Trading as a Journey
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Transcript Trading as a Journey
Evolve or Die !
Simon Townshend
9th March 2011
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Setting the scene…
After more than a decade scalping S&Ps, one day I just quit !
I moved from 1 minute to daily charts, and never looked back
Today is about what I did and why…
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Here’s the “Why”…
Someone who thinks he/she has finally reached the goal of
trading success, is merely waiting for disappointment
As the markets evolve over time, they move ever further away
from a stationary trader, whose edge is slowly eroded
Long-term trading success only comes to those whose trading
tactics are honed as the markets evolve, so success is a never
ending journey and not a final destination
Note: trading tactics, not trading strategy!
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Topics for today
Who is Simon Townshend?
My philosophy of trading
Strategy vs. tactics
KISS trading
Market and trader evolution
Example – my own evolution
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
M
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My background (3 careers!)
Engineering:
1st class honours / Masters degree from London University
Skills – lateral thinking, analysis and discipline
Management consultancy:
1987 killed any investment careers so “go do something else!”
Skills – working with incomplete data, business context to trading
Trading (the first 3 decades!):
1980’s stocks – funded university life
1990’s futures & options – learnt about equity swings!
2000’s primarily S&P scalping – averaged ~ 50% per year
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Today
Head trader for a private fund
Originally S&P scalping – highly intensive, high pressure, high volume
Evolved into longer term swing trading in 36 markets – what a relief!
Long term FuturePath client – must have the right team around you
Signal service
Small group of professional traders
Training / Speaking events
Major new project for later in 2011 – Cloning 4 more me’s!
Los Angeles June 25th – with Jeff Quinto and George Kleinman
Free newsletter at www.Simon-Townshend.com
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Philosophy of trading (6 key principles)
Forget the future:
Nobody knows what the future holds, so just forget about it
Trade in the present, take best shots and manage positions well
Trade off fact not fiction:
Eliminate computer clutter, it only creates internal argument
There are NO leading indicators, they only serve to confuse
Learn to observe and react to what actually happens
Clarity of decision making:
Simplicity of both strategy and tactics
Take offline every decision possible
Make all decisions digital not shades of grey
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Philosophy of trading, continued
Markets are all the same:
A good strategy will survive in all markets and all timeframes
But seek the best environments to apply it and it will thrive
Don’t confuse buying & selling with supply & demand:
Price charts show what buying and selling HAS happened
Supply and demand determines what happens NEXT
There is no hurry:
Be slow to adapt and slow to adopt
Be even slower to increase leverage
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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Strategy vs. tactics
Businesses have strategic plans & tactical (implementation) plans
Strategic plans are set and are largely fixed
Tactical plans change with the changing environment
Trading is a business – yet strategy and tactics are often confused
We all talk about our “trading strategy” but for today try to
separate these – in my view of the world these are very different
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Your strategic model
Has nothing to do with entering or exiting the market
It is a model that describes how you believe markets move
It should be simple, logical and stand up to peer scrutiny
You should be able to write it out in 1-3 pages
Yet 90% of your effort goes into this – get this bit right!
It must belong to you, you must believe it and trust it
My own model breaks all market movement into 6 phases
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Your tactical trading plan
Neatly flows from the overall strategy as a logical overlay
It defines how you capitalise on your strategic model
It contains:
Trade setups
Separate entry triggers
Risk / reward filters
Exit and management rules (the hardest bit…I’ll give you mine)
Your tactical trading plan may contain ~ 1 page per setup
It can and should evolve over time, where the strategy does not
I have 6 trade setups to mirror 6 phases in my own strategy
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A common question
“Can’t you just teach me one of your setups Simon?”
I could but it would be meaningless without the right context
Whereas if you understand the strategic model, the setups are
just plain obvious (KISS approach)
Which is why I can scan 36 markets for trades in 15 mins per day!
So don’t focus on setups, focus on understanding how the
markets actually move
Which will also help to move you away from indicators!
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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My KISS trading approach
Use a price chart only (no clutter)
Use a fixed unit size (digital decision)
Identify the current market phase from the strategic model
Watch for the one setup that could potentially form
If the setup does form, then:
Identify the initial risk point and potential exit points
Qualify the setup based on risk/reward filter
Wait for an entry trigger
If it triggers enter, or if any of the above criteria rule it out pass
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Trade management (for all 6 setups)
Initial stop is based on chart (typically 1.5 ATRs)
I use 3 exits of 1/3rd each and a specific reason for each:
First target:
Many losers still achieve this
During the initial impulse, approx equal to initial risk
Stop tightened to 50% of initial risk or less
Eliminates all the risk quickly, still leaving bulk of the position in play
Second target:
Try to ride initial impulse to its end, approx twice initial risk
Stop to breakeven or better by this time
Third exit (requires great patience!):
Await the first retracement after initial impulse to trail stop
Always trail stop, some have a third target (only variation between setups)
The trade is already a success, this may be a lottery ticket !
Time stop = 4 bars maximum
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Market evolution
Markets constantly evolve over time:
Volatility changes
Daily ranges change
Volume changes
Participants change
Markets come in and out of favour
There are long term trends, short term trends and plenty of chop too!
However crowd psychology does NOT change
Which is why your strategic plan does not change
But in a changing environment you have to make tactical changes
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Trader evolution
There is only one you and also you cannot stockpile time
Therefore apply your time where is can be most fruitful!
The evolutionary choices are simple:
Slowly adjust the tactical plan to better suit the new environment
Change your timeframe to be better aligned with activity levels
Change your chosen market(s)
Possibly a combination of the above
The right choice will vary from trader to trader, but:
Markets constantly evolve AWAY from stationary traders!!!
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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My own evolution
100%
Over recent years my
S&P scalping delivered
poorer annual returns…
The choice was to evolve
or just watch the market
move further and further
away from me?
80%
60%
40%
20%
I felt that the S&P was
just going through an
untradeable period and
tried something VERY
different
0%
1
2
3
4
5
6
7
-20%
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Something VERY Different
But also something exactly the same…
The Strategy did not change
To a large extent the Tactical plan did not even change
The honing was simply applying it to a more friendly environment:
Different markets (36 instead of 1) and
A MUCH longer timeframe (Daily instead of 1 min)
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You are welcome to the S&P !
Cumulative P/L @ 1% Risk
160%
Went live in March 2009
applied to daily charts of 36
markets, on small size
The results have been
better than I had hoped for
and it is SO much easier
140%
120%
100%
80%
60%
Conclusion – the strategy
remains as robust as ever,
the trick is just applying it
in a friendly environment
40%
20%
1
14
27
40
53
66
79
92
105
118
131
144
157
170
183
196
209
0%
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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A few tactical considerations
Overnight risk – yes but much smaller trade size
But far fewer trades – each one feels more important than it is
Stops – worked 24 hours
Slippage – only use the best platforms – Photon, CQG Trader
Costs – minimal data fees, brokerage etc.
Reports – don’t worry too much, you are outside the noise
Limit moves – so far all our way, but one day we’ll get unlucky!
Free time! – this is another world to 1 min scalping
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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The transition process
Research – take time to think everything through thoroughly
Tactical trading plan – write it and test its logic with a buddy
Paper trade – to get the feel for the unfamiliar new world
Trade small – to get the feel of yourself / your discipline
Scale up – slowly (I’m still working on this)
Review progress – with a buddy, partner, mentor etc.
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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A typical day
Day starts at 8:30pm (2:30pm CST)
8:30pm – check 36 markets for possible new trades
8:45pm – check filters / trigger & adjustments to open positions
9:00pm – publish to the team and place own orders
Day ends at 9:00pm !
Spend the rest of the day doing other things:
Check open positions every few hours
Hourly trades – more recent development
Research, training, etc.
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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I love longer
term trading
Evolve or Die !
Simon Townshend
9th March 2011
Copyright 2011 © Simon Townshend Ltd. All rights reserved.
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