March 3rd, 2017 - Issue #866

In This Issue

1. Trader Interview: Peter Davies
2. Hot Market: U.S. T-Bond Market Bears Gain More Power
3. Economic Calendar

1. Top Traders Interview: Peter Davies

Peter Davies Interview with Ilan Levy Mayer

Peter Davies began trading in the mid 2000's. After suffering a 30% drawdown at the hands of 'financial advisers', he decided to manage his own money. Peter eventually settled on Day Trading with a heavy emphasis on Order Flow. A by-product of this process was a set of tools he created to organize Order Flow information in what he thought was a more logical manner. Friends convinced him to take these tools commercial and Jigsaw Trading was born.

Peter trades every day and recently received Journal of the Year from futures.io for his Pre-Market Prep that he posts daily.

JigsawTrading.com

Ilan: Tell us a little bit about your trading background and how you got started trading.

Peter: In the mid 90's I was a self employed IT Consultant and ended up living in Knoxville, TN, then I moved to Netherlands, then Denmark, then Japan and finally Thailand, where I ended up starting up an IT firm servicing the client I worked for in Japan. During this time, I managed to save a lot of money which was just sitting there. I ended up having my portfolio managed by a firm of financial advisors. After 3 years, they had lost 30% of the funds. Basically they got into everything that was hot the year before, a terrible strategy in hindsight. At one point, in a meeting with them, they told me they would get back the losses by leveraging my money. They said that all they needed was a 10% gain and the leverage would mean I recouped my losses. I asked them exactly how they would make that 10% gain and they said to me "Well, anyone can make a 10% gain given enough flexibility". I politely re-determined them that if 'anyone' could make 10%, then they wouldn't have lost 30%. I withdrew all my funds and figured if I was going to lose money, I might as well do it myself rather than paying them to do it for me.

I started out longer term investing but found that hit and miss and while I do still trade on mostly oversold stocks, it was day trading where I found techniques I was really comfortable with.

Ilan: Who were your mentors, and what did you learn from them?

Peter: Being an expat means that if you go to a networking event, you are rubbing shoulders with other expats, most of whom are at the top of their field. I met a lot of Traders from Hong Kong/Singapore who were more than happy to share the way they trade. They weren't giving me entries and exits but rather telling me the sort of trading they did and the data points they were using to make decisions. On trade I met retired at 35 and spent his time heading a team writing barrier options on Forex in Singapore. Another was day-trading stocks on news/earnings events. Others were prop traders, most of them spreading. None of these traders were using the technical analysis techniques I'd been reading about in books. When I mentioned specific indicators, I'd generally get a blank look and a reply of "never heard of it".

I ended up getting trained buy a guy called Richard Joyson and spent a few years trading news/earnings stocks. This was good but a lot of hard work because part of the job is finding out what was likely to make a move on the day. The trader I met doing this in Singapore employed 4 full time researchers doing this for him. A lot of the time, you'd pick out 15-20 stocks before the open and half of them would be flat as they'd put in their move in the pre-market session. I eventually came across the work of John Grady and that was instrumental in me moving to the futures markets. The order flow concepts were the same as stocks but futures moved well every day and so that's where I stayed.

Ilan: At CannonTrading, we give traders the ability to create and back-test trading strategies. How important is back-testing to your trading process? How do you approach this?

Peter:For me - not at all. I am a discretionary trader. I would not trust a computer to do it for me because my trading is too nuanced.

Ilan: There are so many markets to trade today, it can be overwhelming. What markets do you trade?

Peter:eMini S&P500 futures and of late some trading in Crude - but that's very short term.

Ilan: Do you have a preference between day trading, swing trading and/or position trading?

Peter:I swing trade stocks and day trade futures.

Ilan: Cannon Trading offers a number of ways to place orders and customize order-placement tools/software. Once you are ready to place a trade, what tools/software do you use to place orders, and what type of orders do you place?

Peter:I use the Jigsaw Trading tools for my orders. On entry I am probably 50% limit orders and 50% market orders. It's just down to how the order flow looks. If I think a market is about to break I'll go in at market. If I think I can get a fill on limit - I'll do so for the extra tick. On exit I'm about 90% limit orders.

Ilan: How do you approach trade management - setting profit and exit levels, trade size and account-level risk management?

Peter:In terms of trade size, I don't use a 'percentage of account' setting.

My account is effectively my pension, so I use an income driven approach. Presuming 200 decent trading days a year and an approximate average per day. I will generally scale out of a position with the exception of fast one-way days where I'll start small and then build up as the market moves my way.

Ilan: What was your worst trading experience? What happened and how did it help you , if at all?

Peter:The day Goldman Sachs were charged with fraud and I thought I'd play that event and make a killing. I think that was back in 2010. Big mistake, it was all over the place and I lost chasing the market down and chasing it back up again. It's just not my style. In fact, when the markets go crazy, I just sit it out now. I like the markets to be fairly dull. I know other traders love trading news events but at the end of the day it's just not my thing and there's a lot more normal days that massively volatile days.

Ilan: Finally, if you could give some key advice for the aspiring traders out there, what would it be?

Peter:Don't try look for someone to teach you how to trade. Start out with the goal of learning how the markets work and then making money from that.

If you go to a prop firm as an intern, they will not really be telling you where to buy and sell. They will be getting you to do drills, like the "cut and reverse" drill https://www.youtube.com/watch?v=j1Yhfk3QbjA. This is what teaches you, your own experience. I know it seems a scary thing to be deciding where to get in and out yourself but if you set that as a goal, you will get there much faster. There's nothing wrong with getting educated but that education must be about how the markets work and WHY they do what they do. Too many traders look for red light/green light solutions or fall in love with educators claiming to have a 95% winning 'systems'. They aren't interested in WHY the markets work just HOW to trade them. You can't have one without the other.

Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

2. Hot Market: U.S. T-Bond Market Bears Gain More Power

From our friend Jim Wyckoff at JimWyckoff.com

Click on image below to enlarge

The U.S. Treasury bond and note futures markets this week have been under strong selling pressure, amid notions of a hike in U.S. interest rates very soon, and amid rising inflation. The bond and note market bears have gained more technical strength this week. See on the daily bar chart for June T-Bond futures that prices have moved into the lower half of a choppy and sideways trading range of the past couple months. On further price weakness in the near term there will become strong chart support for June T-Bonds at the lower boundary of the well-defined trading range.

3. Economic Calendar

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!