In this episode of Better System Trader Andrew Swanscott interviews Brent Penfold.
Brent is an author and futures trader who started trading in 1983 after obtaining a degree in finance. Brent explains how he started off as a discretionary trader but later changed to a mechanical or systematic trader. In the early years Brent blew up his account twice before he became profitable. In the interview Andrew and Brent discuss the psychological issues traders face, the principles all traders need to be successfully, the elusive holy grail of trading and the mathematical concept that you can use to determine if you will blow up your trading account. They discuss tips and tricks to help traders and a simple method to determine if a system is broken. Brent is the author of The Universal Principles of Successful Trading and concepts contained in the book are discussed in detail throughout the interview. Brent’s favourite trading book is Reminiscences of a Stock Operator by Edwin Lefevre. Brent’s favourite trading tip is: The best loser is the long-term winner.
Trading advice from the Podcast that will make you a better trader:
- The benefit of being a systematic trader is you can collect market data and make trade decisions when the market is closed. It only takes a short amount of time before the market opens or after the market close to execute your strategy.
- 90% of traders are not successful because they are not prepared to put the effort required to become successful. Most people give up too early.
- Successful traders bet small amounts, learn from their mistakes and gradual improve on their systematic trading strategy until they are profitable.
- It is simple to trade but it is not easy.
- The biggest mistake new traders make is wanting to consistently win and make a lot of money.
- A high win rate is not that important to becoming a successful trader
- Don’t come into trading thinking you will be a millionaire in six months’ time. You should have modest expectations. For even the best traders, a 20% annual return is exceptional.
- You can’t be hung up on trying to be right all the time.
- Don’t try and predict were the market is going but instead follow where the market is going.
- You’re main objective should be to manage your risk capital.
- In order to increase returns on your trading capital you need to increase risk. By increasing risk, you increase your risk of ruin. (i.e. running out of trading capital)
- If you are consistent, and your keep your risk level manageable, you will greatly increase your chance of becoming a successful trader.
- To be successful you need to reduce risk and aim for lower returns. This will keep you in the game.
- You need to accept that trading is not easy and it is emotionally difficult.
- You need to accept that markets are random and you can’t predict where the markets are going.
- You must always use hard stops to control you risk.
- To be successful don’t call yourself a trader. What you really are is a risk manager.
- Having a trading mentor can greatly reduce the learning curve.
- The key to successful trading is: 1) Know the math, 2) be the best loser 3) be able to endure the pain of losing.
- A good strategy needs to provide you enough trading opportunities to be profitable
- The three pillars of successful trading are 1) Money Management, 2) methodology, 3) psychology.
- All three work together and are equally important.
- Money management is the maximum amount you are willing lose on a trade.
- Your methodology includes the rules that tell you what to trade, where to enter and where to exit. Your methodology must have a positive expectancy.
- To be psychology strong you must have the proper mindset be able to execute your methodology. You need to find ways to combat the emotions of hope, greed and fear. You need to be able to endure pain. Trading is not easy!
- When you place a trade consider automatically debiting the total amount you are risking from your trading account balance in your trading spreadsheet. This will help you ensure that you will be able to emotionally withstand the pain of the potential loss.
- You should keep an equity curve for your trading strategy. The equity curve should have a positive upward slope over time or you may want to consider re-evaluating your trading strategy.