Tyler's website can be found at: http://www.tylerstrading.com/

Tim Bourquin: Hello, everybody and welcome back to TraderInterviews.com. Thanks for joining me for another interview today. We're going to be speaking with Tyler and we're going to talk to him about what type of trader he is and how he finds good opportunities in the markets, what kind of charts he looks at, and just basically his overall approach to the market. So Tyler, thanks very much for joining me on the phone today.

Tyler: Yeah, you bet, Tim. Good to be here.

Tim Bourquin: All right. Let's start with just the basics. So what kind of trader are you in terms of swing trader, a day trader, and what markets?

Tyler: I'd probably define myself as a swing to position trader and I tend to trade options. That's kind of my niche.

Tim Bourquin: Okay. Options we know we hear. A lot of the options with my stuff with MoneyShow.com, I have writers that write about options and we seem to be talking a lot about iron condors these days and spreads. Do you trade just the options outright or are you doing spread trades? What do you typically do?

Tyler: That's a good question. I love the opinion that there's a time and a season I think for all strategies. So I've kind of got a mixed bag in terms of strategies that I use just depending upon the market conditions. Also, my approach is essentially, I'm a big proponent of technical analysis as I think more short-term traders are. So I assess that as well as some volatility type characteristics of the market and simply try to use the strategy that's best fit for current market conditions.

Tim Bourquin: All right. Now, so with the technical analysis, are you reading charts of the underlying mostly then and then buying options to take advantage of the move in there?

Tyler: Yeah. I mean because options are derivatives, they obviously derive their price from the underlying securities. So most people aren't going to chart the actual price of the option but they'll kind of forecast the outlook on the underlying stock and then based off of that bias they'll pick an option strategy that fits.

Tim Bourquin: Maybe the best thing to do would be to talk about a recent trade you've had and that would probably be a good lesson about how you find your option trades. So do you have one that you've done recently that you can talk about?

Tyler: Sure. Yeah. One of the underlying securities that I could trade is Exchange Traded Funds. So as part of my daily routine, I assess the S&P 500 using the spiders. I look at a lot of different sectors and commodities. One of the commodity ETFs that's done pretty well this year for one of my strategies is the United States Oil fund, ticker USO and essentially designed to track crude oil futures. Ever since the market bottoms in 2009, the USO has exhibited pretty consistent behavior month to month. It's been neutral to mildly bullish. So in that environment one of my strategies of choice is selling naked puts, short and put options. I'm the type of guy where if something continues to work, I'll milk it for all its worth. So month to month about five or six weeks from options expiration, I like to look for out of the money puts that look appealing to sell.

Tim Bourquin: How far of the expiration are you talking about?

Tyler: Usually, about four to five weeks. It really depends on when I get out of this month's trade to where I'll move forward or roll into the next month. Sometimes it's right up at expiration before I get to make my money and hit my profit target. Other times, if I get a favorable move within one or two weeks I could be out. So I may be in six or maybe even seven weeks prior to the next month.

Tim Bourquin: All right. And how far out-of-the-money are you looking for?

Tyler: My objective when you're selling naked puts your margin requirement that your broker will hold the side. It fluctuates in between about 10% and 20% depending upon market conditions and depending upon your broker's requirements. But recently, USO has been around 30, 35 bucks so 20% of that is about $700 -- $600 to $700. So if I'm looking for about 10% to 15% monthly return on that particular strategy, I want to sell a put and still receive around 70 to 80 cents. So I'll usually use the amount of money available in the option to dictate which strike price I sell.

Tim Bourquin: Got it. All right. So you're looking at the price of the option more so than the actual -- how far out-of-the-money it is for the most part.

Tyler: That's the simple answer. I mean I also take into consideration where is support and resistance? I'd like to put strike price to be below support that way for it to move in the money. I have to see a pretty significant reversal in the price enough to break support. So I'd like to see it under support. I'd bite off or have a little bit lower delta. But to get 70 to 80 cents, your delta is probably going to be around 25, 30 on the strike price that you sell.

Tim Bourquin: Now, are you letting these expire worthless most of the time or are you buying them back before the day actually expire?

Tyler: I'm not letting them expire worthless. When you look at these things from a risk or worth perspective, anytime I sell options and this isn't applicable just to naked puts. I mean anytime you sell a covered call or condors or any other type of spread. The short option, when it gets to a point where it's worth next to nothing I close it. So if I sell a naked put for 70, 80 cents, in this example, I usually have a profit target to buy it back at a dime, 10 cents because at that point I have 10 cents potential profit but my margin held aside to say nothing of the theoretical risk in the position is around 700 bucks, maybe a little less. So to me I'd rather close the position and put my capital to work elsewhere that has a better risk reward.

Tim Bourquin: How about limiting your risk on the upside? Let's say USO starts to collapse for whatever reason, is there a point where you are -- or the market is just fluctuating or is there a point where you are buying it back and losing and how much of a loss are you willing to take?

Tyler: Sure. You got a couple of choices when you're selling puts. The two that I probably like the most, one of them if you're willing to buy the stock, when you sell a put you obligate yourself to purchase shares of stock at the strike price. So the nice thing about crude oil ever since it bottomed in 2009 in terms of price per barrel or I believe that's the metric they use, it went from like 150 in terms of the crude oil contract prices to about 40 or 30 bucks. At that point, I'm not too concerned if I get put to and buy the stocks simply because unlike a financial company or some company that could go under, commodities are a limited resource where -- they're not going to go to zero. So in the case of USO, oftentimes I don't mind getting assigned. So if the market does drop and the put moves in the money, I'll go ahead and allow assignment and buy shares of stock and then from that point I often just sell covered calls until I get called out of the position.

Tim Bourquin: Okay. That's interesting. So you're bullish enough on it that you're willing to actually own the ETF if it does go against you. How often does that happen?

Tyler: Well, as far as this year about the last 12, 13 times, I believe about 80% of the time they have expired worthless which -- that's usually if you sell puts with a delta of 20, 25 statistically speaking you should be right 70%, 80% of the time anyways. So over time that probability usually plays out pretty close to what the delta predicts.

Tim Bourquin: How many option contracts do you buy at a given time? What's your standard?

Tyler: You know what it depends on your amount of capital in the account. So to me I don't think there's much value in saying I sell 10 or I sell 5. I like to keep my risk per position pretty small in terms of percentage of my account. I will admit on you I sell like 10 to -- I probably risk a little more than perhaps most people would merely because I'm comfortable with the underlying. So if I have let's say $25,000 account, generally, if I only want to risk 2% of that, well that's $500. And when you look in to play naked puts where you're going to end up buying the stock and you don't only have a set stop loss, your risk is going to fluctuate. So it is kind of difficult to determine exactly how many contracts you want to do. So what I intend to do is kind of look at the worst-case scenario. If USO completely falls apart, how bad do I think it's going to get? In the midst of the trade if it exceeds that, I may go ahead and do a little shake and bake and just close the position. So there's a little bit of art involved. I mean I hate to say that it's not set in stone, but I do give myself permission to kind of deviate from my typical approach as needed.

Tim Bourquin: And how about -- let's say it does go against you a little bit, would you sell more of the puts or would you just wait and wait to get assigned?

Tyler: That's a good question. I wouldn't double down. When I entered a position I put on an amount I'm comfortable with be it five contracts or 10 contracts. If it goes against me, if I don't want to get assigned, one other technique that I use is I'll roll it further out-of-the-money maybe to a later month, and so in essence if the stock is at 30 bucks and nowadays it's actually higher. So let's say it's at $40 and I sell a 37 strike put for the next month, well if it drops down towards 37 and it's looking like a falling knife, let's say, I may go ahead and buy back that 37 put and roll it maybe to a 35 put one month further.

Tim Bourquin: Do you do then just like one or two trades every month? Well, I guess that's just this one strategy, right, so --

Tyler: Correct. Correct. And quite honestly, I'll continue to do it. I mean, shoot. If you are just going to sit there and maintain the same behavior month to month, I'll do it for the next 10 years. But if it gets to the point where market conditions change and I know when I feel there's an edge in that approach, I may shift the trading a different stock or using a different type of strategy.

Tim Bourquin: All right. Well, this strategy makes perfect sense especially for USO because fundamentally it's hard to believe that oil is going to drop a whole lot much more here. I mean that's always a dangerous statement when you're talking about trading.

Tyler: Sure.

Tim Bourquin: But it seems like a relatively, and I don't want to say safe, but a relatively low-risk trade when you're talking about a commodity that pretty much when anything happens in the world it spikes for people using it.

Tyler: Yeah. It's also a matter of -- a lot of I think the risk premium was taken out of the underlying when it went from 150 down to 40. If we're talking oil up at 150 then I think it's a completely different conversation. Certainly, it has increased over time back. In the beginning of 2009, it was pretty low. Now I think oil is up around upper 80s. So perhaps there is a little bit more downside at this point and that may shift going forward but you're right. A limited resource probably is going to go to zero.

Tim Bourquin: Let's talk about why sell naked puts? Why not buy calls?

Tyler: That's a good question. A couple of reasons: 1) it's personal preference. I mean at the end of the day I don't think any trader can objectively state which strategy trumps another because a lot of personal preference is involved. I like to take the higher probability route. That's inherent with selling options. So when you look at potential bullish positions that you could place on a trade, buying calls is pretty aggressive and it requires that you're relatively savvy in predicting which way the stock is going to go. Quite honestly, if we were impeccable traders and we could forecast exactly which way the stock was going to go, we would all buy call options or buy put options. Why do anything else if you're that good? It's the best bang for your buck in terms of leverage versus stock. I guess we'd go into futures but that's a whole different story. So because you got to look at things from the perspective of let's say I'm a crappy trader. Let's say I don't know anything. What can I do to increase my odds of success? I think a lot of people they like the higher probability that is inherent with selling out of the money puts. You have a lighter profit zone, a little more margin for air, and so you don't have to micromanage this as much I think.

Tim Bourquin: Yeah, I think it's to put you on the side of taking advantage of the time decay instead of having to worry about it affecting your own position.

Tyler: Yeah. That's another good point. Time decays is working in your favor as opposed to against you. I think that gives a psychological boost to a lot of traders knowing they don't have to make something happen day to day but bit by bit. That time decay is going waddle away the option value.

Tim Bourquin: For listeners who are new to options, I do want to kind of give -- selling naked puts is risky if you're not very careful about what you're doing and not willing to be assigned to that stock and own it and have the capital to manage that so…

Tyler: Sure. I mean the caveat with any of this is I could probably spin any strategy and make you think it's the best thing since sliced bread. I mean there are advantages to everything. But obviously, you also need to take into consideration the potential risk and the downside. There are alawyas tradeoffs and that's probably -- that could be a good descriptive phrase of options. It's a world of tradeoffs. You don't get something for nothing. So though I get a higher probability by selling out-of-the-money puts and I may have expected win ratio of 80%, those 20% losers can easily dwarf the winners if you let them get out of hand. So yeah, naked puts is risky. It's not as -- it is defined risk but you could lose money as far as the stock drops. So you do need to make sure you don't go overboard in selling too many contracts and you have some risk management rules in place.

Tim Bourquin: Yeah. I want to touch on that one psychological part of it before we move to another market or another strategy that I can see me and any trader really, once you have some success doing this, you're thinking, "Hey, I made some money selling 10 contracts last month. Let's make it 15. Let's make it 20." I guess that's where you could really start to get into trouble. So for yourself and your own account, how do you kind of manage that so you don't get too greedy with it even though it's working really well?

Tyler: You want to know how you do it? You screw up one or two times.

Tim Bourquin: Right.

Tyler: Right? I mean the losses are what really grounds you and says, "Oh, okay, maybe I need to back off here." It's one thing for you to tell me, "Hey, you need to ease up a little bit." But when you're in the heat of the moment, you got to go back to your experience and kind of things I think that you've seen in the past that have burned you as a warning sign that "Hey, don't do this again." So if you're smart, you can learn from Tim and a trader like me and just don't do it. But for me I think having done it a few times in the past and reaps what I sowed, that's probably my biggest motivational factor to not do it again.

Tim Bourquin: Well, let's talk about something else. You mentioned futures. Do you trade ETF or the ES, the E-Mini contract?

Tyler: You know what, I dabble the futures trading which a lot of times when people talk about futures trading, I think as a precursor you kind of have to qualify it as day trading. I don't know about you but I don't need a whole lot of swing and position traders that use futures.

Tim Bourquin: Yeah. Mostly day traders.

Tyler: So you forget to tell them to using futures just because they're so leveraged. Oftentimes, these are people that are looking on smaller time frames, intraday charts. It's not really my wheelhouse. I tend to gravitate towards what fits my personality and also what I've had the most luck with and futures trading hasn't really been it for me. So I've kind of focused on other areas.

Tim Bourquin: Now, that makes a lot of sense. I've always said as a trader you should focus on what you do well just because everybody in the world seems to be trading the E-Minis and on Twitter you hear, "Hey, I made this much. I made this much, this trade close it out for a profit." First of all, you're never quite sure who's truthful about that and second of all, just because the world seems it's old thing, hey, what your mommy used to say, just because somebody jumps off the cliff would you do it too? I guess if you --

Tyler: Yeah. No, I agree 100%. I agree 100%, and I think a lot of the reason why you see that on Twitter is because those that have the time throughout the trading day to monitor the markets and to be on Twitter, there are lots in every little up and down tick in the market. It's pretty tempting to go ahead and make a bet. We're going up or we're going down and futures trading is probably one of the most liquid, simplest, and most leveraged way to do it. So it definitely has a part to play for day traders.

Tim Bourquin: I love the shorting or selling puts on the USO ETF. That's great. Is there another ETF that you like to play options on?

Tyler: Yeah. Another strategy I've played with this year is actually pretty simple and perhaps this is another lesson that I've learned over time. A lot of people I think put a premium no complex approaches. The more complex I can be the more successful my trading is going to end up. I've been through the ringer from super simple to uber complex. I got to tell you sometimes the dumbest people in the room that -- you perceive them as dumb, they make the most money because they keep it simple. I know oftentimes the time frame we're in right now in terms of what the market has done, we've been in a really strong uptrend ever since the start of September. It's easy to second-guess and say, "Hey, maybe we're topping out, maybe we're going to go down, maybe I should jump in a bearish trade," but the people that are probably making good money right now are those that just bought and sat on it. So to that end this year being a good -- I think a good year for trend traders. I've played around with a coupled of different rend trading type trading systems and one of the ones that I've used just implements a simple 50-day moving average. The idea with moving averages, these are tailor-made for trending environments. So if you get in a nice consistent uptrend or a nice consistent downtrend, MAs can be very effective. Where they really stink up the joint is when you're choppy, when you're non-trending. That's where you can get a little beat up. But in theory over the long run if the market has good trending moves, more plans than not be it 2008 type bear market where the subsequent return of the bull in 2009 and this year, as long as you're on the right side of the MA, I mean it's a pretty simple system. So that's kind of my thought process. So as a result I just use the S&P 500, the ETF, so SPY is your ticker, and my objective is to always be in the market either long or short and my signal is just to use the 50-day moving average. So if the S&P breaks above the 50, I use that as a signal to get long in anticipation that we're going to start an uptrend. If it's subsequently breaks back below the 50, you don't use that as a signal to get shorter market.

Tim Bourquin: The more traders I talk to that started off with 50,000 indicators on their charts and they slowly start peeling something away until they find the one thing that works for them whether it's just price and volume or if it's just one moving average. So it makes sense to me. And you're right. It sounds like I like that you qualify your remarks in saying that "Look, this works because it's trending." So it does sound like you are focused on using the strategy that works at that time and it's such a simple statement but most traders try to make something work all the time and that's where they run into trouble.

Tyler: Yeah. And as far as your indicator come in, it's interesting when you first start you think that the more things I look at, the more indicators I throw on the chart, the more sure I'm going to be of which way the market is going. So acquiring certainty is just a matter of looking at more and more things. In reality, it's an insidious little cycle because you're not going to be certain and oftentimes it results to people getting analysis paralysis and other things. So ironically, starting out traders look at a lot of things and most people they are little more have been around the block. They are minimalist. They look at one or two things. They trust it and they go.

Tim Bourquin: All right. Let's talk a little bit more about the 50-day moving average and I'm assuming it's a simple moving average on that?

Tyler: It is a simple moving average. I tell you, the popular settings for most moving averages, your 20-day simple moving average, your 50-day simple moving average, or 200-day, I'm pretty sure most charting platforms come default with those as kind of the default settings on the moving averages. So the thing with the 50 is it's kind of an intermediate term trading system, right? This isn't day trading. It's not even swing trading. On average, you look at 2010 which has been a pretty good year for this. I think there have been six maybe seven signals and we're 10 months end of the year, 11 months end of the year. So you're looking at one a month. So I think it's worse looking at if you want to be in the market, you can't day trade every day, you can't maybe even swing trade but you want to be in the game and you don't want to get clobbered if you see huge reversals. That's kind of I think the type of trader that may consider this type of approach.

Tim Bourquin: So are the new then trading options on that as well when it breaks above or below a 50-day?

Tyler: I've just used stock quite honestly, and the reason is I try to keep it simple. You could probably experiment with buying calls or puts. The difficulty is this, you don't know how long you're going to be in the trade. The S&P broke above the 50-day moving average I believe right in September, right around $110, let's say. Well, I didn't know if I was going to get stopped out a week later or if it was going to go up for six months. So the difficulty with implementing options is you have to pick a duration, a time horizon and I'd hate to go buy a one-year call option and then have to sell it a week later or buy a two-month call option and then lo and behold stock goes up for eight months in a row. So the options just add a lot of different variables that you got to worry about. So maybe I'll think about that down the road but for now I just used shares of stock.

Tim Bourquin: All right. And because it's a longer term trade, do you wait for an entire bar or candle to close below it or above it on a daily chart or how was it -- what's your kind of confirmation signal it's time to get in?

Tyler: Well, see, Tim, you're asking all the right questions now, aren't you?

Tim Bourquin: I got to dig into the details there.

Tyler: And you watched it that's because -- I'm sure you're in and you watched it. That's good. So the idea with the signal is you have to use some type of filter, right? And everybody does this. I mean even if you're a swing trader and you're going to buy a stock. When it goes above the prior days high, they put a penny above, 10 cents, 15 cents. What I've used is just a percentage and the idea is you're probably never going to find something that's perfect. I just used 1% so I don't want to go above the 50 MA a penny. I'd like to see it go above about 1% or so. So when we -- the most recent signal we got in September, the S&P -- let me actually pop open the chart.

Tim Bourquin: Sure.

Tyler: Let me make sure I got my numbers right here.

Tim Bourquin: Sure.

Tyler: Fifty MA was right around 108 1/2. We're talking September 1, 2010. So I wouldn't have jumped in right when it popped above that. I would have probably waited until I got around 110 which is the number I used earlier because you want to make sure it's a legitimate break. So 1% is kind of what I used. Why? Because it was simple. It was just 1%. I mean you don't want to go too far because if you have too big of a filter you don't get in on a good price. You can say, "Hey, I made it." It was definitely a break but they're gone. If you waited for 5%, you missed some of the move. So you're trying to find a goldilocks scenario where it's not too close, not too far but something that's relatively consistent. For what I back tested 1% was relatively good.

Tim Bourquin: How about on the profit side? How much do you know what you're looking for? Is there a place or a support or resistance area that you say it's time to get out?

Tyler: Good question. In trying to keep it simple, I just used a subsequent break of the moving average to get me out because you take the two-month run here. I didn't know we're going to go this much in two months. I don't think many people did. I mean it kind of came out of the blue. I can tell you this, if I was just going to get out when I thought would hit resistance, I would not still be in.

Tim Bourquin: So as SPY is going up, the 50-day moving average is following it up. When it comes to touch it again, at that point you're saying, "I'm out."

Tyler: So you have two choices. The way that I started doing it is I just trailed the stop that needs the 50 MA. So if we break 1% back below the 50 MA, that's my trigger to switch the position, so now I'm short with the market. However, in looking at really big moves, the problem sometimes is the 50 MA lags at the price quite a bit. The stock is up at 120 and I just made 10 points, a 10% return in two months but the 50 MA is down around 115, that's a pretty loose stop loss. I mean part of me is saying, "Hey, do I want to have a stop that lose and give back that many profits?" So one of the things that I do nowadays is when I've seen the stock increase about, say, 7% to 9% I'll go ahead and tighten the threshold or the stop, you could say, to below the 20 MA. I don't do that every time because I don't -- again, I don't want to get whipped in and out of the trade but if I feel like the market's gone enough, and I hate to say feel, 7% to 9% it's kind of what I've used then I'll go ahead and move the stop up to the 20. That way if we do break down, I'm getting out a heck of a lot quicker and locking in more gains than waiting for the 50.

Tim Bourquin: Both those strategies are great and I really appreciate you sharing those with us. I like that fact that you're patient and wait for those. I think as traders we all feel like we have to -- especially if we're in front of the screen all day, we have to find a trade. We have to be working. We have to working the market. Is patience something you developed or is it your personality?

Tyler: Well, I'd say it's my personality but then you asked me about day trading and I reflect on how I did in day trading and patience certainly wouldn't be my description. That's the temptation when you're in front of the market on a 5-minute chart is you always got to be in but -- so to answer your question, because of the experience -- I mean anybody can probably say, "Hey, I'm a patient person." But having patience in life and having patience in the financial markets is probably two different things. I guess some people are better inherently wired to be a trader than others. Some people they try and just it's not their gig. Maybe a little bit of it is because of the way I'm wired. I think a lot of it is experience and just doing things over and over and over because we're all human beings. We all have the emotions and sometimes it is difficult to stay out. One other thing would be your trading plan. I mean if your rules are producing pretty good results, focus on following the plan as opposed to making off-the-cuff decisions. I think the more you trust your plan and the more consistent your results that should hopefully give you more trust to exercise a little more for patience and wait for the market to take you out as opposed to making random in and out decisions.

Tim Bourquin: Right. No question having those rules and saying, "I am not going to trade unless it meets the criteria that I've written down in my plan." I think that's a great point. How long did it take you to get confident? I mean so many traders go through strategy after strategy trying to find something that work and then oh, boom, all of a sudden they sell some puts on USO and it works and they do it again and again. People wonder if they're ever going to get to that point where they actually stumble upon that. I mean how long did it take you to get confident in your skills to do this?

Tyler: Sure. Before I tackle that, I just want to make one other comment on that moving average.

Tim Bourquin: Yeah.

Tyler: Just before I forget because I want everything to be in context.

Tim Bourquin: Sure.

Tyler: The thing with some stocks is they do not behave well with moving averages. So using that 50 MA strategy, I don't do that with just any random stock. I mean some stock use moving averages, you'll get killed. But the interesting thing is for some reason or another the S&P tends to behave relatively well with breaking 50 MA. I mean it's a legitimate significant signal that probably should be something that you pay attention to.

Tim Bourquin: And I would say that -- you mentioned the fact that it's got to be trending so it's got to meet certain criteria. It just doesn't work all the time and when it stops working you got to find something else that does.

Tyler: That's the idea. Interestingly enough, and not to get too far off on a tangent here, I'll tackle the confidence discussion a second. But when I back tested the S&P -- see, the difficult thing is in theory I can just say, "Well, just look at the market and see what it's telling you and if it's trending, do it." You know as well as I do in reality sometimes I think, "Hey, trending," and then the next three months we don't trend. So for this particular system I went back about 10 years and admittedly I didn't really do anything too scientific. It was more eyeballing it and using Excel. I did every single signal so I'm in every time it's above the 50 and every time it's below the 50. There were certain years where you get chopped up and it's not that great. But when you get trending environments like 2004 to 2006, 2007 when you get bear markets like '08, beginning of '09 when you get bull markets like the last couple of years, over the long run it works. It pays out. So if the next 10 years are going to be like the last 10 years, the assumption is it should behave relatively well. So I've actually done it where every single time it makes the signal I get in or I get out because if you start to cherry pick then maybe you miss the good ones and you get in on the bad ones and the effectiveness of approach is kind of diluted.

Tim Bourquin: Right. I hear you. Exactly. So if you're going to do it, you got to go in all the way but live through and be able to manage and tolerate the drawdowns that will come inevitably.

Tyler: Yeah. And when I looked at it, I went back and said, "Okay." The worst I year I think was 2000 or 2001 and it was ugly, choppiness. Go above the 50, get in, and come right back down. But see, the good thing about this is while the whole end goal for any trader is you want to maximize your gains and minimize your losses, right? I mean that's kind of axiom number one for objectives of what you're trying to accomplish. The nice thing about this it keeps me in for most of the trend so I catch a bull for the trend so my gains, my average gains are pretty big. But if I'm wrong, if the S&P breaks above the 50 and two weeks later breaks back below, you shouldn't have lost that much money. I mean your stop loss isn't that loose. So over time the average gains are about two or three times the average losses and it allows you to catch the moves. You would have been in on a lot of bear market short.

Tim Bourquin: I like it because it's simple but it's a rule that is hard and fast, right?

Tyler: Yeah.

Tim Bourquin: The 50-day is the 50-day. There's no getting around it. There's no moving it yourself.

Tyler: That' the thing. You can't fudge it. You can't impose your own biases. You just -- it's a line and it's silly because it's so simple but if it works what do you say?

Tim Bourquin: No question. All right. Back to that confidence issue. How long did it take you to be confident in your strategies that you felt you can make money, maybe not on a daily basis or even on a weekly basis but on some sort of long-term basis you're making money.

Tyler: Well, you know, I think we all go through confidence cycles. You get in a groove where market conditions are favorable to your strategy and, boy, I hate to go off on all these tangents but your questions are my idea machine and my mind is going here.

Tim Bourquin: Good.

Tyler: Back in 2006, for example, before the markets fell apart, money, ATM machine. It just worked every month and the market was a little benign, volatility was declining, neutral, just a match made in heaven for iron condors, and by golly, month in, month out, it virtually worked every time. So in that type of environment, how confident do you think I am? I made it. I've got the right strategy, the right environment. I'm off to the races. But lo and behold market changes. 2007 comes along, 2008 and, boy, a nightmare for a neutral type trader is 2008. You just get killed. So unless you have other bags or other tricks in your bags so to speak, I think in certain environments you get tested again. I don't think you ever reach a plateau where "I'm confident, I make money regardless, I'm never going to have to try" or "I'm never going to have to struggle." So depending upon the market -- I hate to say my confidence depends on that, but I'm not going to say I'm immune to changing market conditions and that certainly does affect my confidence which is why I think it's important to not be a one-trick pony but maybe have a couple of different techniques that you've traded in different environments. I hate to keep going here.

Tim Bourquin: No, no, please, this is good.

Tyler: The other thing too is that the market does move in cycles and I never traded in the dot-com bust. I started trading I think in 2005. So I had never been through a bear market, never sat through it. I heard about them. I can see them on the charts but never experienced it. So I think a lot of people maybe when you're in your learning curve you're just to bang up solid trader in uptrends or a bull market but you experienced a bear market and it's a whole another ball of wax. So the good thing I think for the last couple of years for anybody who's been in the game and hopefully is still in the game is now you're seeing an entire cycle. You've seen really good bull markets, good bear -- well, best -- I don't want to say best bear market. That's maybe too positive of a connotation, but most severe bear market, and it's a great expression I believe. So now that you've experienced the cycle, I know how to not get caught up in the extreme pessimism or the extreme optimism. I mean I bet -- I don't know. You're probably interviewing traders at the end of '08, beginning of '09. There was some pretty negative-type forecasts, stock market never going up again.

Tim Bourquin: Right.

Tyler: Having never been through that, it's like "Well, boy, maybe it won't. Maybe I should never look for bullish trades." It's been a huge bounce back since the bottom and certainly those that got caught up in the extreme pessimism are kicking themselves including myself. Oh, shoot, I missed a lot of the bounce because I was too ingrained in the bearish type pessimism and think that the market is not going to go up. Perhaps -- to end my little rant here, perhaps the thing could be said right now, we've had pretty extreme optimism in the last couple of months. The feds are running the printing press. You got a lot of liquidity, a lot of different variables that maybe are pushing the market higher, but maybe it's not a good idea to get too caught up in the extreme optimism. Rather let the chart be your guide and we have this phrase is like price is king, price trumps, price pays. At the end of the day, you need to focus most on the price action and your biases and your sentiment be darned.

Tim Bourquin: Right. And you know what it was for back in that time in 2008 when I would interview traders, I would get more e-mails from people listening who would say, "I can't do what that guy is doing. I've tried different things. I've back tested it." It's almost times when it's really tough to trade that 10%, 6 cents some really great traders seem to have kicks in and takes over 90% of their trading and they can't explain why. So I think that makes a difficult for a lot of traders who haven't gotten to that level yet to make money. It's kind of the difference that I saw.

Tyler: Yeah, yeah. I know when I first started, I educated through some mentoring and coaching individual traders and quite frankly I felt a little bit inadequate because I had never sat through a bear market. I think also too there's a time to be in and there's a time to be out, and if the market conditions are crazy and you can't make heads or tails of it, capital preservation is paramount. So there's something wrong with sitting on the sidelines for not even a few days. I mean, shoot, if you need to stay on the sidelines for a couple of months and kind of see if you can get a better gauge of the market, do it. You can trade for the next 20, 30, 40, 50 years but not if you blow up your account because you're overtrading and trying to force something that's not there.

Tim Bourquin: Right. Right. Great point. Well, Tyler, you've been very patient with all my questions. You've actually got a blog, a website where you talk about a lot of the things that you're looking at. What's the URL and what do you do there?

Tyler: It's just TylersTrading.com and that's also my handle on Twitter. But back in 2009 at the suggestion of a colleague of mine and kind of on a whim, I started blogging. I also started writing financial market articles at the same time. The website has kind of served as a laboratory of sorts where I can not only improve my writing but tinker with different strategies. So it's kind of my own little corner of the web and I usually just do commentary on both stocks and options, talk a lot about the VIX and volatility type concepts. It's been great. I think it's good for people to archive their stuff on the market. It's a way to make sure that you can articulate your strategies. I think by better being able to explain what you do to other people, it improves your understanding of your trading plan and hopefully your ability to produce profits.

Tim Bourquin: That's always been huge and something that I've always said. If you can't explain how you trade in about 30 seconds or any time frame for that matter, that's a problem. That means whatever wave you're writing at that moment is going to change and you're going to get hurt.

Tyler: Yeah.

Tim Bourquin: So I wholeheartedly agree that being able to explain that, maybe answer a question and comment and explain it to somebody else is huge. That means you're doing something right.

Tyler: Sure. And you can at least identify what's wrong if it doesn't work, right? If you can't explain your trading approach and it doesn't work, you don't know why it's not working because you don't know what you're doing.

Tim Bourquin: Right.

Tyler: So it's very difficult to progress and find out what works and what doesn't if you can't even put it to paper.

Tim Bourquin: Well, we'll link to that site in the transcripts. Of course, it's TylersTrading.com. Tyler, thanks very much for your time today. I really appreciate you sharing those two strategies. I think that's going to be really helpful to our listeners and best of luck. We'll finish out 2010.

Tyler: Yeah. You bet, Tim. I appreciate it.