you do not know what is coming next I don't
for sure all Traders are unique each has a different amount of capital to develop in research
strategies you only have so much time you got to work your what you're doing around your situation
it's illogical for anybody to try to copy anybody else because everybody's different I'll encourage
you to never predict what the Market's going to do next because good trading is being in the flow
being in the now getting it done day after day flawlessly I
measure whether the market is
overbought or oversold if it's overbought I try to sell a call spread if it's oversold I try
to sell a put spread staying consistent allows you to be able to have that proper bet size
every single trade and you got to have a way to do that I find that people that have the most
difficulty mentally are people that are making it up on the [Music] Fly welcome back everybody for
the last but uh what you know it's going to be one of my favorite presentations with Tom
one of
the last presentations of the conference to wrap up things nicely uh Tom of course was featured
in Market Wizards uh he was dubbed Mr Serenity as I'm sure you'll you'll understand why as soon
as he gets talking if if you hav't uh uh listen to him before a nice calmness and and loads and
loads of experience so uh Tom it's always great chatting with you and as always I'm really looking
forward to your presentation yeah thanks Richard it's always fun to to be interviewed by you you
as
k some interesting questions over time thanks for allowing me the chance to be one of your
speakers and I guess I'm the last one so maybe you saved the best for last I don't know but
we'll uh we'll try to live up to that billing and um I'm I'm suspect that depending on how many
of these speakers you've listened to all all of you listening out there you've had uh speakers
give you their favorite setups perhaps you've probably G had people talk about their theories
about what makes Market tic
k uh you've probably heard some of their strategies that they use to
try to make money and they probably some of them have given their thoughts on the current situation
in the markets or the economy or where they think it's going to go and some of them were covering
markets that you either never heard of or perhaps don't even trade so it's probably been a a broad
mix I mean you've had four days and lots and lots of speakers so there's lots a lot there to take in
and a lot of Traders I find
uh you know on Twitter or Facebook they they get almost overwhelmed by
so much information and what I'm going to try to do is maybe help you kind of distill all that
down to what might be useful to you and uh I'm going to talk about what is a complete trading
strategy because a lot of things you've heard might be pieces of a trading strategy but you need
to fill in the the pieces I'll try to give you a little indication of what I think that might be
I'll encourage you along the way as bizar
re as it seems to Not Duplicate another Trader strategy to
trade your own money and I'll give you the reasons why I'll encourage you to never predict what the
Market's going to do next because good trading is being in the flow being in the now getting it done
day after day flawlessly trying to predict where the market will be you know 6 months or 12 months
from now if you can do it good for you I've never been able to do it and I think I'm a successful
Trader so I'll encourage you to not pr
edict and I'll try to explain how I use all weather Concepts
and trading my own money so that you can use that as an example only of what you might you might
come up with something similar something you know maybe you pick up a certain aspect of what I'm
doing and you modify it for your own needs I just use it as throwing out examples and stimulating
your brain so with that why don't we uh share the uh start screen here if I can yeah let's see
from and while Tom's doing that uh throughout t
he the presentation if you guys have any questions
whatsoever uh just drop them in the chat and we'll have uh plenty of time for a Q&A uh after his
presentation well we called it all weather trading and this is is my wife and I uh made the graphic
we came up with uh all the bizarre things that get thrown at you in the markets coming at you and
attacking Risk by getting that umbrella up there and bouncing all those lines up into the right
which is what all Traders like to see with their Equi
ty curve so that was our depiction of what all
weather trading means uh and certainly the markets are pretty good at throwing you some difficult uh
times so why would anybody want to copy another Trader well you know all right you take me as an
example I've been doing this for almost 50 years people know of me through Market Wizards and Trend
falling mindset and the all weather Trader book and everything else and they see me on Twitter
and I seem to make sense I seem to be successful so if
I could copy Tom boso that would be great
wouldn't it it's easy uh I've already figured it out so a lot of these traders that did they're
very famous Traders talked the last three days and even including today they've kind of figured out
how to make money and how to protect risk some of them have made a gazillion dollars they've been
doing it for decades you know in my case almost five so why wouldn't you just copy somebody that
makes sense doesn't it no it doesn't all Traders are unique ea
ch has a different amount of capital
different time to develop and research strategies if you're working full-time and you're trying
to develop an extensive trading strategy well you're going to have to do it at night after
dinner you're gonna have to get up early in the morning do it maybe Saturdays Sundays you got
to how much time do you have well I'm retired I could take every day and spend 12 hours a day if
I felt like it I don't have a job I have to go to so each person has different a
mounts of time
available each person has a different amount of time each day even I retirement I have a lot
about 40 to 45 minutes a day to do trading uh I don't have all day a lot of days I'm doing a bunch
of other things in retirement that I would like to do or my wife schedules me to do or whatever
but you only have so much time you got to work your your what you're doing around your situation
different skill levels I got a computer background engineering chemical engineering heavy math
skills
U so that's my skill levels other people might have you know floor experience or other things
that I don't have and each person is unique in that regard they have different levels of skills
you have different risk tolerance you know I'm in retirement some of you out there might be 20
something years old and got a nice salary coming in every day so your situation in mind in terms
of risk tolerance might be very very different I don't want to go back and manage money again
I'm 7 many
years old I'm enjoying retirement so I have to set my risk tolerances that way
so what I'm doing is interesting perhaps but it isn't something that maybe you should be doing
different tools um every one of us has got certain uh levels of automation let's say certain broker
uh platforms that you're relying on to give you your indicators maybe or do your executions well
they aren't the same uh I use interactive brokers lot but I also have my wife's account over at
Schwab I have different Brok
ers that I have to deal with different setups different in terms of
the screens and uh you have to deal with what you have to drawn and it's Unique to you so when you
start looking at all this and you start uh you know thinking about it's illogical for anybody
to try to copy anybody else because everybody's different you got a different Financial puzzle
you're trying to solve for yourself so most Traders approach it backwards and this is what
you'll have a tendency to do after some great ta
lks like you've heard over the last four days
they hear about a great strategy you got a famous person talking about it you try to replicate it
so you kind of figure out the math or the logic or you find the indicator on your broker platform
then you try to test it it might be nothing more than just going back in time and saying okay
well this Kelner Band Here looks interesting let's go back and see where the signals would be
and you know you have enough history that you get a couple years
in there and say yeah you this
works pretty good I think I'm going to see if I can do something and then all of a sudden you
try to trade it live and then for some reason you can't seem to make it work and you can't put your
finger on why and you abandon it and then you hear about another great strategy and you repeat the
process that happens so much out there and it's it's sad that it does so how should you approach
it well this is a little more difficult to explain completely but I'm goin
g to try to to explain it
and I'm going to give you a little exercise in a moment to help you try to do your own so get a
p piece of paper and pencil handy uh so that you might uh play along with the talk uh start with
your objective and personal inventory in other words Tom boso has a certain amount of math skills
a certain amount of computer skills I can program in this language I can't program in that language
just write it down describe yourself as if you're starting out a business what
what are your what
what are you trying to achieve with your business what is your personal inventory of skills and
flaws and weaknesses and everything put it all down then develop your own trading strategy that
fits your profile your Capital your skills and your personality if I'm trading millions in my
money why would you try to take 50,000 and try to trade the same way I do it's not possible it's
kind of dumb to even think that you could right it doesn't make any mathematical Sense on th
e other
hand there's things that a person with 50,000 can do that I might not be able to do because you can
slip in and out of small stocks with 100 shares and nobody car and if I try to take a meaningful
position in it I start moving the market so you have an advantage over me in certain situations
so try to capture your situation and and then starts the process of creating a trading strategy
now execute that strategy that's designed for you flawlessly and with ease if you've got the time
figured out you've got backups figured out you got you understand completely your bisol engines
and you got good position position sizing and you fit your profile and risk profile perfectly
well then it's going to it's it's like having the glove that fits the hand it's just perfect
and it's a lot easier to be your own Mr Serenity because everything seems to be flowing um the way
you would like it because it's designed for your situation so here's an exercise to do uh while
I'm talking and
I'll U Pick on myself and show you a little bit about my my situation so we're
going to make a personal inventory of yourself in this exercise and if you want when I show you
the next screen hit Windows the Windows key uh if you're on an IBM a keyboard and then a shift
and S or whatever way you can capture your screen and print it down and you can write your own
answers on it so here's just a you know a number of different things that you should consider when
you're trying to do your own pe
rsonal inventory first of all you're psychological are you um I
don't know do you want a lot of action or do you want to make as few trades as possible in terms of
where are you on the mental side of things are you a uh a details person or a big picture guy are you
a you know a nervous Nelly all the time and always thinking of the negatives or are you a pie-eyed
Optimist that that just always thinks things are going to be great how much Capital are you going
to trade risk is objectives what
's your maximum draw down that you think you could tolerate and
how long would the longest draw down have to click along you know you talk in six months you talk
in a year two years at some point you're going to get bored and say this isn't working I want
something else so how much patience do you have uh so to speak there return objectives what
are you looking for to try to make uh because some people are trying to make more than others
uh and Returns versus benchmarks is critical to some
people because they feel like that gives them
some kind of a way of comparing themselves to some group out there style of trading there's lots I
mean you can Trend follow you can swing trade you can mean reversion you can come up with any number
of other things I remember seeing one one trading strategy that was all about the phase of the Moon
I mean those I don't miss any of them dismiss any of them they're just different ways of trading and
you know whatever fits you direction do you want
to be long only do you want to be short only or
do you want to go both ways uh people will have their certain biases there time frames do you want
to day trade short-term trade maybe on the order of a couple days or do you want to maybe go out
21 days or more and get into the months and maybe weekly charts you're a busy guy you travel all the
time you can only look at your stuff on Saturday morning and so you're going to use weekly charts
and trade for very long-term positions maybe skills
computer math markets time availability
all these different things that go into that so write down your own and while you're doing that
I'm going to show you mine so psychologically well I'm a seasoned veteran of 50 years Capital
more than I need Millions risk objectives believe it or not I'm I have enough money where if I
add another million dollars it isn't going to change my life so 10% to me I'm happy with that
uh on a on a risk basis because I don't want to go back to work and I want
to keep preserve my uh
my balances where they are longest draw Downs I I pretty much can stand a year I'm not if it starts
stretching out beyond that it gets a little old uh return objectives 10 to 15% is fine with me if
if I make a little less than that it's not going to kill me if I make a little more than that you
know it's fine uh the account gets bigger I just have to manage a bigger account size no big deal
I it's it's not going to change anything returns V versus benchmarks because I
do so many types
of strategies I'm not sure what Benchmark I would even use I really don't care about benchmarks I'm
care about keeping the return to risk of my own account as high as I can make it and whatever that
is it is uh benchmarks can do whatever they want style of trading I'm basically largely a trend
follower I would say and there's a tiny bit of mean reversion in some of my uh credit option
spreads that I do but not a that's not a super material part of my portfolio so I would s
ay you
could label me a trend follower pretty much I like to go both directions I see no reason if crude
oil is going negative in price I want to be short crude is I don't care uh where it is what price it
is I'm happy to go both ways time frames I like to do as many time frames as I can because different
time frames have different uh profit opportunities and each one carries its own return to risk
structure but uh having all the time frames uh is fun because you might have a long-term posi
tion
going long and you might have a very shortterm one trying to trade a a pullback back and they're
offsetting each other so the the strategies are sort of fighting each other and keeping you uh
controlling your risk very very well but when they all line up oh that's very profitable skills I
have computer math position sizing I wrote a book on position sizing flexible time I I can somewhat
do research at certain times all day and then there's other days when I can't do any research at
al
l but I do have some ability to schedule my time I I agreed to do this talk because I knew I had
the free time this afternoon and I like Richard and uh support what he's doing and as far as I'm
concerned having the ability to do some of these things is part of the problem some people are just
too busy and you try to grab something quick and easy and you're not really doing a proper job
of uh getting ready to trade so here's this is me kind of and you're going to have your own
decisions and
obviously we can't have go around the table and have everybody say what their their
uh their answers were but uh think through this uh you don't have to have it finished by now but
it's really important because once you have this you now know what you're looking for it it's like
taking a trip on vacation if you don't have the map in your final destination in the GPS or on the
map how the heck are you going to get there you're just shooting off in all directions and it would
be amazing if yo
u got there so why would anyone want to trade exec like me it would be insane
you're not me so develop your own strategies so if you're going to develop a strategy you got to know
what a strategy is so I wrote this flowchart down because in my mind this seems to cover all the
aspects of what I have to do to have a complete trading strategy so if we start up in in the top
here if we're doing like stock screenings we'd look at various correlations diversifications we'd
screen stocks maybe may
be we have too many stocks in the screening so we have to rank them we get a
portfolio that we're going to trade we maybe have various Bell engines by Bell engines I mean an
engine in a car drives the car a bol engine in trading drives the trader it gets them to buy
or sell so it could be something as simple as a moving average could be a Kelner band could
be dunion it could be bingers it could be any one of a number of other indicators that motivate
the trader to say now I'm in an up Direc
tion and I need to take action and buy something you can
run simulations up here in the upper left of all of this once you have a portfolio selection
and some Buell engines and get a sense of uh how fast is this thing going to move what kind of
Leverage makes sense for me given my profile that I just completed on the previous couple slides
sizing your initial position if you need help with that my $10 book on position sizing is a really
good value I got the formulas in there the way I actua
lly size my positions and it's available on
the enjoy the ride.or website if you uh want to go there and uh and pick up a copy but it's keeping
your position size consistent over all of types of conditions and when I made 103% back in 2020 with
the covid and versus right now I'm doing exactly the same thing I'm sizing my positions exactly
the same way and I'm actually slightly I mean like down 1% or something for the last 12 months
right now so that's you know 103% down one doing the same t
hing but staying consistent allows you
to be able to uh have that proper bet size every single trade and you got to have a way to do that
you got to execute your positions that's sometimes tough for people they get they want to override
it they're worried about the market they're doing this and that the next thing and they can't
uh they mess it up um ongoing position size is important if you're in a position especially
longer term Traders for 6 months 9 months 12 months hey 12 months out th
at position and your
portfolio are going to be different than they were when you bought them you might want to think about
ways of constantly ongoing uh inside the trade checking your position sizes As you move your
stops as you're able to lock in more profits is the is the situation with risk and your attacking
of risk remaining the same or is it changing and you should slightly change your position size or
change how you um manage that position and execute the position judgments and then
this whole lower
right is is the most important thing of all your mental side your self- responsibility your
self-awareness your disciplines your mental States contingency planning if the internet goes
down the power gets lost the computer breaks the your monitor goes out what's your backup plan if
you have that and something happens then it's no big deal you just go to plan B you keep running if
you haven't even thought of any of that and any of this happens it's high stress it's an ulcer
it's
um you're not having a good day so this is what in my mind is a complete trading strategy and if
you don't have all of these things then I would encourage you to look at what you don't have and
see if you can't uh create something a little bit more uh compelling in that area because it'll help
you out uh on the flow of the whole process so if you're not going to be an all- weather Trader like
I think I am you're going to need to check every box of this complete trading strategy you're
going to have the discipline to execute that strategy you're going to have to have a plan uh
to go up down and sideways markets if you are an upside Trader and timing out let's say let's say
you buy mutual funds in your 40 1K and you go to cash when you go to a down Market because they
don't have any vehicle to exploit a down Market okay well then you have a plan up Market I go
long down Market I go to cash sideway Market I probably get whips out a bit but that's a plan
and you understand
the goods and bads of each type of market and you have a plan it may not be the
smoothest of equity curves and maybe that's the limitation of how your 401k is set up but you at
least have a plan so the stress gets a lot lower you're able to execute it it just makes a lot
more sense anticipate various risks with your strategy like I just said if you're in a down
market and you're going to cash in a 401k fine you've attacked the downside Risk by getting out
of the downside risk and going to s
omething like cash which doesn't have that same risk that's
a way of attacking risk so let's talk about attacking risk versus avoiding risk when you're
uh on offense you're far more in control if you if you think about just a simple football game in the
NFL the quarterbacks up there changing the plays at the line and guys are going down the field and
they're doing all sorts of fancy patterns and the defense is not sure what the offense is doing
and is trying to react as best they can isn't
it a little easier for you to be trying to pick
apart the defense than the defense trying to do something that anticipates what you're going to do
because you'll never be able to do that perfectly so I like to think of attacking risk as being
on offense and and trying to avoid risk as being on defense and I'd always prefer to rather be on
offense so I like to try to look for risk and and come up with a way to attack it so here there's a
number of ways of attacking risk and I cover a lot of
this in the all weather Trader the book that
just came out about a month or six weeks ago or something and uh these are kind of my own solving
my own Financial puzzle ways that I've been able to um keep my portfolio calm and solid and and
somewhat keep the risk away through many bare markets and all sorts of sideways periods and that
the easiest one I can think of that I came up with first was just simply to you know I was trading
mutual funds a long time ago I just set up some Trend fallin
g models and whenever the market went
to a down Direction I get out of it so go to cash no big deal make interest that's an easy one
and timing examples you could take like what I do as a sector ETF I have 30 different sectors
of various ETFs exchange traded funds uh and I use my favorite Trend following indicators to go
uh long and up directions and move to cash and down directions it's really simple I can't believe
anybody out there listening to this couldn't adopt aspects of that for the
ir own portfolio if they
want to hedging this is a I get a lot of questions on hedging uh I have an entire page on the website
dedicated to exactly how I hedge because because so many people asked me I got tired of answering
the emails saying the same things over and over again so I just wrote a whole page and that should
answer just about any question you have about how I hedge now do you need to copy that no let's say
you have a portfolio of tech stocks I'm using the S&P 500 futures hedge
to hedge with you might use
the NASDAQ because that's a little bit more Tech oriented so there'd be a better match of the head
to what your portfolio looks like so don't just mindlessly copy think through what you're trying
to do with the Hedge and use mine as an example to stimulate your brain and and come up with your
own unique solution stocks uh use a trend falling indicator on screen stocks candidates to time
out of stocks that are headed in a down Direction so that you then free up t
hat cash and maybe you
screen a new stock that maybe is a little bit more timely and and taking off at this point so those
are all examples of attacking risk with timing so my favorite timing indicators which a lot of
people always want to know and ask me on Twitter or whatever and these are all you can look up
investopedia.com and all of these are are really standardized indicators most trading platforms
for Brokers will have these as pretty standard indicators that you can use Kelner uses
average
true range which is a measure of volatility to adjust top and bottom noise band limits to an
exponential moving average that's in the middle of all the price action and it changes the indicator
on the fly with changing volatility which is why I like it so much it's not static it's changing all
the time donon Max and Men price over a look back period so if you think about what that is doing
when you have wide ranges and lots of volatility the donon bands are going to be WI and when
you
have tight boring nobody cares markets the Don and Max and mens are going to be a lot closer together
so again it's changing with changing market conditions bingers that use a standard deviation
as a measure of volatility to adjust the top and bottom noise band limits to an exponential moving
average and it again changes so smaller standard de deviation with smaller volatility means typ
bands and the ability to be more sensitive to very tiny movements and markets going crazy big
standa
rd deviation wide bands give the market more room I like indicators like that that have
a an aspect of changeability to them so they can change with the markets and what it helps do is
keep the indicator a bit more robust over time different market conditions so this applies to all
timing indicators you can use them over whatever time period suits your own situation so in my
case I tend to trade uh some intraday stuff on five minute bars I trade some one of my strategies
is like three days
or less and another one is 21 I use a lot and I have some that's out 50 days and
I like that because I pick up different moves in the markets using different uh time periods but
your situation different than mine if you don't want to do trades every day then you want to
get your time period out a little bit more and keep your life a little easier on the trading and
execution side you can use one or more at a time I like to use Ballinger donions and um a keelers
together and I take the first
one hit it's just the way I have been trading the last few years
and I I feel comfortable doing that it works for me you can take one or more you can create other
ones in conjunction with those that I mentioned custom design it so that you understand it and it
feels comfortable to you you should have a timing indicator that sets risk one of the problems I
have with moving averages although I know they work over the long run uh and you could do that
and make money I like to have a place whe
re I set the get out Point um and when I do stuff like
donions where I'm buying the Top Line and I'm selling the bottom line it's giving me a fixed
risk that I then can use to size my positions by doing a moving average if you think about it
if you have two a two averages that are crossing each other and that's a Buy Signal where exactly
do you put your your stop loss do you just pick a number out of the air and say 5% or you need some
way of doing that and I I like the ability to have the
indicator give me both sides of the trade the
getting in and getting out it should be Crystal Clear where you get in and out whatever timing
indicator you do you need to have a a Buell engine to motivate you to buy and sell and if it's not
Crystal Clear then it gets a little bit judgmental then you start having a bad day and you I'm not
going to trade today or I don't feel comfortable with this or the market doesn't look good or
whatever you come up with a million excuses to screw up the st
rategy don't do that make a
strategy so it's Crystal Clear you need to get in at 3.52 on a stop good till cancel you you should
be able to say that you should understand the math completely don't don't do Ballers if you don't
understand what a standard deviation is is because then you don't have the confidence to trust the
indicator uh if you can deal with just looking back in time and doing a donon we'll do a dungeon
that's easy to understand and it's going to get you in and out roughly in
the same uh general area
so extreme diversification is another way that we have to um to deal with uh risk and attacking risk
and what you're doing here is purposely adding such diversification and non-correlation that
no one part of your portfolio can syn your ship you're just spreading the risk all over the place
now portfolio selection and allocation when you're trying to select items that move independently
of the rest of the portfolio has gotten over my lifetime a whole lot more diffi
cult than it was
back in say 1974 when I came out of college what's happened uh perfect correlations a 1.0 or a 100
it means everything moves exactly like each other perfect negative correlation is minus one or minus
100 this means that one goes up the other one goes down by the same percent what you really want
when you're putting together a portfolio is a non-correlation or zero you want each item
in the portfolio to just go their own way and sometimes they'll go the same way as another
instrument sometimes they'll go opposite direction that gives you true diversification and Smooths
out everything here's the major stock markets I pulled this in June of 2022 but it's only gotten
closer and closer over time so I wouldn't expect the numbers to be too much different but as you
can see on this left column you're looking at uh all these different markets around the world
well remember 1.0 is a perfect correlation so the Russell 2000 compared to the Russell 2000 is
a one as it s
hould be but when it's compared to the NASDAQ it's 096 which is is almost one and
if you really glance down all of these what's some of the lowest is like 0.56 maybe a so in the
Nik or 045 there's a whole bunch of them that are you know 7 or higher so you're getting tremendous
correlation SO trading around the world in stocks it's very difficult to to find a place to hide on
the other hand I just took some Futures markets because I also trade Futures and so if you don't
know these tick I'll
go right across top P Top Line is crude oil natural gas wheat soybeans
gold silver Lumber uh live cattle lean Hogs and Japanese Yen now look at these numbers there's
there's some that are negative some that are uh you know around zero -05 -03 -12 plus1 zero
there's lots of that's what you're looking for when you're looking for extreme diversification
because basically you know gold or Lumber let's say doesn't care what crude oil is doing in any
one day they're different markets affected by
different aspects of life and uh they're going to
go their own Direction and isn't that what you're looking for when you're trying to attack risk
so basically there's grains energies financials Metals Meats sauce indexes and currencies lots of
different ways you can go and by the way for those who think they don't know anything about Futures
I was not born with a knowledge of Futures it's a learned skill CME has all sorts of educational
tutorials there's books on it and now to help the the
small Trader uh get into some of these things
the micro and mini Futures contracts that a lot of the exchanges are coming up with where instead
of trading a full crude oil you can now trade a mini crude oil and get a smaller contract size
so you can get you can participate in a way in a smaller portfolio and still pull it off and make
all the math work you don't need to be trading uh you know with a million2 million dollars to
pull this off sideways Market let's think about that we got sid
eways markets in my estimation
happen somewhere around 60% of the time in terms of the stock market over the last 40 to 50 years
that's more than half of the time you're kind of going nowhere um you're moving and you're getting
chopped maybe but you're not ending up anywhere you're just coming back to where you were so by
adding strategies that are likely to profit from markets that don't move that's a useful function
60% of the time kind of so what I've done there for myself this is just a
n example of timing and
how with all these ovals I pointed on the top line to the various sideways markets it didn't really
go anywhere and in every one of the cases you can see the equity curve for timing strategy goes
down so sideways timing not a good thing they flight each other and you get whips saw a little
bit this strategy I use once a week it's simple to do um I do I I I look uh at something like an Ros
RSI stochastic and I measure whether the market is overbought or oversold if it
's overbought I try to
sell a call spread if it's oversold I try to sell a put spread it's a credit spread I have a limited
loss so I can't lose an infinite amount of money and if the market doesn't go anywhere generally
speaking all of the credit spreads require uh expire worthless and I net all that money so the
reliab ility of this type of strategy especially during a sideways Market is extremely high I
I've had stretches where maybe I'm up in the 80 85% reliable now if you get a trendin
g Market
this is not a lot of fun because you're going to take your prescribed losses on the option spread
but I have nine strategies and many of them are Trend following and when the markets are trending
and I'm losing money with this type of strategy I'm cleaning up other places so I don't mind so I
blended these things together to uh to make it all work uh here's a sideways another sideways you
go so short term that you end up with dancing around the noise bands so in this case I took a
simple three indicator so itd be Ballinger donon and Kelner and I did it with three days and no
fil filters and I did do position sizing like I always do but when I do that run and you look
at the uh various ratios that came in here look at I mean you've got Sero ratios are improving
you got average draw down getting a lot less you have an M ratio uh that's less than that you got
a maximum draw down that's a lot less you've got a certain reliability because you're having a buy
and sell you
do have a positive profit Factor but when you're adding it all together look at here
you got Improvement of the total return you've got an improvement of the sharp Improvement of
sartino Maximum draw down Improvement and you've made more money I mean those that's a simple
example of something that is trying to take a known risk and by blending in another strategy you
all a sudden have the ability to buffer your risk and improve your return the risk ratios and I call
that filling the pothol
e it's a term I'll have to credit with Lawrence bensdorp over in Portugal
and he used the term and it just fit me I just hit my brain and I said that's perfect here's the
equity curve and I've shaded some of the potholes and everybody's driven on roads around you with
your automobiles knows what a pothole is just not a fun experience to go into the pothole your
tires do not like it and if you could somehow come up with strategies that end up help helping
to fill that pothole it's a good men
tal image of what you're trying to achieve by using some
multiple strategies and trying to develop ways of stabilizing your Equity curve so it doesn't have
those long and extended uh downward spikes and if you're adding new strategies ask yourself when you
look at the pothole and drill down in there what exactly is causing that pothole is there there a
particular strategy that you're doing is it was it one stock that you bought that created the pothole
what you got to analyze it dig down de
ep find out in dollars and cents in return where the heck the
pothole came from and ask yourself what kind of strategy can be developed that would likely make a
profit during that same Market condition figuring that over time in the future there's going to be
similar not precisely the same but similar market conditions so if it's a let's say a draw down
for a timing strategy that's long only going to cash what could you come up with that might make
money during that down period well maybe i
t could be a hedging strategy and that would make money
when the markets go down and lose money when the market goes up so now you're starting to see oh
wait that would that would take that little draw down that I'm suffering and maybe turn it into
a break even flatten it out maybe even make a profit if it was a bare Market it lasted for a
long period of time so use your um your human brain and creativity and develop things that will
help you out when you're suffering those potholes develop
the logic the time period position sizing
for the new strategy if it's a draw down that's going to last for a long period of time maybe
your time period could be a little longer if they're quick and fast and abrupt time period
uh draw downs and and potholes then maybe you need to keep your time periods a little bit on the
smaller side um test it however you can with your capabilities if nothing else get on your broker
platform and pull a chart up and go back and kind of look at signals in
the past and see how you
feel about them uh if you can get a more automated situation fine use it determine what percent of
your total portfolio the new strategy will get you I mean is it 50/50 uh or is is that going to
cause the new strategy you're bringing in to sort of overwhelm the first strategy that you're using
and play with different types of percents so that you kind of feel like they're both contributing
to the risk and to the reward somewhat equally and and you'll get a little bi
t more balance going
on in your portfolio and then when you're all ready to go added into the suite of your trading
strategies and if you've done your job right and you made it very easy to do or automated it even
you can get to the point where you could add you know I've got nine strategies six of them are
automated the seventh one is going automated on Tuesday I'm told we'll see if that happens but
U you know again automating a strategy is nothing more than finding some computer guy that
you can
describe what you want and they go out and and build it for you and so you can even if you don't
know computer programming you can do some things to help yourself Let's uh talk about rebalancing
between positions and strategies so here you got a situation and you got multiple strategies because
you're trying to offset those potholes well one strategy is doing very well the other one's losing
money how do you resolve that you've got an equity figure that maybe stayed the same what I
do is
once I've decided on how much of a portfolio I'm going to put on each strategy I let the daily
work that I do always be based off of the total equity and that flows down to a percent to the
strategy and it flows down to each position in the strategy and that way ongoing I'm already kind of
rebalancing and taking money from some of the more successful strategies and feeding it into the ones
that have not been as successful lately hopefully that shifts and the ones that with market
con
ditions change in these strategies that have been struggling all of a sudden become the heroes
they've got plenty of money to be able to do their job and I've taken something off the table of
those that have already done their job and when we was at Trend stat back in the money management
days uh retired in 20 23 or 2003 uh Trad did it every day so we'd have every account we we'd
know what the equity was and all the strategies underneath it would just get their allocations
and that's how we
sized all our positions this is interesting and I put it in red because I can't
say this enough and I've said it a lot of times I've not had anybody I I've had people debate me
as to whether this is an important thing to do but I've never had anybody show me that it isn't what
I said here I all my studies show that rebalancing always in caps improves the return to risk and I'm
a return to risk type of guy I'm a retired guy I want to keep my risk down and maximize my return
to risk I am not
a let's go out and try to make a 100% this year type of Trader I'm just not and
I know myself don't want that so think about this in terms of your portfolio on whether or not you
want to try to go after turn to risk or you are you just looking for the maximum amount of money
you can make so the mental side of trading is very important and most of you know by now probably
that um Jack schagger tagged me with Mr Serenity and I've been Mr Serenity for about the last
30 years now I guess and m
aybe in the future I'll be known as the all weather Trader I don't
know maybe I'll have a new nickname but um the mental side of trading is the most important and
and why would that be well that's pretty simple any Trader including an automated Trader can mess
up the trading you can override it you can turn the computers off or you can say ah this is this
is the seventh trade in a row this isn't working anymore whatever there's ways you can do it and
the markets are going to test you psycho
logically in every possible way they can figure out how to
how to do it you will end up being tested if you have a we spot the market will find it so you've
got to get good control of your own mental balance your your ability to have patience the ability
to maybe do nothing if it's appropriate to do nothing uh the ability to move quickly without
almost even thought um to uh to pull off a trade and make make it happen because it's time to do
it and not a second from now now and so mental sid
e's really really important and then here's
the other thing I I talk about a lot I I kind of almost sound like I'm preaching on it sometimes
I think at least to me social media predictions just ignore them uh here here's an example of
just some Twitter thing and I blanked out um the name so that we don't embarrass anybody but
you read this Canadian sectors on TSX looks like they may be turning to the upside except for
healthcare especially Canadian in financials and real estate the spies Fu
tures don't look
terrible either definitely looking short-term bullish to me made a long entry into Bry uh on
Friday before the close same person never used the word deaf again when talking about the market
nothing is ever definite when it comes to the market things were looking pretty good until they
look terrible when I woke up this morning damn a little bit later the same day oh we're looking
good again spies on a pancake flipping mode now is that trading I mean is is that a strategy or
is this person just making it up on the Fly and he thinks this and it's predicting that and you're
just setting yourself up for so much angst and so much stress just ignore it quit don't if you see
something like this on Twitter just go right by it discipline you do not know what is coming next
I don't for sure and if you think you do well good for you but I would recommend that you quit
trying to predict what's going to happen next and just deal with what you going to do right now
so your
own all-weather plan to get this close to the finish uh is to write down your personal
objectives I've already given you a sheet that you can do that with if you saved the did the
screen save and if you didn't do that you can get the recorded version of this and uh that
Richard's going to make available eventually I guess and uh you'll be able to print that out
and then to start thinking through each of those items start with a base strategy you may already
have one right now I'm not sayin
g you change it um go ahead and start there and that's your starting
point and that has an equity curve that you can plot uh and you can concentrate on the potholes
and look at the potholes and analyze them try to figure out what happened during those potholes
you may find something out with your existing strategy that you want to tweak but you may also
come to a conclusion well wait what if I add a second strategy B that always makes money during
these types of markets then I'm going to so
ften those draw Downs I may give up a little bit of
My overall return but by smoothing out that graph my mental side gets a lot easier to take care of
and I've got more ability to be able to leverage it in a comfortable way uh there's just a lot of
advantages there look at some new strategy to fill the potholes add them and evaluate the new curve
and it's new potholes and wash rinse and repeat over time and while you're doing it enjoy the ride
over to Richard perfect Tom thank you very much
uh yeah I think that's super important what you just
covered um especially considering you know there's been a lot of different ideas uh thrown about in
this conference you know a key theme is to manage risk which at some point every system has to do
uh but I I definitely think it's very important to tailor your process towards yourself and develop
your own system over time um I've definitely got a lot of questions here and I see some good ones
coming in to the chat as well uh to start thi
ngs off um if if it be possible thinking back on when
you're when you were developing a system would you be able to discuss um one example of filling in
a pothole um using two different strategies one strategy obviously produced an equity curve and Q
talk through the process of Designing a strategy that filled filled in a portion a pole of that
strategy yeah the easiest one that I can think of that everybody probably can easily understand is
let's say I have a Buy and Hold Diversified growt
h stock portfolio that acts like the S&P 500 and I'm
going to hold it for the next 20 years what's it going to look like every time we have an up Market
it's going to go screaming upward every time we have a down Market it's going to go screaming
downward every time we go sideways it's kind of go bounce around and go sideways so we look at the
equity curve the potholes the big ones are going to be in bare markets so second strategy could
be let's create a timing model that short only it goe
s flat when it goes to the up Direction and
we'll use the standard Force 500 futures contract and every time we get a Dom direction we throw a
short sell in the S&P future on so it it's making money as the market Falls and my palm is making
money let's say the stock portfolio is uh is making money when the market goes up and it loses
when it goes that way the Hedge is the opposite see I got the hands different the Hedge is making
money as the market Falls and losing money as it goes up so i
f I have those two strategies
together what have I done with the pothole and minimized the pothole I may not eliminate it
because the timing of the two strategies might be just slightly different and maybe my S&P 500
futures doesn't exactly match my portfolio but heav I taken a major step in the right direction
to getting rid of a lot of that pothole so if I have for example like a 2 2000 Tech meltdown 2008
stock market real estate markdown uh uh meltdown covid crash you know major moves th
at happened
and severely impact people's psychology EV and I awfully softened that kind of you know debacle
happening to your portfolio so that's kind of a simple example you could come up with a million
others but they'd get more complicated probably so yeah I think that's a good example for it and to
keep to keep going with it and this may get into the email that you've written a thousand times
and as explained on your website but I figured I'd ask it um how would you in a simplified way
uh
size that hedge versus the position to offset uh that draw down okay the way I do that is you could
just match the dollars and the dollars but because certain stocks would move faster than say an S&P
index what I do is I just measure the volatility each day of my portfolio so I have a spreadsheet
simple spreadsheet that most people know how to do one of those so I write down the date I write down
the amount of the portfolio and I have a percent that the portfolio went up or down I have t
he S&P
futures and what it did that day and the percent it went up or down and I have a ratio of those
two so that I need 1.35 futurus Hedges to match my portfolio over here I just volatility balance it
on a spreadsheet and based on the fact that I've got this much in my portfolio that means I need
X number of Futures contracts to exactly hedge my long position over there it's that simple
yeah very interesting and um are many of your strategies do they work are they like a pair in a
way th
at you design them where one creates a trend and then the other kind of fills in the pothole
or are they all pretty much kind of independent uh strategies yeah no some are tied some are
completely independent uh my Futures Trading on the longer term basis has nothing whatsoever to
do with my sector ETF timing or my hedging they're completely you know distinctly uh different and uh
going after different return streams over various time periods over various markets so no okay no
that's great
let's see uh there's a question from uh Benjamin how do you separate each strategy I
find that I have uh multiple strategies on the same trade or the same chart uh back to back or
out of one into another so it just sounds like a lot of churning I guess yeah I I get that every
now and again um and the only way I've been able to deal with it is to create a some Le spreadsheet
again that keeps track of the positions by each strategy and it does get a little complicated
and um I wish some of th
e Brokers would be able to you know label some of the positions in your
portfolio like this one is from strategy a and this same position which is in the same direction
as the first position is strategy B so I've got three contracts are here and I got five over there
and I've got a total of eight a lot of brokerage firms will just say you got eight contracts of
XYZ whatever and you can't really it's harder to manage it but um if you organize it you can
do it it's uh it's all I guess a matte
r of how much time you want to spend how much automation
you can put forth into the problem but I A lot of times I'll just use a spreadsheet and if I've
got a couple of strategies that are going to be trading similar instruments I try to keep track
of them on a spreadsheet as I on the ongoing basis and it's it's not impossible um you can make a
few mistakes along the way but if you discover them go ahead and correct your mistakes right away
and move on yeah perfect and uh there's a question
that I think you mentioned the answer but it
might be a cool talk Talking Point um from nimen Nim nin Jedi uh how probably didn't pronounce
that right I apologize how much discretionary training versus systematic does Tom use currently
I like to think of discretion coming in when I'm designing a trade strategy that is where I use my
creative human brain right to analyze the pothole develop a sort of a logic of what could I do that
would exploit that type of Market condition and then I star
t studying indicators that might be
used to trigger that how will I use my position sizing so how much leverage do I want to take
on how much margin impact is it going to have to the portfolio uh in the case of an IRA uh uh
interactive brokers charges three times the normal margin for futures in the ca than they would in a
say taxable account so I have to take into account tax considerations uh margin restrictions and I'm
using my creative brain and my discretion to try to put together that
strategy once I use all
my best discretion in designing something that exploits that particular pothole that I'm trying
to fill at that point and it's automated and I've done my historical simulation I'm comfortable with
the way it's acting and I understand the logic of how it's going to help that pothole I'm ready
to go turn it on no discretion yeah perfect um and in designing the systems that you create are
there anything things that you do uh consciously with with most of your strategie
s or maybe just
one in particular that is designed to increase the robustness but might be counterintuitive when
people first think about it um is is any system or or way of thinking about it that you do to make
sure you know it stands a test of time even though you know from just somebody on looking you know
it would significantly decrease the performance or have some other negative impact yeah yeah what
this reminds me of for a story time uh would be along the way when I saw people consta
ntly saying
how often do you optimize your indicators and I thought about that and I thought I don't op
optimize my indicators at all they optimize themselves and why is that uh all every indicator
that I use has some aspect of adjusting for the ongoing conditions that are in the market if
the ranges are wider my stops will get wider my position sizes will get smaller if everything
is compressed and my my Kelner bands or my bers are getting very low standard deviations and ATR
then everyth
ing's going to be tight I'm going to be a lot more sensitive the markets are boring
I'm building bigger positions uh when things nobody cares it's boring it's the summertime and
everybody's gone on vacation uh when everybody comes back and the markets go crazy I've got a
very large position I'm starting with and as it starts breaking out and the the lines get farther
away and the ranges get farther away that's when I'm touching off uh you know the peel off trades
and I'm taking my persistan
ce sizes down slightly and managing my persistance size so it deals with
that extra volatility so I like to think that a lot of the indicators I create discretionarily if
you will have aspects of volatility or range built into them so that they stay more robust over time
because they're adjusting themselves on the fly it seems to me more logical than trying to like once
a month run a historical simulation and reoptimize your indicators it seems a little clunky yeah
and you might just be you
know fitting and it yeah you're curve fitting yeah you're curvefitting
history and that's not what I really want I want to try to react to current right situations yeah
perfect um I want to ask a question about your strategies changing over time and and developing
new strategies um how how have your strategies kind of changed over the course of your career and
how is that in response to kind of you know I I really like the template that you shared where
you think about the objectives of yo
ur system and the different components how how is how have
these changes reflected to the change in in your current situation in and uh how you would fill
out that template the biggest change I can think of was the transition from working as a money
manager and having real clients with millions of dollars to then having a pretty substantial
portfolio myself but trading my own money right the reason is when I was a money manager I had to
consider that the clients have a certain amount of men
tality capability in terms of trading certain
amount of draw down tolerance and so on a lot of money managers take on the attitude I think
incorrectly myself I'm biased uh to this uh that they're going to trade the way they would want
to trade their own portfolio and if you Mr client wants to come along for the ride that's fine with
me you can pay me fees I'll manage your money I did the opposite I said what would I think that
average client be able to tolerate and I designed everything we
did at trat to try to satisfy what
the clientele wanted and then I tolerated going along for the ride uh with what clients were okay
with nowadays because I don't have any clients anymore kind of the bridal is off I I don't have
to I can examine exactly where my risk tolerance is and obviously since I've been trading f futures
for like 45 years I'm comfortable trading Futures there's no fear there there's I understand what
I'm doing I can manage my risk I can trade in ETFs I've got like 60
positions when I'm really
loaded up um that's all it almost seems easy to me compared to what being a money manager being
money manager having clients ask you questions that you sit there and you you shake your head
and say that's a real dumb question why are you asking that and that would happen a lot and uh I
don't get those questions anymore because I don't ask myself stupid questions um so you can kind
of gear yourself to a different level and kind of do what you want to do and you don'
t have
to worry about labels that you put on things because you understand what you're trying to
do so that has changed the mix of indicators I've used it's changed somewhat the risk levels
that I train at it's uh changed a little bit the instruments I use um I never did credit spreads
before for clients because if you've ever seen the disclosure documents you'd be required to give
somebody for trading options for them it would scare anybody right out the door uh good luck
trying to convin
ce anybody to give you money to do that and um so I mean I can do things that I
just don't have to worry about the the legal uh disclosures and all the you know the track record
work and the audits by the SEC and by the NFA and all that that all goes away when you're managing
your own money so when I retired I put a smile on my face it's been there ever since yep so great
but I mean in terms of some indicators Richard I I can think of one indicator I'm using right now
in my long-term Future
s Trading it's precisely the same indicator I used at trat back in the 1980s M
it's un altered it's the same indicator I haven't changed perfect um and I think I probably asked
this question uh before to you but it might be to a new audience listening if what what advice would
you have for anybody who wants to get started with automated trading uh when designing their first
system anything that you know could speed up their learning curve or help them avoid any pitfalls
it depends on how mu
ch they want to program if they want to do their own programming um I guess
the considering all the different Alternatives python is one and C would be another both are
public domain uh programming languages and I would stick to public domain do not do what I did
major mistake use Fox Pro which eventually got bought out by Microsoft who eventually decided
in a business decision to just not support it anymore and all of my business was written in
Foxboro so I faced the prospect of hundreds o
f thousands of dollars of converting Fox Pro to
some other language just to have the same exact trading platform and simulation platform that
that was already working beautifully I would I would gain nothing I would simply be moving from
one language to another and running exactly the same thing and I that was just one of the many
reasons why I retired but um it was a factor and I would encourage you to always look for public
domain so Python and and C Microsoft has released CP to the world
so they don't you know control it
anymore it's out there and because of that you can program stuff in there and if you don't know these
languages I I think I just signed up for a a uh course in uh what WordPress because I'm doing some
work on the website and I want to know WordPress is used a lot for making websites so I thought I
I'll just take a course in web it was like $12 and it's 102 hours of Wordpress for beginners and you
can go ahead and watch it on their channel it's udemy.com yo
u know get a guy going with screens
and you got exercises to do it's just like going to school but when you get all done with it you
kind of know the basics of Wordpress and same thing as in case there's C courses out there you
can get they're very inexpensive just find the time to go through and start using your trading
strategy that you want to work on as an example of what you want to work on for your program and
that that would you can play with it and it won't run and it'll give you an
error message and you
say well why does there an error message and you get better and better and pretty soon you've got
a little automated strategy yeah perfect I think that's great um you mentioned that the mental
side of trading is the most important side uh and aspect of it uh any thoughts there or or advice
there for people who are struggling with with lack of confidence doubt uh they're experiencing
fear missing out you know a lot of the mega caps the semiconductors have run super far
if they
miss that um any thoughts there given given your experience and uh youve probably missed so many
trades in your lifetime that you wish you could have traded but you know it's all it's all part
of the game right I would be worth thousands of times what I am worth which is comfortable uh if
I have all the trades I missed so yeah missing trades is not anything I I would encourage people
to do this first of all quit predicting because the reason you're fearing missing out is
you're pr
edicting what's may be going to happen but you don't know what's going to happen
so let's concentrate on now and ask yourself what is happening today this moment and how do I want
the portfolio best position to attack risk and to manage risk and to manage position sizes now not
what we think's going to happen next week I don't care what the fed's going to do I don't care what
Biden's going to say I don't care what is going to be on Fox News I don't care about any of that I
only care about l
ooking at the prices and saying what's happening right now and what should I be
positioned so that takes a lot of the pressure off altogether MH second thing you want to try to do
mentally is do your homework and develop that plan I find that people that have the most difficulty
mentally that are are people that are making it up on the Fly they react now so they're in the now
world that's great but they're they don't have a plan for how to deal with now they are looking at
it and saying wow
this XYZ is going crazy I should jump on now but that might not meet any kind of
criteria they had as a stock to screen out of a universe there may be a hundred different better
um things that he should be buying right in the now but he doesn't have a plan so he can't screen
anything he doesn't know there's just nothing there and so then and where you putting the stop
I don't know I we'll just watch it for a while oh goes the other way oh now I'm nervous and I'm so
you're just taking yours
elf all up and down and all over over the place by having a plan and then
executing that plan and doing it in the now you get rid of the prediction frustration you get rid
of the doubt about what you should be doing in the moment and it I kind of think of it and I've never
done this in reality but think about a sniper in a in a war situation you've got the Target in your
scope you don't have time the person's moving or he might be on a vehicle if if you have to be able
to pull that trigger
off without thinking it's got to be instinctive you you got the thing in the
site and it's go that's the way trading's got to be you got to have everything planned out you know
the scope is right you know the wind direction you got everything ready to go it's now time to pull
the trigger and you just do it and it gets rid of a lot of that angst MH yeah I think that's
very helpful uh Tom thank you so much for your presentation and the Q&A I I think a lot of people
appreciated it um any last
words of advice for for Traders out there are watching who are you know
working on their systems trying to improve as a Trader and and just uh yeah improve overall just
enjoy the ride along the way uh you're going to have good periods and bad periods and um it just
doesn't make any sense to me to go through life uh stressed out and in angst and and all that so
I've I I try to not think of myself as a Trader even though a lot of you out there think of me
as a Trader um I you know I just uh I
cooked a beautiful dinner last night uh we had some great
wine out on the back deck under the stars um we taught this uh couple that came and visited us
two-step dance lessons um so we did it's not I'm not just a Trader I do a lot of other things
that are a lot of fun and that's what I call enjoying the ride and why I named the website
enjoy the ride world because I think that's the thing I think some Traders get so obsessed
with say doing the programming and trying to be perfect and tryin
g to always do every trade and
all this and they just their family life suffers their joy in life uh doing other things uh suffers
and I think you sort of lose sight sometimes just stepping away and doing something entertaining for
yourself go take a vacation uh you'll have good ideas come to you then when you're just consumed
with grinding it's hard to come up with creative you know brilliant ideas because you're just so
trying to do the next thing all the time so I'd say step back and enj
oy life a little bit perfect
and uh you mentioned enjoy the ride.or uh where else can people reach out to you learn more from
you uh and and maybe give your Twitter handle as well oh there it is yeah it's all there yeah it's
all there uh Twitter is basoor Toom and there's a new impostor today uh that I'm going after and uh
Facebook's the other one I just really it's enjoy the ride.or or just check out my name and you'll
find it but um they got another imposture I'm going up today there they
seem to like weekends
I don't know uh they must have more time on their hands but uh I'm on LinkedIn those are the three
big ones uh me we and gter and Truth social I'm also on but it's pretty quiet yeah there you go
well Tom thanks again for your time and I really appreciate it and it's I think it's a great way to
close things out is to bring it back to you know creating a system because people have learned
so many different things uh and and taking so much input in uh you got to understa
nd that you
got to you know establish something for yourself and you can take bits and pieces here but it's
got to suit your own needs and I think I think there's a really perfect way to end it so thank
you so much for your time always great chatting with you yeah thanks so much Tom again and thanks
so much to the viewers uh leave a like down below subscribe [Music] no
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