How did you get into trading?
I needed money. I had limited savings having spent an adventurous youth knocking around the outback of Australia. The traditional path to wealth in Australia is to buy a house. We did not have enough for a deposit on a house, let alone a loan. So how do you make your money grow? The market gives this opportunity.
It was trial and error. I was fortunate because I had no access to fundamental or news information. I was living in the outback. I had to rely on understanding price activity alone. To survive it was necessary to make sure that my risk was limited. I found that risk in not limited by your choice – before you trade – but by your action after the trade is open.
I traded with limited capital. I traded blue chips and speculative stocks. What is important is the nature of the opportunity, not some classification of blue chip or speculative share.
What do you trade? Why?
I trade opportunity and opportunity is not limited by a class or location of stock. I trade Australia, Singapore, Hong Kong, Malaysia and China. I trade stocks, derivatives and futures.
The nature of the opportunity defines the time frame and this is defined by the market conditions. When markets become unstable, I shift to short-term trades and different trading instruments. In stable trending markets, I shift to longer-term trend trades because this is the most efficient use of capital with the lowest risk.
What were some of the mistakes you made when starting out?
The biggest mistake was not understanding the concept of stop loss and the relationship between trading capital and individual trades. I did not know how to use and apply the 2% rule. The second largest mistake is believing that I could be Warren Buffet and emulate the behavior of the funds and institutions. Their methods are simply unsuitable for private traders. The learning curve is much the same for all of us and it is continuation. You never reach mastery of the market. There are always new conditions, new products, new instruments so there is a constant challenge to develop trading skills. I talk with other traders and read books about trading. My objective is to learn how to recognise mistakes when I make them so I can quickly take the appropriate action.
What are some of your golden rules?
Humility in the market. It is not us AGAINST the market, it is us WITH the market. Mental agility, discipline and risk management are essential. A willingness to appreciate the new and discard old ways of thinking is vital. Understand that the market is our own thinking multiplied thousands of times so the market is about human behaviour and expectations – not accounting reports.
How did you become an educator?
Initially in response to requests from readers of my book and organisations like the Australian Stock Exchange. I am opposed to the idea that success is only possible through specialist, and protected, knowledge. My aim has been to show what is possible for ordinary people who are prepared to put in a bit of time and approach the market with an open mind. The market gives you an opportunity to control your financial destiny and, despite what brokers will tell you, the entry price is very low.
I read and read and read. I also write, which helps me to refine my ideas. I teach and this exposes my ideas to criticisms, and challenges. This improves my understanding, my analysis and my trading.
Many people helped me to develop success because they shared their ideas in books. It is appropriate that I also share ideas so that others can learn and develop success.
Do you think the everyday person on the street has a chance – can they become successful traders?
My philosophy is that trading is a skill that can be developed by anybody. Success in the market is not, and should not, be a secret. The market is not a closed and exclusive club. I am proud to have been involved in breaking down the doors of market exclusivity. The market is about equal opportunity and the opportunity is grasped through education. I have no time for those who pretend there are ‘secrets’ and demand they be paid high fees and commissions for these secrets. Knowledge is power and my intention is to transfer that knowledge to others so they can decide for themselves if they want to use it. It’s a foundation of my work in Australia and a primary driver of my work in China.
What do you wish you could have known when you started?
The most important understanding is that the market is not about buying a business. The market is not about predicting the future. The market is about benefiting from price behaviour so success comes from understanding price behaviour and its drivers. From this position is a short step to appreciating that risk management is most effectively defined by specific price multiples and calculations. These understandings develop over time, they do not come as a sudden realisation. There is always so much to learn from the experience of others.
What’s the number one thing traders can do to improve their performance?
Understand that success does not rely on you being first to discover an opportunity. Success comes from recognising high probability situations and trading them with tight risk management.