Tim has a wealth of experience in various parts of the trading industry. He was Chief Trader at First National Bank of Chicago and then Head of Foreign Exchange for First Chicago. After that he formed his own company and started trading private money. He has two web sites, one called Median Line where he posts charts from some of his trades and Market Geometry a forum where he interacts with traders.
Read on for more about how Tim got started (he hand drew charts starting at age 15!), what’s at the heart of great traders’ success (it SHOULD come as no surprise if you read this blog), and how he equates trading with the work his father did as a welder.
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StockTickr: Tell us a little about yourself, Tim.
Tim: My name is Tim Morge and I live in Aurora, IL, about 45 minutes East of Chicago. I have a very nice trading room in my home and I also have a nice trading room and separate office at the Chicago Mercantile Exchange. I am a private money manager and I trade my own cash, FOREX, futures and stocks in my own trading account. I teach professional and non-professional traders how to make a consistent living trading off-floor at the CME and CBOT, give seminars and webinars that teach my own personal style of trading and money management and I’ve written two books on trading, Trading with Median Lines, and Market Maps: High Probability Trading Techniques. I regularly write for trading publications and websites and speak at trade shows or gatherings (Traders Expos, for example).
I have been a professional trader for a handful of U.S. Financial Institutions; I was Chief Trader for the First National Bank of Chicago and then the Head of Foreign Exchange for First Chicago. I was promoted to Senior Managing Director and charged with creating a large proprietary risk department to trade the bank’s capital and successfully ran that business until mid-1990, when I formed my own company, Blackthorne Capital and left to become a private money manager for Commodities Corporation. I built a Chicago-based office for Commodities Corporation and served as a mentor for the younger traders in that office until I left in 1995. I left Commodities Corporation to manage my own money, as well as the capital of a few offshore clients and then in 1999, my own firm, Blackthorne Capital, registered as a Commodity Trading Advisor and began managing public managed accounts. In the five years that I managed public money, my risk adjusted rate of return was rated in the top ten of all CTAs twice.
StockTickr: How did you get started trading stocks?
Tim: A family friend was a large scrap metal dealer in Chicago and he was a regular trader/hedger in the futures markets. I was the youngest of eight children and my father was a welder, so we regularly visited his scrap yard to purchase the raw metals my father needed for jobs. At the scrap yard, I could either help sort through the piles of metal, looking for what my father needed or I could stay in the office and watch our family friend, Ben, update his hand drawn charts and ask him questions about what he was doing. After about a year of watching Ben and asking him questions, he began to lend me books on trading and I began to learn to hand chart from him. Eventually, while my brothers were sorting through piles of scrap metal, I was updating Ben’s charts! His focus was on market formations and one particular technical analysis tool: Median Lines or Pitchforks, which were developed by Dr. Alan Andrews in the 1920’s. I picked up the basics of Pitchforks from Ben and he eventually lent me Dr. Andrews’ original course, the “Action-Reaction Course” to read. At that point, I was a young teenager and I began keeping my own crude hand drawn commodity charts at home.
One of my brothers lived just outside the city of Miami and when I was 15, I spent the summer living with him and working for him in the parts department at a Ford dealership. The first week I was staying with him, I pulled out my hand drawn charts and started to update them and to my surprise, he also had learned about trading and charting from our family friend Ben and had a nice-sized trading account. After he watched me chart for several weeks, he asked me if I had ever made an actual trade, and of course, being 15, I didn’t have a trading account. I had been keeping a ‘paper trading’ journal and I showed it to him. To my surprise, he told me that if I showed him some of my trade ideas before they happened and we watched them unfold together, if I showed him I understood how to manage risk and how to find good trade set ups, he might allow me to make a few small trades in his account.
Several weeks later, he took me to meet Dr. Andrews. My brother had taken his course several years earlier and regularly visited Dr. Andrews. For the next two summers, every time my brother visited Dr. Andrews, I went with him and did my best to absorb everything that was said by all the experienced traders that were there talking and exchanging ideas, as well as anything Dr. Andrews spoke about. I tried to be a ‘fly on the wall,’ but every once in awhile, one of the more outgoing traders or even Dr. Andrews would ask me what I thought of a trade set up or idea being thrown around and then I’d do my best to give them my opinion without sounding like a complete fool. It was very exciting stuff for a teenager!
Soon my brother began letting me take small futures positions in his trading account. Amazingly, I was pretty successful right from the start! I didn’t overtrade, I tended to take positions using no leverage and I liked small stops—and all of these things together mean a trader has longer to learn his craft before chewing through his initial capital. Though my brother’s account was much larger, he had given me an initial account stop loss of $2,000, which to me seemed like an incredible amount of money! I managed to turn a small profit my first month with only a few small losses and the months got better from there on out.
These days, when I look back on how I got started and what a small account I started out with, I shake my head with amazement. When people at my seminars or on my forum tell me they are going to start with a $3,000 account, I explain how badly the odds are stacked against them. Yet somehow, I managed to survive and even flourish. I KNOW I was extremely lucky and beat very long odds, but sometimes, luck is what you make it, I guess.
To give you a few points of reference, this was the mid-1970’s: Metal prices were very active, Oil prices were skyrocketing, interest rates were active and on the way up, because commodities in general were trending higher. And of course, most people that bought or sold stocks [let alone commodity futures] that were not trading on the exchange floors were ‘investors’ and got their prices from their daily Wall Street Journal by reading Barron’s on the weekend—Intraday data did not exist, computers were as large as living rooms and read large cards with holes punched in them. And of course, charts were drawn by hand, not by computer software packages on a screen.
But being naive and young and extremely lucky, I plunged in and began by trading single contracts in commodity futures and once I established a string of profitable months, I began to watch individual stocks that correlated with a commodity I had a view on. For example, if I was becoming bullish on the oil complex at a particular price, not only would I be watching charts of oil futures looking for an entry but I also began to examine oil company stock charts and oil services stock charts. It didn’t take me long to understand that I could be long crude oil futures if price got to my entry level OR I could buy oil services stocks if their charts looked like there was an even better opportunity in the stocks versus an outright oil futures position. I soon asked my brother for permission to trade some stocks in his account. After showing him some set ups and letting him track some of my ideas, he soon added stocks to my list of ‘tradable’ instruments.
I was fortunate to graduate from high school early and enroll at the University of Chicago in 1975. I not only continued to trade while attending school, my trading gathered momentum and it isn’t an overstatement to say that I paid for the majority of my Undergraduate and Graduate education at the University of Chicago with my trading profits. Looking back, I realize just how lucky I was to not to have immediately lost the money my brother allowed me to trade with; to actually have the success I had during those years is akin to winning the lottery the first time you play with the only dollar to your name.
I’m sure it helped that I grew up near Chicago and trading always had a mythical following, if you were lucky enough to be exposed to it. Most traders from that time period started out as runners on one of the exchanges and then gradually learned their craft and then got financial backing from another floor trader. I just went about it in my own way, I guess.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Tim: I can truthfully say I don’t have any horror stories from that period – my first six or seven years of trading for a living. I traded at low enough leverage and risked so little that my losses never threatened my account – but that also meant that while I was undeniably successful as a trader, I made enough to pay for school and have a car on campus but didn’t turn $2,000 into $2 million dollars! My account grew arithmetically, not geometrically, partly because I was constantly taking out profits to live on and mostly because I never used the kind of leverage needed for that kind of account growth.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Tim: My motto on my website and forum is written on a plaque on the wall of both of my trading rooms: “Master your tools, Master yourself.” I learned very early on that trading was hard work. Having the discipline to update hand drawn charts day in and day out meant most people quit pretty soon after they started. And I felt that as a hand chartists, I had a distinct advantage over those off-floor investors that took the ‘short cut’ of buying the typical ‘chart books’ on Saturday morning that were sold all over downtown Chicago; something very powerful happens when I hand draw my own charts and update them every day. I think in many ways I process and understand price information when I update charts by hand in ways above and beyond the basic visual nature of ‘looking’ at a price chart on a screen or a printed chart in a book or magazine.
I knew from day one that trading was based on using tools that you mastered, just as my father was a great welder because he had mastered his brazing and cutting torches after fifty years of being a welder.
So to me, being a good trader meant finding tools that fit your style and temperament, mastering them and then having the discipline to stay with those tools. And equally if not more important: Know your own strengths and weaknesses and master them. Money management has never been a ‘sexy’ topic, but the best traders I know will agree, it’s at the heart of their trading and their success. I was lucky! I somehow understood the importance of solid money management and discipline when I first began trading and made them as important as the tools I chose to embrace and master.
StockTickr: Describe your style of trading. How long do you typically hold positions?
Tim: I embrace two styles of trading: When I am in one of my trading offices and know I will have uninterrupted blocks of time, I do watch the markets and make trades that will be liquidated that same day. The length of those trades average 2-4 hours per trade – though when I have a loser, I am generally stopped out almost immediately. I also ‘portfolio trade’ cash FOREX, futures and stocks. These trades are based on my hand drawn charts (daily, weekly and monthly bars) and generally have a holding period of about 6-8 weeks, although some of them last as long as 12-18 months.
I generally identify a bias in a particular market or sector and then hone in on an area of particular charts that I see as likely high probability entry areas if price pulls back from a rally and I am bullish or rallies back to resistance if I am bearish. My main tools revolve around Median Lines or Pitchforks and the various tools I have refined or invented to work with them. I also look at Fibonacci retracement and projection areas, because these areas work well with Pitchforks and because so many market participants are also using these levels for entry or stop orders. If the rest of the market is looking at a particular level, I always like to identify it and try to use it for my advantage (for example, hiding buy stop orders above sell orders that Fib-based traders likely have resting in the market).
StockTickr: Do you see record keeping as an essential part of trading well?
Tim: I am a meticulous record keeper. I keep a trading journal religiously. I always capture an image of a trade entry, some images as the trade plays out and an image of the trade exit and I’ve been doing that since the advent of the personal computer, so I have hundreds of thousands of images of my various trades over the years and have actually had them put into a database and sorted by entry set up and exit categories, so I can do statistical analysis on the various trade set ups and exit strategies I use. Humans are basically visual creatures and they tend to remember what they wish to remember – so looking at your actual results in the cold hard light of statistical analysis is often eye opening.
StockTickr: What 3 books do you recommend traders read? (Note: here’s a good summary of what all interviewees recommend.)
Tim: Well, these won’t be particularly popular and they may be out of print. They aren’t about flashy new computer-derived indicators, but I read them and re-read, especially if I find my trading has gotten a bit frayed:
1. Amos Hostetter; A Successful Speculator’s Approach to Commodity Trading by Morris Markovitz
2. Viewpoints of a Commodity Trader by Roy W. Longstreet
3. Fibonacci Trading Course: Money Management and Trend Analysis By Joe Dinapoli
The last item is actually a set of cassette tapes of a lecture given by Joe. I have listened to these tapes so many times in the car, because his explanation of money management is so lucid, that I have replaced the cassette set three times—Joe is a good friend and he always laughs when I admit this.
StockTickr: What % of your portfolio do you risk with each trade? Do you think most traders risk too much or too little with each trade?
Tim: I generally risk about one percent of my capital on each trade and more important, at any one time, I never have more than 20 percent of my portfolio at risk. If a disastrous event takes place, as it did in 2001, it is impossible to know whether ‘normal’ correlations between positions will remain the same, so I always assume that all open positions would move against me when calculating risk.
StockTickr: What technical indicators could you not live without?
- Median Lines (or Pitchforks)
- Action-Reaction Lines
- Tests of prior tops and tests of prior bottoms
- Fibonacci expansions and retracement levels.
StockTickr: What is the most common but easily correctable mistake you see traders make?
Tim: Over trading and using too much leverage—which are generally related in most traders having trouble staying profitable.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Tim: The stock indices have contracted in range and risk reward since the advent of decimalization. I had to identify markets, like the NASDAQ futures, no longer have large enough ranges during a trading day for me to bother trading them intraday using my methods.
I have been bullish on commodities for the past four or five years, so I expected these markets and the stocks in these sectors would begin to trend and just as important, I expected that their volatility would increase dramatically. That meant that I had to be very careful about relying on measures of historic volatility when determining position sizes and stop loss levels.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
Tim: I am a discretionary trader that trades systematically. That means I look for repeatable trade set ups that are familiar to me: I know the probabilities of outcome associated with the trade entries I employ, as well as the various exit methods I use. So I do rigorous statistical testing of all my existing methods on a regular basis and any time I THINK I see a new type of set up or opportunity, I first log a large number of these ‘events’ and study their outcome. I don’t put my own money on the line until I am confident I understand the probabilities and outcomes.
StockTickr: What advice can you offer traders who are just starting out?
Tim: Trading is hard work. I have been trading for nearly 35 years. When I head to the trading room, I call it, “Time to make the donuts” – and a close friend of mine that is probably one of the finest traders in the world calls it, “Time to slice sausage.” What we both mean is that trading is about finding a way to take small chunks of money out of the market, over and over again. Once you find your own method and master it, it isn’t terribly exciting. It’s work.
I am not a gambler and I don’t feed on the thrill and excitement that gamblers feed on or crave. Trading, to me, is the same as welding was for my father. It’s what I do; it’s what I am as a professional. Once beginning traders become profitable, they often think that they’ve just earned some degree that allows them to trade ANYTHING and trade MUCH larger. Or they think they can now add all the new indicators sold and touted in the trading magazines to their charts, because now they are a ‘trader.’ The truth is much simpler: Once you learn to trade profitably on a regular basis, you just continue to do what you are doing, over and over. You adjust when you have to, but once you find your niche, exploit it as long as it exists.
StockTickr: What do you like best about trading?
Tim: I am at a place where many traders never reach: I can trade when I want to, or teach other traders about trading, or take a break and enjoy time off with my 7 and 9 year old and my wife. I enjoy that freedom, certainly.
But trading is a very special profession: At the end of the day, you are your own boss. You know how you performed that day. There is no subjectivity in trading performance: You made money or lost money. As I became a more mature trader, I began to be able to analyze the day’s results quickly without attaching any positive or negative emotions to the bottom line. If I have a winning day, that’s fine. Tomorrow’s another day to trade. If I have a losing day, my concern is not that I lost money – all traders have losing days and losing streaks – but instead, I always do a self-check to make certain I didn’t violate one of my trading rules or that I am ‘ragged’ and need a break from trading to restore my self-being. If it was simply a losing day because losing trades happen to al traders, tomorrow’s another day to trade.
StockTickr: Thanks for taking the time for this, Tim.
Tim: Sure, Dave!
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Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
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Do you have suggestions for other traders you’d like to see an interview with? Let us know!