For the next interview in the StockTickr Interview Series (RSS feed), I interviewed the guys (and gal, apparently) over at the Highchartpatterns Group. They offer a newsletter which I currently subscribe to. Their forte is breakout trading. I’m actually not taking many of the trades in their newsletter right now – I’m watching their picks and numbers and seeing if their style fits my personality. Call it “Broadening my Trading Horizons.” As far as newsletters go, I think it’s fantastic. If I sign up for a newsletter, I expect it to teach me something and not just be a black box spitting out picks. HCPG doesn’t disappoint! I feel like I’m taking an in depth look at a something that’s a little out of my comfort zone – something that I know from experience is good for me. Also, I’m not being compensated in any way for this post – I just like the service and think they’re good, honest folks. After all, they post every single trade they make.
Read on for more about how they started trading, what they look for in the markets, and how the bear market in 2002 was a wake up call for these traders. Feel free to ask questions in the comments of this post – the Highchartpatterns Group is watching and eager to answer questions you may have.
StockTickr: Tell us a little about yourselves.
HCPG: There are three of us in Highchartpatterns Group (two male, one female which seems to be a nice balance). We all started trading in the late 90s. We met through a trading forum, and later on when I came up with my particular kind of system of trading, they became interested. I shared what I knew, they liked it and took it on, and we’ve been friends ever since. The three of us are a lot alike: when we’re working, we’re completely focused on the market. When the day is over we are completely focused on our families. We’re all very private individuals who value both our work and our free time.
StockTickr: How did you get started trading stocks?
HCPG: It was the late 90s and everyone was talking about stocks. You went to your MD because you have a sinus infection and he would give you stock tips. It was contagious.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
HCPG: None of us have “a” horror story. We have novels of horror stories, mine being roughly the same length as Crime and Punishment. The bear market was vicious, especially in 2002. The big positive was that blowing up the account several times led to a system of extreme discipline, with risk management playing center stage. We grew up in the trenches, and that made us better traders. If we come across another bear market, we’ll be ready, because we cut our teeth on the mother of bear markets. That’s my positive spin anyway on a painful time. 2002 was the time I hit bottom, the time I said to myself– dude, you get your act together and come up with some kind of system that works or you give up and go get a “real” job. After that I got really serious and started working very hard and everything started coming together.
StockTickr: Do you think trading alone (as opposed to in a group or prop firm) is an advantage or disadvantage?
HCPG: We prefer trading alone, but with interspersed contact through IM.
StockTickr: Do you trade for a living now?
HCPG: Yes, and have for years now.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
HCPG: Don’t make excuses. Enter only when the risk reward is at least 2-1 (preferably 3-1) and obey your stop. It’s so easy to justify anything as a trader and that is exactly what you have to get away from. I tell my friends, the reason I have such a strict system is because I’m a lousy trader. The system takes care of me and I probably couldn’t survive without it, which is the reason that “breaking my rules” is really not an option. They’re not even rules anymore, it’s my system and my trading is contained within it. This is the reason why, for me, it’s so important to trade off of a pre-defined list (that is, all the alerts are set from the night before — there is no opportunity for deviation the next day during the trading hours). I have my entry price, I have my stop-loss and I know where to take profits. A bit rigid, yeah, sure, but you have to do whatever it takes, right? This job pays my bills and that is something I have to take seriously.
StockTickr: Describe your style of trading. How long do you typically hold stocks?
HCPG: We’re mostly day-traders holding from several minutes to multiple hours. However, all of us do have separate swing-trade accounts and occasionally we do swing positions, especially in festive markets. In terms of style– we trade off of resistance/support from daily charts. We have a list set-up from the night before which includes alerts on places of interest on the daily chart. If these trigger and the intraday conditions are fulfilled (meaning above-average volume, no whippiness, no big spikes) then we enter, usually with a stop of around .5%. We don’t usually take profits until at least 1%.
StockTickr: How did you settle on that style of trading?
HCPG: Trial and error, and through a lot of blood, sweat, and tears. Ok, maybe not that much blood and tears but yes on the sweat. I’ve always been interested in break-out trading; in the beginning it was intraday break-outs which I found too random, and I was never happy with a 50% win rate, even if I was profitable (because winners were larger than losers). Then I tried just trading from the daily charts without paying too much attention to the intraday. That didn’t work for me either. I finally figured out, that for me anyway, I had to combine the two to really get good results and that’s what I’ve been doing now for the last four years. I’ll tell you right now upfront, there is a big disadvantage to my system: you have to deal with many bouts of inactivity. On the whole we trade a lot less than the average trader and at least once a month we go several days without trading at all. Why? Because we look for very specific types of chart patterns and when they’re not there, we sit aside. We don’t start creating alternatives or compromising, we just sit aside.
StockTickr: What’s your exit strategy for winning and losing trades?
HCPG: Winning trades we start taking profits at 1%, 2% and then the last is really discretionary. If its a big gorgeous break-out with amazing volume we try to hold until eod or swing. Otherwise, we might just close at 3%. Losing trades are cut at around 0.5% stop-loss, be that in 3 hours from entry or 3 seconds. We never double-guess the stop. Occasionally we re-enter a stock after being stopped out once it goes back above resistance (for longs) but that doesn’t really happen too often.
StockTickr: What 3 books do you recommend traders read?
HCPG: You know, I never was too much into trading books and nothing, but nothing, taught me as well as the market itself. Most of the books I like are just confirmations of beliefs I already have. Nevertheless, three oldies but goodies here would be:
- How to make money in Stocks by William O’Neill
- How I made $2,000,000 in the Stock Market by Nicolas Darvas
- High Probability Trading by Marcel Link (there are parts of this book that I found relevant)
StockTickr: Other than your own, what are your 3 favorite blogs?
HCPG: We’re going to ask you to be flexible with us and give us 6 favorite blogs to choose from (since after all, there are three of us…). Even 6 to choose from is very difficult since we have found so many great blogs out there.
But before we start let us say that we also enjoy your blog and think that this interview series that you have is fantastic. It’s a great way to find exposure to the multitude of different trading styles out there.
These 6 are divided into groups of 3. The first two we like not only for their content but also for personal reasons. The second we like because they have a very similar style to what we ourselves offer and thus we find their writings very relevant. The last group trade in a very different manner but we admire their blogs for their excellent work and content.
So Group One: Knight Trader and Move the Markets. Let me confess that when we first started up HCPG we really didn’t know how to start up the business. We were good traders with a good system and we thought that should really be enough. If it is good, and honest, the rest should fall into place. To a certain extent this came true but we had a lending hand. So I was saying… when we first started up we didn’t really know how to get the word around. We didn’t want to advertise (and we still don’t) but we needed people to come check us out. We wrote to a number of blogs introducing ourselves and we probably ended in most people’s delete box. Two great exceptions were Knight Trader and MovetheMarkets (then Idempotent if you recall). We are immensely loyal people and we do not forget people who helped us — and these two were there for us from the beginning. KnightTrader just put one link on his very well-read blog that said — free 3 week trial, with our website address. That gave us a bunch of trials and actually was the first step in getting us going, and for that we will always be grateful to him. Also at level of content, KnightTrader trades in a very similar style to us and is also always on the watch for momentum- for that his site is very valuable.
Second — Richard (MovetheMarkets) is one of the most fair and decent people we’ve met in the trading blogs. When we approached him 6 months ago he didn’t just delete the e-mail from the new guys on the block, he said sure- I’ll try out your service for 3 weeks and write a review about my experience, and if I like your service, then the price is good and I’ll join. Of course we were a bit anxious, looking at his past reviews, he’s not an easy guy to impress. Thankfully though it worked out as he saw what he liked and gave us a positive review. It was our first review and our first real significant mention on the internet and for that we will always be grateful to him. On the content level, we love his site and his break-out scans we think are terrific, as are the editorials.
Group Two: Wall St. Warrior and DownTown Trader. Both these writers offer a very similar style to our own (even though Jamie does mix it in with other styles). We often look at least some of the same stocks and trade in similar ways. We think they’re both very talented traders whose sites are assets to the trading community.
Group Three: Both these traders trade in a different style to us, but nevertheless, we read their site every day. Ugly Chart and TraderMike. Ugly, we think, is a very talented trader and we like not only reading about his trades but also about his approach. For a guy who has been trading for so little time, he’s doing phenomenally well and we have a lot of faith in him. Put it this way, if he were a stock, we’d go long and tuck it away in the IRA. He also has a wicked sense of humor and it’s a real joy just to read his blog on a daily basis. TraderMike has a great website that offers an incredible wealth of education and tools. We also love his links. His website for us is like a hub — it’s the nucleus of the trading blogs and the center of activity.
StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?
HCPG: Anywhere between 0.5 -1% depending on how risky the stock is. Our favorites get 1% but a stock like NVEC gets .5%.
StockTickr: What technical indicators could you not live without?
HCPG: We mostly use price and volume but we don’t ever pull up a daily chart without the 50dma. Everything else, for us anyway, is all noise.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
HCPG: It hasn’t changed that much for us. Things do slow down and the market goes in cycles.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
HCPG: No, we don’t back-test. The belief in our system comes through the years in which it has worked consistently for us — through the bear and the bull cycles.
StockTickr: What advice can you offer traders who are just starting out?
HCPG: See what appeals to you, in terms of what fits your personality. Short-term trading? Swing-trading? And then read the blogs out there, try to talk to some traders, read a couple books, and look at the systems people are using. We believe everyone should have their own tweaked version of a system, but it really is useful to first walk on the shoulders of the giants instead of coming up with a whole new system yourself. Maybe as the years go by you will have tweaked your system so much that it doesn’t even resemble its originator; but in the beginning take a look at what is out there. Second, always own up to your losses. Never make excuses or blame the market-makers, specialists, or big-bad hedgies, etc. The first step of becoming a good trader is to accept all consequences of your actions.
StockTickr: What do you like best about trading?
HCPG: We’re not being too original here and going to stick with the freedom. The hours are great, there is no boss and the challenge is real, day in and day out. We also like the intellectual stimulation, of having to process a huge amount of data, and sort out the relevant from the irrelevant before coming to a decision.
StockTickr: When did you start your blog and what prompted you to do so?
HCPG: We started the blog shortly after starting up the website for our newsletter. There were several reasons: first, there were many things we wanted to communicate to our readers and the greater trading community that we couldn’t simply with our website. The blog gave us a great venue for that. It also, of course, gave us a way to become more well-known in the trading community. About half our subscribers have come from the internet (blog and forums), the other half from word of mouth.
StockTickr: By the way, I’ve noticed that the comments section of your blog has been turned off: is there a reason for this?
HCPG: Yes, it’s simply a consequence of time-management. Remember that our blog is not our main focus, it’s something supplementary. Our main focus is the Highchartpatterns Newsletter, with the blog being a very distant secondary interest. Right now we’ve come up with an optimal balance between writing the newsletter, trading full-time, and having our own personal time. In fact, writing the newsletter right now is beneficial to our own trading: we are more disciplined, our rules are more clear, and in short, what was abstract has now become concrete. However, this is a fine-line we walk. We’re very careful not to jepordize that balance and automatically cut out anything that is not absolute necessary: this includes having to moderate comments and respond to blog comments, which would be relatively time-consuming. It’s the same reason we have said no to requests of possible expansion, be it real-time calls, options service, auto-trading, seminars, etc. In fact, for the record, we’ll say here in this StockTickr interview that we have no interest in expanding the business whatsoever. Once you start going in that direction then your main focus becomes the business instead of actual trading. If we ever do expand into other services, know that most likely we’ve become burnt out, and that we are attempting to replace trading with the business as the main vehicle of income — something that I cannot imagine in the present time. Not to mention that I have zero doubt that the quality of the newsletter would decline considerably since the only way you can really be in sync with the market is to be actively trading it; once you stop trading, you lose your edge.
StockTickr: Thanks, guys!
HCPG: Sure. Before signing off, Dave, we’d like to thank you for this great opportunity and wish you the best of luck with StockTickr (which by the way we think is a great service and one that we are going to follow with interest).
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Zoomie, retired fighter pilot
- Trader Gav
- Will Fisher
- Tom C.
- Michelle B.
- Elliot Dole
- Jon Tait, the Fickle Trader
- Bill Rempel
- Adam Warner
- Roger Nusbaum
- Dave Johnson
- J.C., the NYSE Scalper
- Brian Shannon, AlphaTrends
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin from Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!