Trading Life Interview for Your Trading Edge Magazine
Trade View’s Head of Proprietary Trading and Managing Director, Robert Bubalovski recently did an interview for Your Trading Edge. The transcript of the interview is below.
We have also provided readers with two excellent resources at the end of this interview – four of the most influential books that have helped the traders here at Trade View to trade professionally and full time for a living, plus and incredible documentary about the best traders in the world and the rapid emergence of automated or computer trading.
YTE: Describe your trading style.
RB: Trade View uses a systematic approach to trading where certain sets of criteria need to be met before any trades are made. The criteria that we look at are more mathematically based than technical analysis based.
There is however, an element of fundamental override, and by this we mean human intervention from a trader. This part is critical. For example, when important news comes out onto the market the sentiment of traders and investors is tested. Sometimes automated systems find it difficult to understand these events, and human intervention is therefore necessary to interpret this sentiment.
We run multiple trading systems for various market circumstances. Our systems are both fully automated and semi-automated which tell us when to enter or exit a trade. This automation frees up a great deal of time so we can focus on other areas of trading.
Speaking with individual traders it is evident that more and more people are becoming time poor and they can’t fully focus on refining their trading systems due to lack of time. Running a semi-automated or automated trading system helps to overcome this problem.
YTE: What do you trade (for example, shares, indices or currencies) and why?
RB: As a professional trading firm it’s important for us to have a well diversified portfolio across several markets in order to spread our risk. This type of diversification and how to allocate trades is something most traders overlook.
At Trade View our main focus is on stock indices as they provide an overall view of a particular market, and don’t expose the trader to company-specific risks. Again, it comes down to sensible risk management. One of the methods we use is Pairs Trading, which is going long one Index while shorting another correlated Index.
We also like to trade forex because the volatility of this market allows us to trade using a Mean Reversion Strategy, which involves looking for points of entry when a currency pair has potentially overextended its moves and is likely to come back to a previous level.
We also adopt various option trading strategies such as Long Strangles, which allows us to look at where our proprietary support and resistance levels are and then we will buy a Strangle (Buy Put, Buy Call options) on the back of news announcements.
Part of our portfolio also involves stocks on the Australian and US markets.
YTE: What are some of the advantages of using automated trading systems?
RB: The biggest advantage of an automated trading system is that when certain trade criteria are met, our systems will automatically place the trades for us. We perform thorough back testing before using an automated system and actively manage them to ensure they are working at peak performance.
The advantage for most personal traders is that systems similar to what we use are readily accessible through trading programs like Meta Trader 4, and with a few guided tweaks can be made to run according to a trader’s needs and requirements.
We speak with many traders who start their own automated trading systems but then come to us for assistance on how to make them better. Most people don’t realize it, but when market conditions change those changes have an effect on their automated systems. This is where systems ‘break’ and traders get stuck with not knowing what to do next.
This problem stems from traders not fully understanding their systems or the logic behind the system, and therefore not knowing how to adjust them accordingly. In many cases traders won’t even know if their automated trading system or ‘bot’ is running optimally. Our suggestion to anyone trading this way is to be 100% aware of how the system works.
YTE: How much of an advantage is backtesting?
RB: The important thing about backtesting is the idea of having the criteria to work with first. Once the criteria are clearly defined you can then go on to test the automated system to assess the results. Any necessary improvements can then be made and the system is tested again and again to see if the results get better.
Backtesting is probably one of the most important parts in running a profitable trading system, regardless of whether it is an automated ‘bot’ or a manual trading system. It’s very easy to buy an ‘out of the box’ automated trading system from the internet, but if you don’t understand the methodology behind it there may be big problems.
We strongly believe that traders should start with their methodology first and then build the systems from there. We would also suggest that traders backtest their systems on a demonstration trading account first before using real funds.
YTE: Is a client’s risk tolerance important?
RB: Yes this is a very important factor in any trading system. Many traders will say they know what their risk tolerance is until volatility kicks in. When volatility does kick in, then their risk tolerance quickly changes. This has to be taken into account when creating a system.
For example, a new trader might start off with $10,000 in their account. But once they have a drawdown and their balance falls to $9,000 or $8,000 or $7,000, then their risk tolerance changes. The trader suddenly realises that a $3,000 or 30% loss of their capital is a large sum of money.
If the trader is using an automated system of which they have no real understanding of, then it’s very hard for that trader to maintain confidence in their system or their trading. This causes the trader to ‘freeze up’ and he/she continues to take large losses.
So the point is that the trader needs to have a clear understanding of their risk tolerance first, and this tolerance needs to be built into the methodology of the trading system.
YTE: What are some of the most common mistakes traders make when starting out?
RB: The most common mistake traders make when starting out is not understanding what they are doing. Most new traders get excited with the prospect of becoming successful traders, but they rarely do the necessary groundwork to understand what is involved.
Another important factor is the understanding that markets do and will change over time. The trading world we saw prior to the Global Financial Crisis of 2008 was a very different trading world to where we currently are.
YTE: But there’s an argument that you only can learn by doing…
RB: This is very true and it is the reality of learning how to trade. There are probably people out there that can pick up trading very quickly, but for most people it’s a long journey with a very steep learning curve.
There is great analogy that I like to use. You can’t teach someone to ride a bicycle by reading a book. You need to jump on and give it a go. It’s even better if you have someone experienced showing you how to do it. The same applies to trading. The best people to teach you how to trade are the ones who do it for a living.
At Trade View we offer a variety of trader development workshops designed to help people create semi-automated and automated trading systems, our most popular being the Online Intermediate Workshop, which is accessible from anywhere in the world.
Here’s our list of four influential trading books that have helped us to become successful traders (listed in no particular order).
Trading and Exchanges: Market Microstructure for Practitioners – Larry Harris
The Electronic Day Trader: Successful Strategies for Online Trading – George West
A Beginner’s Guide to Day Trading – Toni Turner & Oliver Velez
How to Get Started in Electronic Day Trading – David S. Nassar
For over 150 years, the Chicago Trading Floors have been home to the most primal method of buying and selling.
In 1997, more than 10,000 people traded on the floors… Later that year, computer trading emerged… Today, about 10% remain.
This is a film about the best traders in the world and highlights the rapid growth of computer or automated trading. Don’t miss out on this revolutionary way of trading. You can access the link to this excellent documentary on Youtube below.