I guess as part of keeping a trading journal is noting those times of the trades in addition to profit and loss. You can start to see patterns which I totally agree with.
Austin: Yes. Middays and Friday afternoons tend to be the two periods that I just perform well in over a course of time. So I'm going to assume it's me. Let's go with the fact that it's just me and that the rest of the world doesn't have that problem, it's still my problem and if I can't overcome it, the natural thing to do is just lie low or don't trade those at all. And that solved the problem for me. The same thing may be true for other people who keep a journal. their approach, their method, system, or whatever may excel either in the mornings or the afternoons predominantly over a year to and as a you look back in your journal and you reflect on that, and you see those patterns the next thing to do is believe them and put them into action. If mornings are a poor time for trading, the only trade half size. If the afternoons are a poor time then only trade half size or not at all, ? Notice those patterns that are relative to yourself and then work with them. , take that weakness away or make it a strength.
Tim - TraderInterviews.com: Now you referred to it a little bit when we were talking about bars closing past a certain trend line to enter. What do your stops look like? Do you use a percentage of your overall account that you're not willing to go past or how do you determine when you're wrong and when to get out?
Austin: I had a couple of years of system writing experience and that would be using Tradestation software and taking a bunch of parameters that was either canned or custom written and then crunching, letting the computer crunch numbers through thousands of scenarios. And I'd also purchased a third party software that does basket scenarios and correlations and the whole Monte Carlo scenarios and all of that. One thing about stops and anyone here who's listening that's done a lot of system writing is probably their going to shake their head yes. What it all boils down, if you try to use strategies stops versus average true range, volatility ranges, swing highs and lows, set numbers or whatever, or just the basic random dollar stop, there's no difference over time. And so I've taken that-- that's something that I've seen with my own eyes and I believe and trust. But for me to say that outright to someone else they have to see it themselves before they believe it. The moral of the story is I just use a fixed point stop or a fixed dollar stop if you will on the trades that I take that's reasonable to the size of the chart I'm trading and the average noise.
For example in the S&P if I'm trading a small chart, which I would consider say two hundredish ticks to three hundredish ticks that's pretty fast then I'll trade that with a 4 ticks initial stop or 6 ticks initial stop in the S&P at the most. And sometimes that's a little tight and I would get stopped out of a trade. But in my case, I would rather put the same trade on at the same place three times, get stopped out twice for 4 ticks and the third one worked, than go around putting on a trade, a 12-tick initial stop, get hit once, then with my one bullet in the gun I fired and there's nothing more to work with.
By the same token, you can't take a trade and try to use a 1 or a 2-tick stop which I'd seen people do. that's bordering on the verge of insanity, it just won't happen. So, the use of stops is relatively to the speed of the chart that you're using and the symbol itself. what the reasonable noise is based on the setup you're using.
Tim - TraderInterviews.com: So in --
Austin: Oh, go ahead. I'm sorry.
Tim - TraderInterviews.com: Well in some sense then you are a little bit looking at things like average true range, maybe not the specific number but you're at least adjusting for how much the thing moves.
Austin: Yes. Correct. That's exactly right. But what I'm not doing is I'm not running an ATR study with a two and a half standard deviation break and saying my stop needs to go 2.5 ticks or it needs to go 2 ticks below the ATR and whatever and so on. Those are strategic type stops or looking back on here's the most recent extreme swing high if I'm short and low if I'm long so I'm going to be 2 ticks under that. That's a strategic stop example. The market is way too random and quite frankly the market these days is very trappy.
In 2010, if there's one thing I've observed more than I've ever seen in my career -- now it could because I'm looking for it and I'm not necessarily saying it's more predominant, but I happen to notice this more. The market will -- and by the market that will be E-minis or crude oil. It will make an extreme swing high or low at some point and then it will immediately reverse and go strong and far the opposite direction. That looks to me like it was a deliberate stop run by somebody. It looked to me like a program was written to take out all of the size on the dome and then when they take out all of the relative size and there's x amount left, the buyer understands that the market is then thin and it reverses and goes the other direction and it uses the liquidity it just created to go the actual direction it wanted to in the first place ? Just a classic Wycoff Springs, 2B pattern, all of those types of traps that have existed for years. Stop-hunting that's been talked about since before I traded and will be after I'm done. There just seems to be more preponderance of that lately. So if you're trying to use those points for stops, you're pretty much a lot of times becoming used to having those program traps that appear to be deliberately written from my observation and my opinion.
Tim - TraderInterviews.com: Are you putting hard stops or are they mental stops?
Austin: Well, a mental stop is as good as the mind holding it. Everything I use is a hard stop and a good example of that happened on May 6th, the infamous flash crash. The S&P dove about 100 handles, about 100 points and then it rebounded about 100 points. If somebody had a mental stop and let's say that they were trading an account of $50,000 and they were long 10 contracts, and they felt pretty safe being long 1 contract per $5000 balance. Account is 50 grand, long 10 and the market power dives a hundred handles that's $5000 margin against each contract that's $50,000. That account would have been liquidated by whichever broker software busted and done and five or ten minutes later, then market's on its way back to where it was. But if they had a hard stop in, they took a little loss and then they had an opportunity to get back in long somewhere off the bottom on the rebound to make that back and then some. So for futures traders trying to trade without a hard stop is just suicide. And it's no fun to get stopped out repeatedly, but it's a lot better than having a Black Swan event happen, which in my opinion we're going to see that again maybe worse and being caught in the liquidation situation because of that.
Tim - TraderInterviews.com: Well, let's switch gears just a little bit here at the end and talk about lifestyle as a trader. How long have you been trading full time?
Austin: I've been doing this full time since year 2000 and it's been a full-time income since soon after that. Some of the years have been fantastic and some of the years have been good. one thing about trading it's much like any other performance based profession. It's like gambling or farming or ranching or a lot of small business. When conditions are favorable and time meets opportunity and all that, you can have astounding things happen. And then other times there are going to be years that just done match with your style or whatever the case maybe and they'll be all right.
Overall, it's a great lifestyle. It's as much time freedom as you can afford. you have to be there and you have to trade when the hours are -- when the opportunity is there or you're not making the money. And in the early days or the early years, when you're learning you do have to put in a tremendous amount of time and study. That's no different than any other profession; the same thing that the NFL rookies and the NBA rookies are going to go through right now. But at some point into your career, you can bridle back, you can enjoy less time involved for a greater reward that's the leverage of knowledge and experience and skill.
Tim - TraderInterviews.com: What did you do before you became a full-time trader?
Austin: I've had a couple of different careers. I actually had -- the most recent one I had for about 10 years was I ran my own trucking company and did different deliveries and pickups. It was physical labor. It was outside in all weather and so on and I really loved that.
If there's two things about the trading profession I don't like it's the fact that I'm indoors everyday and I'm for the most part sitting down. If I had a choice it would be standing up and lifting something or at least physical activity outdoors. But other than that, I don't think you can find a better profession than trading --
Tim - TraderInterviews.com: Was it--
Austin: -- at least for someone my age. a quarterback in the NFL, that'll be great but it's not going to happen at 45 so I guess I'll have to stick with trading.
Tim - TraderInterviews.com: Did you do something at the beginning or sometime during that first year of trading that you really felt took your trading to the next level that really helped you kind of solidify that you were going to be successful at this. Was it a course or a book or some sort of realization while you were trading? Did you have anything like that?
Austin: Yeah, the realization of trying to pick tops and bottoms, trying to buy a market going down or a seller market going up was never going to work for me. And the market -- I don't know how many times I would try selling into a grinding rally or buying into a grinding decline. And at the end of that day, sitting there looking at a moderate to large loss - we're going back to the early days of 2000, 2001 and saying, " what am I stupid? If I've just been doing the exact opposite I would be rich. The market wants to go somewhere, the market wanted to go down today, why did I insist on trying to impose my will on it thinking it was going to go up.
And so the epiphany for me and then of course it was years of perfecting just where to get in and whatever and so on that's the same no matter what mode of trading. But the greatest epiphany for me was the market may go sideways a lot but it moves directionally. It might only be for a few minutes or it might be a couple of hours a day or it might be all day in some cases. But when it moves directionally it moves big and depending on which market it moves huge.
I think coffee traders lately who were long the past couple of days some of them made lifetime fortunes ? So, when a market is moving north or south, it offers a tremendous amount of opportunity as opposed to trying to catch the little counterturn swing. So if there are two things that I could leave someone with that I think makes all the difference in anyone's career, it's work with the energy of the market when it wants to go up be long, when it wants to go down be short. And always be cognizant of that second entry situation, that second confirmed signal, the second mouse gets the cheese. Those two things there; work with the trend or the direction and always look for those double patterns or those double confirmations or that second event, and those things will take someone further than anything else in my opinion.
Tim - TraderInterviews.com: I think you just described the two probably most common reasons why traders fail is that they think the market can no longer go at whatever direction it's going right now for much longer. That's number one. That hurt me a lot when I first started too. And two, they're often right but they're just not right at the right time. I know that maybe sounds silly but that second confirmation or the second mouse gets the cheese describes that right? They were right, they probably got the first signal, got stopped out and it did happen, it just didn't happen that first. So, I think you just described the two things that everybody has trouble with. I think that's fantastic.
Austin: Well, I think that's fundamentally how the markets work. the traders getting in early and they get stopped out and then see the second signal, sit there like deer in the headlights -- see the different animal analogy. And they're like, "Well there it is again, but what do I do? I just lost money." And then that one goes on towards spectacularly, that's just the fundamental basis of the market. The market -- it must exist with more losers than winners. And if you look at all those behavioral patterns and you say well in the past I would fight a trend. Okay, so did everyone else who lost. Let's stop doing that. In the past, I would take a trade and I would be "early." Well that's just the way it was, it was double or even a triple signal. If you intend to take two more signals later in the day, it doesn't matter if the second one is at the same spot on the chart two minutes or five minutes after the last failure or if it's three hours later somewhere else. It's just another trade.
We get too hung up on, in my opinion, saying, "Well, this spot on the chart, I need to be right or wrong" or "Let's go pick another spot to be right or wrong." a signal is a signal and if you get the same one three times and you're stopped out on the first two, you just take the third. It doesn't always work out, but that's how trading goes. The ones that do work out systematically wash out the losses and that's what puts us in the black ledger.
Tim - TraderInterviews.com: Well, Austin this has been great. I really appreciate it. I kept you on the phone a lot longer than I said I would. I appreciate your time talking to us. Give the listeners your blog address so they can check out your articles.
Austin: That would be CoiledMarkets.com/blog. If you just go to CoiledMarkets.com, it's the main website, there are a lot of free videos and information, all of the stuff I talk about market-wise, a trader's sentiment-wise, emotions, and the mental aspect and so on and then there's the blog extension from there. So a lot of free stuff. I have a lot of people who've been around for years. They just hang out for the free videos and do nothing else and I'm glad they're along for the ride.
Tim - TraderInterviews.com: Okay. Well, hopefully we could send a few people over that way. Austin thanks for your time today, I appreciate it.
Austin: Well Tim you are the greatest. Thank you for having me.
Tim - TraderInterviews.com: Thanks.
