Trading Simply

TraderInterviews.com recently interviewed Dick Diamond, who has been trading his own account for 35 years.   I don’t know if his interview provides me or you with any insight but I’ll post the notes anyway.  Here are his trade characteristics:

• a very simple trader
• uses only technical analysis and a combination of 5 or 6 indicators (MACD, channel index, ergodic)  
• uses the 1-minute or 5-minute charts 
• only trades the S&P e-mini futures
• will go long if at least two of the indicators move from negative to positive and short if at least two of the indicators move from positive to negative
• stays very emotionally disciplined
• never trades more than 10 contracts at a time, makes 2-3 trades a day, and only has 1 position open at a time
• enters trades based on TA but exits on his gut
• doesn’t care about fundamental news but won’t take a position before a big announcement

Popularity: 3%

Pick Forex Trades Throwing Darts

I listened to an intriguing interview of forex/equity trader, Avery Horton on Trader Interviews yesterday and wanted to summarize some of what I heard.

Avery Horton, who has a Computer Science degree (like myself) is a self-taught trader who has been day trading since 2002.  He strongly believes that traders should not use lagging indicators.  In fact, he says that a better method would be the following:

1. Take any chart printout and pin it on the wall.
2. Walk back six feet from wall.
3. Throw a dart.
4. Draw a horizontal line where the dart hit. 
5. Go long if the price goes up to the line.
6. Go short if the price goes down to the line.

This would be an interesting approach.  Horton states that he is not a fundamental or technical analysis trader, but a statistical trader.   For instance, based on his studies, he feels like more often than not, if Apple stock (AAPL) moves a dime off the open, chances are that it's going to go up 50 cents more during the day.  He calls this milking the cow.  

He also believes that you would benefit most by trading 1 stock or 1 currency pair.

His Forex trading approach simply entails drawing horizontal lines to indicate a buy or sell zone.  Every hour he resets the buy/sell zones.  His real world example was trading the USD/JPY, where the pair opened at 108.53 at 10 o'clock.  He set his buy zone at 108.56 and his sell zone at 108.50.  108.50 was hit first and he took a short trade.  The pair declined to 108.41 and he was happy with the 9 pips he obtained in less than an hour.  He says if you net 4 pips an hour, you're rich.

Horton doesn't believe in traditional backtesting because he feels tick by tick data is needed.  He runs statistics instead.  One statistical example would be to find a stock that has an 80% chance of gaining 50 cents if it increases by 10 cents at the open.  In a specific example, he found that over the past 100 days, Apple (AAPL) has gone up a dollar or more from open to high 70 times.  He does a lot of stock screening looking for statistical advantages.

Popularity: 3%