In the interview, Michael covers a number of topics that pertain to the routine that is necessary to become a successful discretionary trader. He openly discusses the books and MeetUp groups that have been most influential in his trading.
Would you like to talk a little bit about your background?
I’m a part time investor. I got my start in the market probably about three years ago. I’ve been interested in stocks for as long as I can remember, going back to maybe junior high or high school. I have always had some interest in the market, but it wasn’t until about three years ago that I really started to study and began to take action.
What did you study initially? What types of strategies?
I first started with my co-worker, who used to be a portfolio manager. He was a portfolio manager for about 20 years. Then, he decided to leave Wall Street to do what he’s doing presently.
He started to recommend several books to me. Things that he had on his shelf for a long time. He started telling me that it might be a good idea for me to start to get involved with the market. The first book that he gave me was Martin Zweig’s Winning on Wall Street.
I found that book very interesting. There was a lot of technical detail, and a lot of different ways that he would analyze the market. I would say that it’s not one of the more memorable books that I have read, but it was interesting enough to get me started.
From there, I started watching Cramer. I read all his books, and then I started to really get active in the market. My approach now is the polar opposite of what it was then.
Those are pretty good books to start with, considering some of the other ones that are out there.
Oh yeah, definitely.
I think when I was getting started that I was mostly reading the Warren Buffet and Peter Lynch books. If I could have skipped all that and started with Winning on Wall Street, I probably would be a lot further ahead than I am today.
I can’t say that I’ve read the Peter Lynch or the Warren Buffet books.
After reading and experimenting with Jim Cramer’s books, my next book that I read that’s worth noting is How to Make Money in Stocks by Bill O’Neil. So, for the most part, I consider myself very lucky and very fortunate to have started on the right path pretty early in my journey.
How did you stumble onto that book?
It was also recommended by my co-worker. He had recommended that I start looking at Investor’s Business Daily and I started reading that. As soon as I got my iPad, I was able to download eIBD and read it on the subway on the way to work. I thought it was great.
From there, I learned more about Bill and about his methods. I learned about How To Make Money in Stocks and I picked it up and read it. It’s such a different type of methodology from what you hear on a show like Cramer’s or what you see on other popular shows on CNBC.
To me, it made a lot of sense. It was a very straightforward approach. It spoke to me.
One of the key differences that I found in O’Neil’s methodology versus Cramer’s is that Cramer’s approach was one where you research your stock, you look at the fundamentals, and if you like the story, you stick with that stock with the intent that if the stock goes down in price and you still like that story, you should buy more of that stock.
It’s laughable now that you and I are following trend trading methodologies but to guys that follow that sort of a methodology…
It seems like common sense.
Right. If you like this sweater in the store and it goes on sale, “Hey, that’s a great deal. Let me go buy more of it.”
Bill’s strategy is quite different. You are the seller of that sweater, and you want to try to get rid of the ones that aren’t selling so that way you can bring in more of the ones that are selling.
Bill’s method, for those that aren’t familiar, is that you buy a portion of the stock that you’re interested in and you don’t buy more of it until that stock goes up in price. You don’t average down.
That averaging down strategy can really lead to some financial pain. You could like the story, and the story could stay the same for a very long period of time. As the position continues to move against you, you keep on getting heavier and heavier into that position. You could find out a couple of months down the road that the story has changed. Now, all of a sudden, you have this giant position that you’ve averaged down on two, three, or four times and you’re just in a major hole.
There’s no coming back at that point.
Or it takes a lot to get back to even.
They actually point that out that if you lose 50%, you have to make 100% to get back.
That’s in a lot of the great trend following books. Bill talked about it and I’m currently reading Mark Minervini’s book. He talks about it. There are a number of others.
I wasn’t aware how similar our starting was. I actually had Bill’s book recommended to me by somewhat of a mentor, and then I actually bought an iPad to read IBD. I really like the way they deliver that product.
Oh yeah, it’s great. You get to have several of them backed up on your hard disk on the iPad, so it’s really a great tool. I think it’s great for anybody, especially anybody that’s starting out with that particular system.
I guess we should get in to your website, ChartYourTrade.com. Could you tell us about the motivation for starting that?
Then, I saw on Investors.com that they had these things called MeetUps where people that follow the same CANSLIM methodology could get together and talk about the system and share with one another what works and what doesn’t work for them.
It’s all just regular people like myself talking about stocks and talking about their experience. I thought that that would be a great thing, so I looked up the one in my town.
At the time, I lived and worked in New York City. Right now, I still work in New York City but I live out on the island. It seemed like a great idea, and it was incredibly affordable. It was only 10 bucks to go to the New York City MeetUp, which I thought was pretty amazing. Then, I got there and I was really stunned by the level of the presentations from everyone that was there. I would consider it like getting like a college level education for $10.
It’s insane. It really is. I can’t say enough good things about the New York City IBD MeetUp.
That’s funny because I had the exact opposite experience at my local MeetUp. But, from everything I’ve seen about your MeetUp, it seems like there are some really top-notch presentations.
It just keeps on getting better and better.
At the MeetUp, I learned quite a bit from a lot of the guys. I’ll tell you about them in a little while, but based on what I was learning from them, I started to put some of my own stuff together.
I started with a trading journal, and I approached the senior leaders of the MeetUp with what I had started doing after maybe about a year or so. They were all really impressed with how I was tracking the market on my own with the trading journal that I had started to create and my basic approach.
I thought that, wow, I’m able to impress these guys that have been doing this for 10, 15, 20 years and I’ve only been doing this for a year, and I’m doing it part time while these guys are doing it more or less full time. Maybe I really have something here. Maybe I could help out a lot of other people in a similar boat that are just starting out. People that need to get over that hump.
I feel that there’s a certain point where you take everything that you’ve learned in the book and you try to apply it. You’re trying to do that homework, but you don’t really know if you’re doing it right. So to get passed that I thought, well, wouldn’t it be cool if there was a site out there that showed you how to do the homework, and had actual examples of what a routine looks like, and showed you the results of that routine week by week-by-week.
I looked around on the Internet and I didn’t see anything like it. So I thought, hey, maybe I have something here. Thus the birth of ChartYourTrade.com.
Where did you come up with the name for it?
My wife, Melissa, and I and her sister, Erin, were kicking around ideas for names for a little while. I really should have brought a list of some of the names with me but all different types of things.
One of the names was going to be ‘The Weekend Investors’ since I do the bulk of my work on the weekends. There was ‘Chart Your Trade,’ obviously, ‘Chart Your Plan,’ and ‘Investing Methodology.’
But ‘Chart Your Trade,’ we liked that the most because of the play on words. Chart also means to plan and what I’m offering on Chart Your Trade is a plan on how to plan your trade or chart your trade.
You offer so much information on your site about every single detail of what you do. You have explicitly spelled out exactly what you do every single day, every single week, every single month. Your entire routine is documented on the site. Could you give an overview of what that is for you?
Sure. Let’s start with the weekly routine, because that’s really where it all starts for me.
I started out reading the paper and reading the big picture column in IBD each day. Over time, I decided that I would track the market myself noting all of the distribution days and any other subtle signals that I see in the market, plus leadership.
On the weekend, I’ll do an overview of the market, which is my State of Market post. I’ll highlight anything that I see brewing and where potential support and resistance levels are, how leaders are acting, and new highs and lows.
A big part of the CANSLIM system is the current state of the market and about half of a stock’s move is going to come from the overall trend of the market. The vast majority of stocks follow the overall trend of the market. That’s why it’s so important. I do that part myself because I feel that it puts me more in tune with the market.
One of my favorite books is Super Trader by Van Tharp. One of the things that he talks about is that we don’t actually trade the market. What we do, is trade our beliefs about the market. To me, that made a lot of sense.
If I’m developing my own beliefs and my own opinions about the market, it’ll be far easier for me to trade off of those beliefs than if I’m reading it from somebody else, even if it’s from something very credible, like IBD, or even Bill himself. Ultimately, we’re all in the driver’s seat of our own trades, and it’s up to us to pull the trigger, hold them, and sell them.
The first part of my routine is to analyze the state of the market. The next thing that I typically do is run screens. I do all of my screening in MarketSmith. MarketSmith is a charting service. It’s a sister company to Investor’s Business Daily and it’s a fantastic, fantastic product. It has all of the fundamental data and all of the IBD proprietary data in it. It has daily and weekly charts, and it allows you to annotate the charts as you go.
First, there’s a separate basic William O’Neil screen that has a bunch of their proprietary rankings in them and very basic screens. Normally it returns anywhere from 80 to the most I’ve seen is about 130-140 stocks in a really strong market.
I’ll look at all those and then, within MarketSmith, one of the things that they allow you to do is run another screen over the screen that you just ran. I like to call it a tandem screen and I described this on ChartYourTrade.com.
So I have the initial screen that’s a very loose, very general screen casting a very wide net. Then I’ll run a strict screen over that. That way, I can see what percentage of the loose screen passes the strict screen. Anything that passes the strict screen by roughly 70% or so, I’ll move that onto a universe list.
So first I run the Bill O’Neil screen, and then I run that tandem screen over it. Next, I’ll look at the IBD 50, I’ll look at the sector leaders, and I’ll run that tandem screen over both of those. The majority of the IBD 50 and the majority of the sector leaders pass that, but occasionally there’ll be one or two that don’t.
I throw all of those onto the universe list. Anything that passes, and I flag everything on that universe list. Doing all that, going through maybe about 150 stocks or so just to build the universe list doesn’t take long at all. It takes maybe about 10 minutes or so to do that one step.
Just because you had so much practice in that you’ve been doing that for so long, or do you have MarketSmith set up to do it automatically?
The way that I have the universe list set up is that everything on that universe list gets flagged. Whenever I run another screen, I’ll sort by what’s flagged versus what’s not flagged. That way, I’m not looking at the same stocks over and over again. I’m just looking at stuff that’s not in the universe list.
Then, by the time I’m ready to look at my universe list, I’ll just look at a fresh group of stocks that has already passed that tandem screen.
One of the things that you do that’s great is you actually publish this universe list, right?
I publish it weekly. Another thing that I started doing with that universe list is breaking it down into the sectors that the stocks fall into. What that does, is it tells me which sectors have the most stocks that are passing those fundamental screens, and the tight screens. It sort of draws my eye to “okay, right now the market is favoring medical stocks” or it’s favoring financial stocks, at least from the perspective of passing the first round of the screening process.
Of course, the entire CANSLIM system is big on watching the sectors and the industry groups, right?
Right, exactly. Knowing the universe list and which sectors they fall into is helpful. Not that it’s showing which sectors are leading the market, but it’s showing me which sectors have the greatest amount of stocks in them. It starts to draw my eye to some of those.
How much time would you say you spend on this weekly?
When I first started doing this whole process, it took me about five hours, start to finish.
Now, I could reasonably get it done in about two and a half to three hours, including the whole state of the market and doing the whole screening. Not just the screening that we talked about, but also looking at building a ready list and then really making the ready list jump through another hoop that I have, which is my stock evaluation guide.
Is that the spreadsheet you have?
I have two things.
One is a trading journal, which I have in Excel. I use that to track my trading. I have all sorts of things in the spreadsheet at this point. All my trades are in there. I track the amount of risk. I track the gains that I have. I track where I’m at in the position.
I track what the share price will look like at a certain level, and at a certain gains. Say you buy a stock at $100. At a 5% gain, it will be 105. At a 10% gain it will be 110, and so on and so forth. An example of $100 stock is pretty simple, but when you have stocks trading at $30, it gets to be a little tricky. I just like to see what the share price will look like when I have a 5% gain, a 10% gain, and when I’m ready to start taking profits.
The other thing that I developed was the stock evaluation guide. It’s in a spreadsheet, but I don’t really use it as a spreadsheet. I have it printed out. It’s by my side as I’m going through my whole routine, and I use that for anything that makes it onto the ready list.
My ready list is stocks that are no more than 5% above a pivot, or no more than 10% below a pivot. It all comes from the universe list. Anything that makes that ready list gets put through the stock evaluation guide, and that’s how I come up with my ratings.
The first time I downloaded your stock checklist was a light bulb moment for me. I just thought it was really brilliant stuff.
Thanks. I appreciate that. I wish I could take all the credit for it, but I’ll tell you where it came from.
That’s my next question. Where did it come from?
Another thing that IBD offers that’s a great thing is this IBD radio show that Amy Smith and Matthew Galgani host weekly. They have it as a podcast that I download.
Maybe about a year or so ago, they had Mike Webster on. Mike Webster is a portfolio manager for Bill, and he went through the way that he analyzes a stock, and he was saying that the way that he analyzes the stock is he’ll grade the stock from either an A or an A+ down to an F.
The first thing he’ll look at is the base. He’ll analyze the base and take off points here or there. Everything starts out as an A, and he’ll take off points as he goes. Then he’ll look at the earnings, and he’ll look at the industry group, and he’ll look at the ownership. When he’s done with all that, he’ll have a letter grade for the stock and that’s how he comes up with a ranking order for his ready list.
I thought that this was an amazing idea. How could I integrate this myself?
I’m more numbers oriented, so I decided to go with a 10-point scale, 0 to 10. I like the numbers scale better because you’re able to have increments so you can have something be worth a 10th of a point, or a quarter of a point. It’s easier to sort of make different ratings that way.
At a recent MeetUp, I actually did a presentation on this. The way that I described this evaluation guide is that it’s an objective way for me to look at things. It’s a subjective way for me to look at things objectively.
It’s subjective because I’m the one that came up with what I’m going to look at. I’m the one that came up with what gets what point value and what rating. I think the process of doing it is a fantastic way to look at it at whatever stock you’re looking at on apples-to-apples basis and make everything jump through this one hoop that you defined personally. It’s still subjective because you’re the one that’s supplying the parameters of this method.
You mentioned your MeetUp group again, and I know you think very highly of them. You mentioned there are a couple of guys there that really impacted your development.
Each and every one of the other co-organizers.
I feel so grateful that after about a year of being in that group they invited me to be a co-organizer along with them. The main leader of the group is Avi Fogel, and he is amazing in his own right. He, in part, is what helped give me my current routine.
During one MeetUp, he explained the routine that he does and the routine that he received from the master’s level CANSLIM workshop. I got a lot out of that. I use a lot of what he taught in that class in what I’m doing personally and what I’m showing on Chart Your Trade.
I personally feel that learning how to invest on some level is very important, especially for our generation, so I wanted to make something that would work for me presently. Avi gave me that, and I owe him a great deal for that.
Then, there’s Richard McKay, who is a fantastic presenter. He does great market analysis. Each month, he leads the state of the market discussion. He’s the one that initially encouraged me to do my own state of the market, and to not just look at what IBD publishes, but to really sit there and analyze the market myself and come up with my own opinion.
There’s Curt Hostetter, who is an amazing chartist. He’s also very into trading psychology and has done a number of wonderful presentations on that.
Last and certainly not least is Jim Dugan. He recommended a book to me early on called Trading in the Zone by Mark Douglas. It’s from that book that I ended up developing my whole trading journal.
For a little while, Jim and I would go back and forth and swap journals, just make sure that we were on track with one another. We would talk weekly, over the phone, and occasionally in person about what we were doing and why. It really helped keep us on course with sticking to the plan. I think that that’s one of the toughest things to do, not only make a plan, but to actually stick to that plan.
I do a lot of the Market Wizards write-ups and it’s amazing how many of them trade different strategies, but at the root of every one of them, they have a plan and they stick to it.
It’s definitely a lot easier said than done.
That is a large part of the reason why there are so many people that trade the market, but so few people that are super successful.
My first interview was with Andreas Clenow. He’s a systematic trend follower and he runs a website called Tradersplace.net.
I spoke with him this morning about how much he believes in the community and sharing ideas, and then here you are in the second interview talking about community and sharing ideas and learning from each other.
I think that it’s great, especially when you’re able to get together with other like-minded people. One thing that I would caution is that there are a lot of people out there that want to be helpful, but some of them tend to do in a way where they say that you have to do this or you have to do that in order to succeed.
I don’t think that’s true at all. I think that there are a million ways that you could be successful in the market. One of the keys to success is finding the way that works for you personally and so much of it really has to do with psychology and your own personal make up, and actually a lot of things that Tharp talks about in Super Trader.
If I had to recommend an order for anybody that wanted to get involved or was looking for good books to read, I would go with How to Make Money in Stocks first, because it really lays out the groundwork of what to look for in a super winner and it gives you a very thorough methodology.
I think Super Trader is a phenomenal book in that it really discusses a few things. It discusses trader psychology, which is so underrated and not talked about nearly enough. He talks about developing a plan and a business plan, and gives you so many different questions to ask yourself before you even start. There were so many things that I hadn’t ever considered before.
I’ve been going back and reading that book the same way that I did Bill’s book, reading like it’s a textbook. I plan to go back over that one and read it a dozen times or so to make sure that I have everything down. There’s the psychology element to it, there is the position sizing element to it, and there’s the risk management element to it. It’s a very different way of looking at position sizing and risk management.
He looks at risk in terms of what he calls one R, or one unit of risk. One unit of risk means that when you enter a trade and you place your initial stop, that is one unit of risk. As the trade advances and as the stock moves in your favor, if you don’t move your stop up at all at any point, you’re risking more in that trade because you still have your initial risk but now you’re also risking all the profit that you made as well.
So the trade just got that much more risky, because if you buy that stock at a hundred and you set your stop at say 95, you have that risk there. If the stock moves to a 105 and you don’t move your stop at all, now all of a sudden you’re risking 10 instead of 5. As simple as that sounds, to me that was very eye opening.
I’m trying to incorporate that with the current way that I look at the market and how I operate and followed CANSLIM. I try to do it to the best of my ability but I’m also incorporating other things as I go and this is definitely one of them.
Correct me if I’m wrong, but CANSLIM does not advocate moving your stop once you placed it initially, right?
You’re not going to move your stop the next day, or at least it doesn’t really talk about doing that in How to Make Money in Stocks, but after a certain point you would move that stop.
The book advocates that once you have a significant gain, not to let it turn back in to a loss, but what significant gain? That could be anything to anybody. It’s typically defined as 10% better, but it’s really up to the individual.
Say you buy a stock. You buy it at a regular pivot and you have your 7-8% stop loss. You’re supposed to take gains at 20-25% in most cases. Let’s say you buy the stock at a 100. Your initial stop is at 93, and your target price is 125. Once the stock gets to 115, you’re risking the first $15 plus your original stop just to make another $10 on the trade, because your goal for that trade is to get to a 125. So now, your risk reward ratio is all screwed up.
If you start tracking what one unit of risk is, what that initial risk is, and moving your stock up along the way, you’re maintaining the same risk reward ratio throughout the life of the trade. I found that to be very eye opening and it’s worked for me so far.
That’s really interesting. I was really interested in what you have to say about the Van Tharp book just because I have not read it. He was one of my absolute favorites in the Market Wizards. I just love the way he looks at market psychology.
Absolutely. Then there’s the whole element of position sizing. Let’s say that you’re staring out with a small portfolio, let’s say that you’re starting out with five grand and you want to have five positions of $1,000 each.
The way that he would position size isn’t by saying, “Okay, you have $5,000, you want five positions. Each position is going to be $1,000.”
He suggests that you position size based on your risk, whatever that one R is going to be. Let’s say that you want to allocate 1% risk to every single trade that you do. Where you place that stop for each trade is going to make sense for the individual trade based on where support is, based on where the 50-day moving average is, if you’re just going to use the flat out 7-8% stop.
The majority of the time, there will be a certain level in a trade that will make sense. I’m going to exit here on a chart, so it may make sense to you to exit at 3%, or 4%, or 5%.
If your position size is based off your level of risk and keeping the dollar risk equal on every single trade, you could have a trade, let’s say at $100, and there’s one stock where it makes sense to exit at 97, and you want to have 1% of your capital at risk. You could afford to buy a lot more shares of that particular trade and make sure that your risk is still just 1% of your capital versus just having the same position size on every single trade.
The standard 7-8% risk is a good idea in theory, but as you get in to it, it gets more complex than that.
I think that it does. It might be something that it might be better explained visually.
It’s something that I’m definitely going to incorporate more and more into Chart Your Trade as I go along. There’s actually quite a bit that I’d like to put up on the website. It’s just a matter of having time to make updates on the site and live my regularly scheduled life as well.
It seems as though trading and running website can completely take over your life.
Much less having a day job.
Yeah, plus having a day job and trying to fit in everything else. I consider myself very fortunate to have a very understanding wife.
Another thing you featured on Chart Your Trade is you have a long, long list of trading rules that you follow. Where did the idea for that list come from?
Anybody that’s read How to Make Money in Stocks knows that that’s a pretty thick book. As I was reading it, I was taking notes and highlighting and everything.
I started out with writing out the rules that I wanted to make sure that I followed straight out of there. A lot of the rules that I follow I have posted on Chart Your Trade. They all have references to where the rule came from. Some of them I came up with on my own. A lot of them came out of How to Make Money in Stocks, and I would try to list the chapter of where it came from.
Early on, before there was Chart Your Trade, before there was anything else, I just kept the running list of all these different rules in a spreadsheet. As I would talk to different people, as I would listen to the different webinars, from Scott O’Neil, rules from the MeetUps, rules from any other number of books that I’ve come across, I would just take the rule, write it down, especially if it was a rule that was unique, just to make sure that it was there. That way I could refer to it later on.
As far as following those rules, I know that there’s a long, long list of rules there and making sure that you follow every single one of them in the moment is unreasonable, which is why it’s very important to plan a trade long beforehand, or at least for me, it’s important to plan the trade well beforehand. Then, during the trading session, all I’m doing is just taking the plan and implementing it, that’s it.
I try to follow all those rules to the best of my ability. I think that it might make more sense for me to come up with a more generalized list of what I would call a rule because right now, I feel as though there are some things that I would consider rules and other things that I would consider guidelines.
When you’re first starting out, I feel that it’s important to have a set of rules that you are going to follow and as you gain more and more experience, you get to learn which rules can be bent and what rules can be broken and what rules you absolutely have to stick to no matter what. That will be a future update to the site.
I noticed a lot of these rules are really some of the stuff that stands out in How to Make Money in Stocks. The things that you highlight and the things that are quoted constantly in the IBD Investors’ Corner.
I guess you could think of it sort of like a cheat sheet.
The book is so massive, and you get so many ideas from so many different places. Just having a centralized location for where all those rules are is useful.
I will probably end up keeping the list there, but also coming up with more of a generalized version or sort of restructuring it, but that list won’t go away. It will be available somewhere.
For the last third of this interview, I’d like to focus on someone out there that says, “That sounds like the type of a person that really fits my personality.” To that person, what would you say is the key ingredient to finding success as trader?
That’s a real tough question.
I wouldn’t say that there there’s one key ingredient.
One of the things that would have helped me early on would have been to have a more realistic expectation of what I would be capable of getting out of the market. I feel that a lot of the people that you see on television, they make it seem like it’s so easy to invest.
I had the idea that you invest in something, and investing equals getting more out than you put in, and the formulas is as simple as that. The longer the time you put it away for, the bigger it grows. Anybody that’s actually tried investing in individual stocks on their own I’m sure could tell you that that is far from the way that it actually works.
I think that trading is a profession. I think that it deserves the same respect and study as any other profession you would think of, be it a doctor, lawyer, carpenter, plumber, mechanic, anything out there. It’s going to take a great deal of time, effort, and study.
It’s not the hardest thing in the world if you truly apply yourself. If I’m able to do it, I think that anybody can do it. But it really does take a lot of time, a lot of energy, and perseverance, because there will be ups and there will be downs.
It’s not a sprint. It’s a marathon. I think that if you’re truly going to get involved in the market, you need to look at it as something that would be more of a lifelong journey, as opposed to just this one isolated trade.
That’s a great point. I think a lot of the TV shows we watch, like Cramer, they make it sound as if it’s just take this one quick tip and you can double your money really fast. The more experienced you get, the more you realize that is just not the case.
One thing that got me screwed up a little bit when I first started out was that I had initial success investing in the market doing it that way. I just put the money in and then watched it grow, and that worked. So great, I’m a stock market guru, based off of one trade and I’ve been investing for a week.
The market can be very, very humbling, and if you do have early success, that’s a beautiful thing but make sure that you keep your ego in check, because the market will check it for you. When the market checks it for you, it can be a very, very expensive tuition payment.
I assume with your very active involvement in the MeetUp groups, you run into a lot of rookie or beginner traders?
We have traders of all levels. I’m actually one of the newer guys.
A lot of people assume that I trade full time, and that this is something that I’ve been doing for much longer than I have, but I constantly remind people that I’m doing this part time. This is something that I’ve just approached the same way that I approached grad school, constant study. I don’t consider myself the smartest guy in the world, but I am someone that will be very dedicated and will work hard and persevere. I think that that has taken me a long way.
I guess it speaks a lot to what is required for success in this industry, just that hard work and perseverance and just that general attitude is required.
I think that it’s something that is definitely useful to have. One thing that I also like to make sure that I write on the site is that this is what works for me. I’m putting everything out there on Chart Your Trade to show people what works for me. This is a process that I have that just works.
I’m not trying to say people do this exactly the way that I’m doing it. The process of it works, but it’s through people’s own analysis and developing their own processes that I think the people will really get the most out of their own trading and their own experiences.
Like what you’re doing with testing all the different systems, I think that that’s a fascinating endeavor in itself. I give you a lot of credit for doing that.
It’s been very exciting, and I can’t even begin to tell you how much I’ve learned about that method of trading through it. It’s been very, very interesting.
Getting back to anyone who would be interested in following your specific approach, what are some of the mistakes you see them making, some areas they could improve quicker, or pitfalls to avoid?
Getting overzealous, trading too big, and revenge trades.
This is something that I used to fall into all the time, and occasionally will still catch myself. I’ve smacked myself on the wrist plenty of times for doing this.
The revenge trade is where you set your stop at a certain level and your stop gets triggered, and you immediately see the stock start to rally back up. I’m not going to let the stock do that to me. I’m going to go in there and I’m going to buy more shares right away, only to see like later in the day, the stock starts to come back down on you.
You need to step back and just trade the plan. You had set a stop there for a reason, just follow the plan and you could always go back and see what worked about the plan versus what didn’t work about the plan.
I think that that’s one of the great parts about just building a plan after hours, for me anyway. Building a plan after hours, and then just spending the day in the market acting that plan. Because then, if the plan works, you can look at the plan and say, okay, this is what worked about the plan. If the plan doesn’t work, you can go back in your post analysis and figure out what didn’t work. Eventually, you end up with better and better plans.
The post analysis is another thing I see a lot that IBD suggests that people don’t really take advantage of.
Post analysis is a critical element for anyone that wishes to improve. The way to do that is to keep a very detailed journal.
That’s why I put my trading journal out there. It’s just a template for anyone to follow and if people choose to just use the template that I have on the site, great, it’s there for free for anyone that wants it. If they want to tweak it, by all means tweak it to your personal taste. If anybody has questions about it, my contact information is up on the site and I respond to emails typically within a day or so.
Keeping focused on someone who’s interested in following your methodology, how much capital is recommended to start trading the CANSLIM approach?
I think Bill mentioned that he started with about five grand in How to Make Money in Stocks. I think that that is probably an appropriate level.
Something to also consider is how active you plan to be, and what your commission fees are with your broker. There’s some brokers have $10 a trade, some of them have 7. The one that I use is 2.95 a trade and that allows me to be a lot more active.
I think I saw on your site that you recommend Options House.
That’s the one that I use. I believe right now they upped their commission to 3.95 a trade, but I’m fortunate where I was grandfathered into 2.95 a trade.
I like their platform. It’s more or less a no frills sort of platform but they do offer ways to customize it. I just use it to enter my orders and that’s about it. All the work that I do is really in Market Smith, so I didn’t need a broker that offered me a whole lot of….
Yeah, exactly. My biggest concern from a broker was executing trades, a good mobile platform, and of course the lowest commission fees I could find.
That makes sense. The next question is the number one book you would recommend for someone following your strategy. You’ve already mentioned the O’Neil book, How to Make Money in Stocks, and Van Tharp’s Super Trader.
Is there anything else that you would recommend as required reading?
Sure. So on ChartYourTrade.com, I have a whole section of suggested reading and of the books on there, I like those two the most obviously.
I think that Steve Burns’ book, New Trader, Rich Trader, was a phenomenal read. Anyone that trades should read that, but especially the new trader.
There’s a lot of wisdom in that book and the way he tells it is a story of somebody that’s brand new to the market and he has this mentor and they go back and forth and the new trader goes on this journey where he’s learning how to trade and he’s constantly going back and forth to the rich trader who’s mentoring him and you see a lot of the pitfalls that people commonly fall into. As I was reading, I was like, “Yup, I fell in to that one. Yup, fell in to that one. Oh, here’s another one.”
He’s a great guy. He’s on Twitter all the time, and I think that he’s one of the best people to follow out there because he’s just giving very candid, very objective advice.
I also see you recommend the Trading in the Zone book you referenced.
Yes. Trading in the Zone was good.
A non-trading related book that I liked a lot and was very influential to me was The Millionaire Next Door.
I was hoping you’re going to bring that up. I don’t know how I came across that book, but I have the audio book and it really changed my perspective on money.
Absolutely. What the book talks about is that millionaires are typically not the people that you would think that they are. They’re not the celebrities. Even though you have celebrities that are millionaires and the sports players, your typical millionaire is just someone that is a business owner or someone that’s good with finance, good with money, and they know how to budget and they basically live below their means.
What they did was conduct a 20-year study going around the country interviewing millionaires about their habits. That book was so eye opening, and I liked it a lot because it made financial wealth and financial freedom seem attainable through simply being able to learn how to budget properly, learning how to manage your money, and living below your means.
I completely agree with you on that. One of my favorite parts of that book was when they were hosting all of the millionaires that they were interviewing and they rented a very fancy conference room and they had very fancy food catered and none of the millionaires they invited felt comfortable there. I just couldn’t relate more to that.
Exactly, and they’re not driving the Ferraris or these expensive cars. Most of them are driving pickup trucks.
Not the people that you would think. Just people, regular people that are living financially free that aren’t owned by their possessions.
What’s the best way to get in touch with you if anyone is interested in learning more?
There’s a contact portion on ChartYourTrade.com.
They can email me at email@example.com
I’m on Twitter. I’m on StockTwits. ChartYourTrade is on Facebook.
Any of those ways are good ways to get in contact with me.
This is a personal recommendation: Following you on Twitter is such a wealth of information. I find it hard to believe that you actually have a job, because you just are on there all the time just spreading a wealth of information.
Now don’t say that too loudly. I’m still very happy with my full time career, and I have no intentions of leaving that anytime soon.