Me as a trader
I have supported my family and built my net worth as a commodity trader since 1975. It took me until late 1979 to become profitable, but I have been so ever since with four losing years along the way (avg. losing year was -6.83%, worst losing year was -13.65% and last losing year was 2013). I only comment publicly on years that have been audited and reconciled against IRS tax returns and brokerage statements. Eighteen years have been audited with an average ROR of 42%.
Swing trading
Futures markets are my focus. I am a classical chart trader based on the writings of Richard W. Schabacker, published in 1934.
As a swing trader, my sweet spot is horizontal patterns (right angled triangles, rectangles, pennants, H&S patterns, Cup and Handles) that are eight to 16 weeks in duration with a price range less than 20% of the value of the underlying asset.
I trade breakouts, preferring continuation patterns over reversal patterns. I have no interest in picking tops or bottoms, instead being more than comfortable trading price thrusts in the middle of a trend.
For me it is all about price and price alone. Volume and indicators play little to no role in my decision making. I trade price, so I study price. After you have been profitable for as many years as me I will be more than willing to hear your views. Traders need to do what works for them.
Of the 35 or so markets I monitor, I find that on average each market might yield two, maybe three, quality trading signals each year. If three, I feel fortunate to catch one. If two, I am happy catching just one. I usually have to try a pattern twice to catch the move that gains traction. But I am alright with losers. It is all about probability theory. It's all about bottom line.
I have attached a chart of Gold futures, noting in green the classical patterns I traded in recent years.
The centrality of risk management
My entire obsession is on risk and trade management. I have found that what I do with a trade is much more important than the trade itself. The profits are found in getting out of trades, not getting into them.
As a general rule, I risk less about 70 basis points (7/10th of 1%) on each of about 150 trades I do each year. While I do not calculate Reward-to-Risk, on average I would say my trades entered run about 4:1 R:r. In my trading tactics Risk/Reward are somewhat irrelevant because I use what I define as "Active and Aggressive" trade management protocol. My job as a trader is singular -- I must manage losses and then allow for winners to take care of themselves.
I do not add to losers. I do not pyramid. I do not day trade. I always use GTC open order stops. I turn off my chart program during the day and find other things to do (such as post on X). I do not obsess over losers. I prefer being short to being long. I do not hold dogmatic views of markets. I try to be Bayesian and agnostic on all things dealing with markets.
I am usually out of losing trades within a week at the longest. As a rule I cover all trades showing a loss on Fridays. My average winner lasts a couple of weeks. My most important profitable trades can last a couple of months.
Rules based trading
I am highly rules bases, trusting in process more than trusting in my day-to-day discretionary judgement that can get weighed down by undependable human emotions. My energy goes toward making every order entered captive to my rules.
My rules make accommodations for winning trades to grow. My goal is to take profits at predetermined targets but my rules also do not allow for profitable trades to reverse all the way back to the starting points. To accomplish this I do rely on a few specific structures of price bars and on a simple 8-day moving average.
Vilfredo Pareto and the math behind trading
Along my journey I found a fondness for the 19th Century Italian philosopher and economist Vilfredo Pareto. The Pareto 80/20 Rule has enormous implications for market speculation. About 85% of my profits year-after-year-after year come from 15% of my trades. I calculate this every year. And I am not alone. Nearly every successful trader I have met over the years has trading results subject to the Pareto Principle. So, my bottom line and that of other career trades comes from one-seventh of my trades.
My challenge as a trader is to not cut short the one in seven trades that keep trending while not allowing the other six of every seven trades to slice into the net profits. In reality, while 15% of my trades deliver my company's profits, 45% of trades lose money and 40% of the trades are gains not even worth mentioning again.
After trading much the same way for decades, trading outcomes pretty much come down to an exercise in math. A number of years ago I developed a Monte Carlo simulator containing more than 500,000 cells with formula. The math behind trading is simply fascinating.
Unpredictability
I never know from year to year or even month to month what trades will deliver the goods. Often the trades in which I hold the highest hope become the biggest dogs while trades put on by rules without my bias then deliver the best outcomes.
To be successful in the markets a trader must become numb to small losses. Losses are a reality on the road to profitability. A trading loss is not a declaration of my skill or intellect. A loss is a datum point in a series of data subject to random probability theory. That is all a trade is. So, don't take your trades personal is my message to you.
The Factor Service
My overwhelmingly main source of income is from my company's trading account. The capital in the company's trading account is all mine -- 100%. But I am not a one-man band. Factor LLC pays bills for four families. So, my company delivers via email and social media a running commentary on all the trades I do (the performance of which is published monthly,. the details of which are issued quarterly).
Seldom on X do I hawk the very reasonably priced service Factor LLC provides to institutional and large speculative trading operations. But I am unabashed to do so. At Factor LLC we look at it this way -- if we can provide one really good trading idea per year, our service is worth the few hundred dollars it cost.
My only contribution to this service is my running commentary on my trades. The details and delivery of the service are done my company staff. Check it out if you want. I am not providing a link -- if you cannot figure out how to sign up then we don't want you as part of the community.
Final comments
If you seriously want to trade then figure it out for yourself. The road to anyone's successful life as a trader is filled with the fixes -- large and small -- they had to figure out for themselves. Trading is basically an endeavor in problem solving. If you love to solve problems and get through the first three to five years committed to avoiding any loss greater than 35 basis points, then you stand a really good chance of making it as a trader. And when you do, then you will need to decide the "what's next" question. Do you keep trading? Do you find a way to scale up? Do you go start non-profits like I did for 11 years? Do you become a venture capitalist and do start-ups? The decision will be yours.
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