For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Corey Rosenbloom of the Afraid to Trade blog. Corey has a background in psychology and touches on those topics on his site. Trading psychology is a popular theme in the interview series (see the interviews with Van K. Tharp and Brett Steenbarger).
Read on for more about how Corey trades, how trading is a balancing act, and a couple light-bulb moments for his trading.
(Corey mentions that he’s a TradeStation user – StockTickr has recently added excellent support for TradeStation.)
StockTickr: Tell us a little about yourself, Corey.
Corey: My name is Corey Rosenbloom, and I’m a stock market addict! Seriously though, I grew up in north Alabama and currently live in Huntsville, AL, known as the “Rocket City.” I entered college intending to become a psychologist, and became very active on campus and also became a student teacher for psychological statistics. I also became fascinated with politics, and picked up a double-major in Psychology and Political Science, and completed my Masters in Public Affairs with a Business minor not too long ago. I was able to do a little work in DC at that time as well.
While in grad school, I worked as a college recruiter full-time, which allowed me travel about the South and North East and allowed me to meet a wide variety of people. I was also able to develop my passion in the stock market during my free-time as well, trading during the summer, when the workload was very light.
Currently, I trade my own accounts along with a family account, and provide education and analysis through the Afraid to Trade blog and my consulting and educational mentorship opportunities.
StockTickr: How did you get started trading stocks?
Corey: I can’t remember not being interested in the stock market as a hobby, and my team won a high school stock market contest which further deepened my interest. I can remember being fascinated with the “short-side” of the market, and the possibility of making money when the market declined. Not long after that, I met with the family financial adviser and began long-term investing in mutual funds selected by the advisor. I initially approached investing from a fundamental perspective, looking at valuations, P/E ratios, growth trends, etc and did relatively well until the 2001-2003 bear market.
I then began to delve more heavily into the educational side of trading and investing, discovering technical analysis, and I remember being absolutely fascinated by that new concept. I began shifting my approach to technical swing-trading using momentum stocks around 2003, and I thought I had it all figured out and I was about to quit my day-job and switch to a Business Masters program and trade my way to easy financial fortunes! I couldn’t figure out why more people weren’t interested in this. A little learning is a very dangerous thing in the markets! I got a group of friends together and we started analyzing charts nightly and trading 1,000 shares of these lower-priced stocks as both day and swing trades.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Corey: Yes, and my horror story made me who I am today, though I had no idea at the time it would have that effect. My little group of friends had helped me trade my account up 25% in about two months. Thinking I was invincible, and thinking I had a sure-fire stock that was going to double from $12 to over $25 within the next few weeks, I doubled my normal 1,000 share position and bought 2,000 shares on margin for the first time and ø you guessed it ø my sure-fire idea blew up in my face. I bought on a Friday, suffered a $3 decline that day ($6,000 – a small sum in retrospect) and agonized mentally the whole weekend, questioned my reason for existence (very overdramatic) and finally closed out the trade the next week after blowing about 60% of my (admittedly small) account. The trade cut to the core of my identity and dreams, which was much worse than the financial loss. Of course it was money I couldn’t afford to lose! What else do newer traders use? So I swore off trading and decided to be a “buy and holder” because my financial advisor had no sympathy for my trading loss.
That lasted about four months. My passion for trading wouldn’t die that easily, and I chose to approach the financial markets and trading from an academic standpoint, and decided to learn everything I could about the markets (this is similar to the pathway described by Mark Douglas in Trading in the Zone). I attended conferences, bought educational courses, read blogs, and paper traded for the next year or so (including a minor stint at options trading) to get myself prepared like a professional. I shifted my focus from seeing trading as a way to build instant wealth towards a more professional, business-like, career path that would develop over time. Of course, education alone does not make you a good trader, but that was a very difficult lesson for me to learn because academic success always came naturally to me and I expected the market to be the same.
StockTickr: Do you trade for a living now?
Corey: I do as an independent trader, but not all of my monthly income is exclusively from trading any longer. I began trading full time in late 2006 after trading part time since 2002. All of my income is market related (whether by analysis or education), which has taken the pressure off paying the monthly bills with trading profits alone like I had experienced for over a year. It’s really no fun not knowing whether you’ll make your monthly expenses or not. In trading, sometimes you don’t, and there were a couple of months in a row early on where I didn’t. We trade much more conservatively when the pressure’s on, I’ve found, and I’m already a naturally conservative trader by personality.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Corey: While I’d love to discuss 100 lessons, I would point to three “A-Ha” moments in my education as a trader. First, was learning the classic price principles as explained by Linda Raschke (which are actually principles from Charles Dow, Richard Schabacker, Richard Wycoff, and other “Fathers of Technical Analysis.”) Those guide me in every trade I take or every market I analyze.
Second, I discovered the concept of Sector Rotation through Toni Turner, Dr. Peter Navarro, and Martin Pring. I also learned of Inter-Market Analysis concepts from Pring and John Murphy. Those really allowed me to organize or structure the market from a feasible perspective, and break it down into related, manageable components. I would point to this discovery as my major “light-bulb” moment.
Third is the psychological insights from Dr. Brett Steenbarger and Mark Douglas. Due to my background in psychology and research, I related well to what Dr. Steenbarger teaches in his blog and book Enhancing Trader Performance. The way Mark Douglas presents the evolution of a trader and describes how fear develops and how to restructure your thinking to put yourself more in line with market truths (in both The Disciplined Trader and Trading in the Zone) revolutionized the way I took on risk and traded.
StockTickr: Describe your style of trading. How long do you typically hold stocks?
Corey: I actually trade two different styles in my accounts. I stay on a slightly larger time frame trading sector and ETF trends according to the Sector Rotation Model that can go on for a month or more, but I’ve been shifting more towards intraday futures trading, specifically the Dow-Mini contract, ever since the market picked up in volatility. The math of the Dow Jones Index and the Dow-Mini contract make more sense to me intuitively, and so I almost exclusively trade either that contract or the DIA (Diamonds) Exchange Traded Fund for these types of trades.
The majority of my trades are now taken using classical analysis techniques, price principles, and momentum principles. I utilize the 20, 50, and 200 period moving averages as well as identify swing highs/lows and other price projection targets through patterns or projected swings. I also identify momentum divergences or momentum bursts (impulses) for trade set-ups and risk management.
If I trade individual stocks, (I mainly focus on ETFs) I focus on a top-down approach beginning with the market, drilling down to strong sectors/industries, and then focusing on key stocks with strong fundamentals. I still can’t shake my early affinity for confirmation through fundamental strength.
I’ll typically trade two to five times per day, focusing on the morning session, and will hold a trade for 30 minutes to two hours if need be. Strangely, despite all my knowledge I’ve learned, what’s made me the most money these last few months has been simple gap fade trades and classic bull and bear flag continuation patterns.
StockTickr: What’s your exit strategy for winning and losing trades?
Corey: I’ll focus this on the intraday futures trades. Each trade I take has a specific price target and stop-loss level built into the pattern itself. I limit myself to a handful of set-ups, including divergence trades, the “Impulse Buy” and “Impulse Sell” trades, gap fade, pattern break (usually a consolidation triangle), or the “Sweet Spot” Trend Confirmation Zone. I know my risk and what to expect for each trade (if it’s working or not) and I try to overrule my conservative nature to exit a trade before it hits either my target or its stop if I’m feeling anxious. Generally, I play for small, high probability targets and rarely if ever trail a stop for an exit. I utilize time stops on most of my trades as needed, because most of my trade set-ups either work right away or the original reason for entry slowly dims.
StockTickr: What 3 books do you recommend traders read?
Corey: Edwards and Magee’s Technical Analysis of Stock Trends (vol 9) is an absolute must.
Dr. Brett Steenbarger’s Enhancing Trader Performance helps you burst some of the prevailing myths about trading and gives you a set of goals and exercises to improve your evolution as a trader.
StockTickr: Other than your own, what are your 3 favorite blogs?
Corey: Oh gosh I really hate to choose since there are some stellar blogs out there, but I always read Dr. Steenbarger’s TraderFeed because his focus is similar to mine and his insights are top-notch.
Dr. Bruce Hong’s Trader Psychology blog is up there for the same reason, though Dr. Hong delves deeper into the clinical side of emotions and psychology.
I always check TraderMike’s and Charles Kirk’s links, and analysis from the Big Picture. I really can’t list my top three since there are about a dozen that I haven’t mentioned that I would love to place in my top three. That’s probably the hardest question I’ll have to answer! Answering a question about my Sharpe Ratio or some other trading statistics would be easier!
StockTickr: Do you keep a trade log and how important is that to your success?
Corey: I keep logs of my swing and longer term trades, due to the work that goes into selecting them and the variables that influence the trade, but I don’t do as much logging for my day trades as I used to. One thing I try to do is write each intraday chart for the DIA on the 5-minute and 15-minute chart and highlight what I consider the “Ideal Trades” and then compare where my trades occurred (fills, stops, targets) in the backdrop of hindsight. Each day, I get better and seeing where my actual trades fell on an “idealized scale” helps build visual pattern recognition and experience. I often post these “Idealized Trades of the Day” on the blog for all readers to see, but I keep my trade logs online. I no longer do extensive Excel charts and extensive statistics on the data from my intraday trades because I learn and improve visually, rather than seeing numbers and deep statistics.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Corey: I’ve been charting since 2002 and have seen wild volatile down markets turn into flat, creeping up markets, to a large bull market and now we’re seeing large volatility moves (including 400 point Dow days) both up and down. The market of early 2008 is more difficult than the past because I think we all were lulled into more stable markets and are having to re-think our trading and reduce size (for most of us) as the markets pick up volatility, where 100 point Dow days are actually normal, rather than shocking.
For me, I scale down position size during volatile times, and try to increase size as I build successful trades in flatter, more stable times when I’m aligned better with the market. Also, I’ve been forced to place stops further away from my entries, which has been psychologically difficult for me because I love to hone-in on low risk, high reward trades, which means my stop is often very near a zone that I believe will be an inflection (or reversal) zone. A large number of stops taken followed by the reversal I expected have forced me to reduce size and place stops further away from entry on virtually all of my trades. Iøve also switched from comfortable swing trading to more aggressive intraday trading, and Iøm feeling most confident recently in the shorter time frames.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
Corey: I use TradeStation, which allows a whole host of opportunities to create, program, and test your own strategy, and once I got the software, I spent days and weeks testing out virtually every parameter I could. It was so exciting to me. However, at the end of the month, I had all these strategies that seemed to work and when I tried to put them together, the aggregate system became untenable. I eventually settled for the simple principles of price behavior and edge development through risk management. I went back to the basics from the “Fathers of Technical Analysis” and began to study and test simple strategies and to my surprise, they worked better (for me) than complex, multi-filter systems. Prior to TradeStation, I also would print out 50 or so charts each evening and hand-annotate them based on what I thought the indicators were saying. That experience ø hand annotation of thousands of charts – helped instill price patterns to a more intuitive part of me that helps me to this day. While I don’t print out that many charts anymore, I do annotate many charts for students, and teaching has caused me to understand deeply the concepts of trading, edge, risk management, trade setups, and the like. I am purely a discretionary trader, and I adjust my approach based on monthly analysis of trading results and stay with the strategies I’ve learned and developed over the years. I occasionally test out new ideas, but I’ve learned to focus on a handful of set-ups and strategies, rather than trying to find the ideal or perfect one.
StockTickr: What advice can you offer traders who are just starting out?
Corey: Trading is so much harder than you’ll ever imagine, and ø contrary to what you might think – it is NOT an effective “get rich quick” scheme. No matter how easy it looks, it’s not until you endure a trial by fire. It may be controversial to say, but I really think a “forced awakening” or a major negative realization such as a significant loss to shake you to the core helps you more than anything on your journey to become a trader.
If I had to sum it up in one word, I would say trading is about balance – between greed and fear; between overtrading and undertrading; between too many indicators and not enough; between watching too many stocks/markets and not enough; between watching too much news/reports and not enough; between reading too many trading books and not enough; and between so much more. It’s so easy to get scared by trading, due to the difficulties and the mental games we play when real money is on the line and we’re losing it. Also, the markets are not as predictable as you might assume, so success really comes down more to managing your risk, rather than excellence at trade selection or prediction.
Honestly, know that there’s a steep learning curve, practice in simulation mode, train your eye to spot patterns, and focus on fewer set-ups (or indicators) rather than more later on. Master what you know before branching out into something new. I seriously believe that if you can master a simple pattern like a bull or bear flag and focus just on it, you can do better as a newer trader than if you tried to learn everything at once and be a master of it all. Give yourself time and let yourself make mistakes and learn from them, rather than agonize over them.
StockTickr: What do you like best about trading?
Corey: I know it’s cliche, but I love the challenge, the mental gymnastics we do, and the results that occur instantly (whether good or bad) from our activities. No other business is like that. I like the interplay between markets, and trying to figure out how a development or trend-change in one market will create a cascade effect in others. It’s fun to try to play markets against each other like a big game-board!
Although it’s taken time, I’ve come to view trading as a game of probabilities, which has taken the stress off of my perfectionist “need to be right” tendencies. I try to approach each day with wonder, asking “What will the market do next?” and know how much it will cost (through stop-losses) if my perception of market activity is wrong. I love the academic side of the market, and the strategy development side, and hope to keep a larger picture than the day-to-day grind that we must endure sometimes. I thoroughly enjoy explaining what I’ve learned and what I’ve experienced to people, and watching them have new realizations as they learn new concepts or thoughts they haven’t had before. I love having those realizations myself!
StockTickr: When did you start your blog and what prompted you to do so?
Corey: I kept a private informational website for myself and my family, and I had been reading a few blogs and information sites for about two years prior, but when I first started trading full-time, three or four months went by when I was completely isolated in my home office, watching the market from open to close and then doing testing and more studying outside market hours and it was horrendously lonely. I initially started the blog as a way to formalize my strategies and reach out to others socially while both providing and receiving information. I just celebrated my one year anniversary on March 1st, 2008 (which I consider the official launch of the blog in 2007) and I cannot express how appreciative I am to all the readers and bloggers who have been so supportive of me and the site. It has received far more attention than I ever dreamed possible.
I also felt I had valuable experience, in terms of approaching the market with enthusiasm and idealism, being scared of it terribly, and then slowing gaining more and more confidence as my experience and education grew. I also wanted to reach out to others who had been burned similarly by the market and try to assist their journey to becoming successful traders. I sort of wanted to serve as a net to keep them from leaving totally disillusioned. So many people get so close to figuring it out and then they just give up. While trading certainly isn’t for everyone, it can be learned with effort and hard work, combined with a solid educational foundation, provided you find a market or strategy that lines up with your skills, interests, and talents. I truly believe it is a performance skill that can be developed which has a progression from beginner to novice to proficient to expert to master. I’m hoping to be of help through the blog and upcoming website educational component both to myself (through teaching and mentorship) and others as they progress on the learning cycle from one skill-set to the next.
StockTickr: Thanks, Corey!
Corey: Sure, Dave.
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