Member Q&A’s with 40+ years of insight
Answer:A discretionary technical trader who cannot briefly and clearly articulate his or her trading approach has not carefully thought through his or her trading approach. I can define 90% of what I do in my trading operation with just a few simple bullet points.
- I trade primarily futures and forex markets
- I am a classical chartist (ala Richard W. Schabacker)
- I trade the breakout of certain classical chart patterns
- Horizontal patterns (as opposed to diagonal patterns)
- Right angled triangles
- H&S patterns
- Pennants and flags during an ongoing strong trend
- 10 to 26 weeks in duration is my sweet spot
- The above criteria produce about 50 trading themes per year
- My maximum risk per trade is 1% of entire nominal trading capital – my sizing is based on my entry level and my initial protective stop
- I am very aggressive in advancing stop protection – I do not like trades that dig into my pocket
- I take profits at the target determined by the completed classical chart pattern
- I look for chart pivot points to advance stop protection on at least half of my position
- My win rate is less than 50% and this means that my default thinking is that my next trade will be a loss
80%-plus of my profits have come from less than 20% of my total trades
Great question. Thanks for asking it. My long-term win rate going back to 1981 is just above 42% — meaning that 58% of my trades have been losers or break-even affairs. Thus, the odds of most of the patterns I have traded of working has been less than 50%. The head and shoulders pattern, when properly diagnosed (many of the H&S I see on the blogosphere are NOT labeled correctly), will be successfully resolved more than 50% of the time.
But, the question of the probability of a pattern working misses the essence of market speculation completely. Chart patterns represent possibilities, not probabilities, and certainly not certainties. A better metric than the percent success rate of a pattern is its win/loss ratio value – adjusted for various protective stop strategies. Historically, the payout ratio for my proprietary trading of H&S patterns has been about $2.15 win to $1 loss. Thus, even if the H&S has less than a 50% chance of working the pattern has been a key contributor to net bottom profits over time.
My foundational perspective on any pattern is this:
- Think in terms of possibilities, not probabilities
- Any given trade is more likely to be a loser than a winner
- Make protecting trading capital the first priority
- Allow winners a chance to grow
There are two components to this idea. First, my experience is that excellent traders are extremely self aware. They are acutely aware of their strengths and their weaknesses. There is an old saying that … “If you want to really know yourself – the good, the bad and the ugly – just become a trader.” This is so true. If you are by nature a fearful person, a greedy person, a forgetful person, an impulsive person, a patient person, an undisciplined person, a calm person – you name the trait – the markets will reveal these things. People who refuse to accept themselves for who they are are destined to fail as traders.
The second component is that excellent traders not only recognize their weaknesses and strengths – but they are willing to openly discuss these things among their peers. If some other trader begins a conversation with you by telling you how good they are and all about their 70% win rate, turn and run the other way as quickly as possible.
What trading and performance metrics do you regularly or periodically calculate?
I am highly data driven and believe the data I have collected on my trading performance over the years is a small gold mine. The metrics I maintain include (but are not limited to) the following.
- 3 and 1 year Gain-to-Pain rations
- 3 and 1 year RORs
- Annualized worst draw-downs
- 3 and 1 year Calmar ratios
- Win rate
- % of trades constituting the bottom line
- 3 and 1 year average win size to loss size ratios
These are the metrics I believe really matter to performance outcomes.
I’m new to trading. Is Peter’s Factor service good for me?
Actually, there is nothing better for a new trader than the Factor service for several reasons.
- New traders have very inaccurate and grossly distorted expectations. The Factor Service addresses the harsh realities of trading — something most novice traders do not want to hear and something most other services fail to provide. New traders need to constantly be bathed in reality. And this is something the Factor Service does.
- New traders do not know understand the entire process of market speculation. Peter focuses on the nuts and bolts of trading, not just the glamorous aspects.
- One of the challenges of a new trader is how to think like a trader — how to adopt a correct philosophy of market speculation. The Factor Service relies on 40 years of Peter’s market experience to provide insight on this topic. It does not matter if a trader engages equities or forex or futures, all successful traders have a mindset that took years to develop. I can share these insights — something most of the fast talk promoters cannot do.
- Trade identification is the one thing most novice traders are seeking — they are seeking the wrong answer. Trade identification, or signaling, is far down the list of important aspects of market speculation. Peter emphasizes the process of market speculation, the importance of winning the inner battle against human emotions, and, most importantly, risk and money management.
Peter has reached his level of professionalism by making every mistake in the book — and this is something every new trader must do unless they heed the warning of someone who has made mistakes and is willing to put a spotlight on the traps laying ahead for novice speculators. Who better to do this than a 40 year renounced trader willing to share his experiences.
The Factor Service is only incidentally about identifying major market moves — which it does better than any other service we know. Peter, as much as a great trader, should be considered as a market philosopher.
Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:
View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.
I hope you will consider joining the Factor community.