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Background Info / Introduction
Can you please start by making a few comments about yourself to include your trading style and what products you trade, your experience in years, and what other things of a trading nature take your time on a regular basis (e.g. writing trading books/contributing to forums/coaching/speaking engagements)? Regarding extra curricular trading activities, I’m involved in all of the above and I thoroughly enjoy the interactions with my clients. I’ve been at this about 40 years. I’ve been a registered CTA for over 20 years and I’ve traded almost everything under the sun. I traded the S&P futures index since it started in 1982 and the value line index before that. The list of what I’ve traded is just too long to include in this. Suffice it to say, I trade all time frames… from three minute to quarterly and damn near anything that moves. It is fair to say that most people are initially attracted to trading by money. Is this what initially attracted you or was it something else? These days, most people are attracted by the lure of easy money propagated by the sharks in the industry. Make 1832% on your money in just three weeks. Pure B.S. If we get past that layer, I think money is the excuse. The challenge and the risk are the real attractions. Figuring out the puzzle was a big motivator for me. What are some of your good and bad memories of your early trading days? Well, some good memories have to do with making more money than I knew what to do with. And some of my bad memories had to do with being plugged into a heart monitor due to excess stress reactions brought about by trading too many markets on an absurd schedule. I’ve mellowed with age. How would you describe a couple of your biggest mistakes in your early trading days? Well, you have to realize that we’re going back about 40 years, 1967 to be specific. Back in those days, I thought that buying on heavy margin was the right thing to do. I was working at a defense contractor in Southern California, fresh out of college with very little capital. The Credit Union, in their wisdom, was willing to loan 70% of the asked value of the stock and they weren’t sophisticated enough to know a highly speculative stock from something that was stable. This story is part of the Trading Course I offer. I managed with limited skills, to parley a very small amount of money into a considerable amount of money and lost about half of it back in a very short time. Excess margin was a mistake, one that I have never repeated. Looking back to the beginning, in the face of the usual challenges, what motivated or inspired you to learn to trade well? The challenge of the market place - the promise of being my own boss. Being able to work and live where I please without the need for employees. It’s worked out as I planned but it was far from easy. On reflection, was there a single moment in time or situation that ultimately had the greatest influence on your trading? Well, I met some people along the way who gave me a helping hand. This was confined to five to fifteen minute meetings where these people pointed me in the right direction. In the 70’s, we didn’t have any organized ways of learning this game. I spent years poking around a black closet. Fortunately, I ran into some sympathetic people who had a flashlight and they pointed it in the right direction. The understanding, use and development of effective leading indicators are what really turned me into a professional trader.
Trading Plan
We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both? Briefly, why? I’m primarily a technically based trader but I consider fundamentals. My technical based trading plan is about 70% non-judgmental and 30% judgmental. I’ve organized myself this way because it is the most effective approach I can find. Do you have written trading plan detailing your approach? How would you describe it (e.g. long/short, detailed/broad, complete/work in progress)? I use three trading plans, which are similar, but fit specific needs depending upon my mind set, the time frame, and type of the market that I’m trading. These plans are succinct and definite. They contain about five major steps. There is no need for me to break them down into more details as I know internally the requirements of each step that’s involved. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)? Do you have any comments on the simplicity or otherwise of them? I would rate my approach as a 3 or a 4 in terms of difficulty and a 9 in terms of effectiveness. Analysts can have complex approaches. It helps them to sell newsletters. Traders need to pull the trigger, therefore they need a straightforward approach. In my teaching, I see over-complexity as one of the biggest reasons for failure. It’s the old story about having three watches and therefore never knowing what time it is. Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation? It seems like what you’re asking me about in this question is backwards since by its very nature you must have a plan to understand the basics of trading… or anything else. If a person is inherently disorganized, they better learn basic organizational skills before attempting to trade or they won’t last very long. Let’s take something simple like driving to work. There’s a plan, written or not. Dress, find the key to the car…open the garage door. What does a disorganized person do, pound on the steering wheel because the car won’t start without a key? Get organized or do something that requires less organization. It is that simple. One of the comments that I consistently get from people who study Trading with DiNapoli Levels is that it is a highly organized book with a defined trading plan. All of this seems obvious to me and I was actually surprised to hear these comments.
Trading Mindset
Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them? My trading approach is geared to a very high percentage of winning trades. I therefore seldom feel the anguish of losses for any significant period of time. It all depends on your psychology. Some people can deal with a high percentage of losing trades so long as the bottom line is profitable. That’s not me. That’s why I employ leading indicators in my approach. It’s the only way that I know how to achieve a very high percentage of winning trades. Know yourself first and then acquire a trading approach that fits you. Most new traders are actually more comfortable with losses than profits because they’re more used to them. Isabelle, 36 is a mother of two children and stays at home with them during the day. Her husband works full time and his salary meets all their financial obligations comfortably. Isabelle arranges an appointment with you to discuss trading – she has never traded before but knows you can help her get started with some initial guidance. What will be the 3 most important things you tell her in the appointment? Far from telling her anything, I would be asking her a lot. Things that have to do with her perceived financial security and that of her children. I’d ask about her risk tolerance and the time she would have to devote to such an enterprise. Given the situation you have outlined, it is more likely, that I would suggest an alternative way for her to make money than to embark on something as difficult as trading. Jack, 58 is a very successful business owner who wants to start trading as he slowly moves into retirement and away from work. He has arranged a similar appointment to Isabelle – would your advice to him be identical to Isabelle’s or different? My questions would be similar. The problem with Isabelle, Jack or any other person, who is new, is that they’ve been told lies. They have been fed false advertising and their expectation of what they will get out of trading is totally unrealistic. My best clients are neither of these people. Rather they are someone who has been involved in the markets for two to five years. Someone who has been kicked around and learned the hard way just how difficult this game can be. I can teach this kind of person and this kind of person more importantly will appreciate what I have to offer. Is trading as difficult as many people appear to make it seem? No, it is more difficult than that. It is counterintuitive and although it may be the best psychologist one can ever have unfortunately it is also the most expensive. What are the 5 most important character traits of successful traders? Please feel free to briefly explain them.
Patience Trading can be a very solitary existence – especially in the early days when you are learning, and often feel as though you have no idea what you are doing. Do you find trading a lonely experience? Does this sit well with you? If not, how do you deal with the loneliness?
Actually trading can be a
lonely experience in fact to be good at it you need to have independence of
thought. Unless you are in the business of teaching others, once you get to a
certain point, you should stuff cotton baton in your ears and tape your mouth
shut. Most people won’t listen to you anyway. What would be or has been your most significant weakness in trading? Have you learned to overcome it or do you continue to work on it? That’s easy. I require very high percentage of winning trades which cuts down on my overall trading. Don’t get the idea I sit back however. I might get between two and fourteen trades a day in the Emini but that’s on a five minute chart. I teach that loss of opportunity is preferable to loss of capital. The issue is getting that balance right. Do I try to force myself to trade more? No way… Certain personal preferences may be best left undisturbed if they are not all that damaging. Assuming you are now consistently profitable, do you still have times when you experience self doubt over your ability to trade? If yes, how does this make you feel and how do you overcome it? No, I do not feel self doubt. I do however make mistakes - meaning I do not follow the trading plan. This is not purposeful - it is a screw up like forgetting to lower the landing gear. I punish myself in one way or another and move on. There are very good simple techniques one can employ in this regard and I teach these in my Private Seminars. I do not demand zero mistakes from myself. I’m not perfect and I realize it. Demanding perfection would cause too much stress and therefore be counterproductive to me personally and to my trading. I do not however knowingly make mistakes. If I did, I would not trade. Ideally, we would like to be emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions? Do you get very emotional at times? I rarely get emotional but emotions can be a good thing when they come from experience. They can for example make you feel uncomfortable when you are violating your trading plan. The best advice I can give I alluded to already – shut up about your profits and losses. Don’t tell your spouse. Have your statements delivered to a PO Box. Just trade. Stay away from the chat rooms and simply follow your plan or study and learn material that is worthwhile, so you can develop a good plan. If you experience a large profitable trade, do you reward yourself in any way? No, not at all! Same with losses. I do however evaluate if I’m trading well… following my plan. In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them? I’ve learned to know myself. To finish off, if you were to start trading all over again now, what would you do differently to what you did originally?
With the exception of
driving myself too hard, I would do little differently. Given my situation I did
about the best I could.
About Joe: Joe DiNapoli is a veteran trader with over 40 years of solid market trading experience. He is also a dogged and thorough researcher, an internationally recognized lecturer, and a widely acclaimed author. Joe, a registered C.T.A. for over 20 years, has taught his techniques in the major financial capitals of Europe, Asia, Russia, the Middle East, and South Africa as well as in the United States. His articles have appeared in a wide variety of technical publications worldwide. Visit his website at www.fibtrader.com
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