I’m going to start occasionally posting some interview I did with some traders who are Investools coaches. I did them for a series on our website a couple years back and people liked them. They’re honest and to the point, and I think helpful in many ways. I tried asking questions you, a student/trader, would want to ask of someone who has traded for some time and does well at it. I’m curious to see what those of you reading the blog think of these interviews, let me know; and if you have a question for Mike maybe we can get him on here too.
Mike Parks is one of the Investools coaches who finds success in applying a systematic approach to trading. Knowing Mike personally, I sometimes think of him as a scientist in a busy laboratory full of beakers and Bunsen burners, experimenting and combining all different combinations of concoctions: he is very technical in his trading, very knowledgeable about indicators and how things work together, and loves tinkering and building systems. Mike is a kind person, easy to get along with, and a lot of our students call in and ask for him directly. Here is how he does it and how he learned to get where he is:
What is your background Mike?
Initially I started trading and lost money for the first 3 years in my personal account as a stock broker. As a beginning trader I made nearly every mistake you might think:
- I lacked a trading plan
- I over leveraged my account
- I used little money management
- I traded on hope instead of knowing from the start my exits of the trade, and finally,
- I tried to manage the trade on the fly as it evolved my exit reason also evolved.
These are just some of the reasons that promoted my failure for the first three years of my career as a trader.
Eventually I started making money in stocks and I began day trading options. Trading options lead to trading futures and trading futures lead to trading currencies, where I am today. It took three years for me to make money consistently in stocks and options.
In trading currencies it took about 5 months until I created my own trading system that worked well for me. Until then I was constantly being surprised by the impulse waves in currencies that kicked me out of a trade before hitting my profit target.
If I could have found a mentor my time to learn how to trade successfully would have been so much shorter and less costly. That is one of the reasons I joined Investools. To help others to avoid the mistakes that I made learning to trade. To let others know that trading can be learned.
Before you got to that point what types of things did you struggle with and how did you overcome them?
Perhaps my biggest struggle learning to trade was what I call “hopium”. It is like someone addicted to opium but with hope as their drug of choice. I would start a trade and want the trade to go a particular direction. Being stubborn I would hold on to my position waiting for the market to agree with me as the market went the opposite direction than what I predicted the market would do. My drug of hope never turned the market my direction.
I took many painful losses before I learned my lesson: that all the hope in the world will not change the direction of the market. Having too much hope rather than a reality check on the market is what I call ‘hopium”… the lack of a trading plan and the desire to win but not the plan or execution of that plan to create a winning trading system.
What is the “secret to trading” if you had to pin one down?
It took a while for me to recognize that my role in trading was to understand what the market wants to do first, and second to trade accordingly. Finally I understood my problem. I needed to want what the market wants. If I could do that, then I could make money. What I needed to do was to create a system that would help me trade with what the market wants. That has been my goal in everything I trade since learning that lesson.
Isn’t that what every system does though?
I guess if that’s the truth then every system is successful right? The truth is that I could have 10 successful systems but because of my personality, risk tolerance, stop loss or simply how I’m set up to trade I could only make maybe 3 of those 10 work for me.
So it’s only if that system matches my personality. The breakout trader is not the same as the conservative bounce trader. I’ve never been a good breakout trader, I get washed out of those trades. For me being a momentum trader has been much more highly successful.
Here’s what people may think upon hearing that: “But wait, I have no idea which of those I am”. Where does someone go next then on that journey of discovering systems that suit them?
Good question …
Where do you go to nail down, if there are 10 say, which are the 3 for them?
It’s kind of tough, to give an analogy all different cars can get us to the store yet we have all different vehicles – cars, trucks, and so on and with our personality we choose a certain vehicle. I may only risk 10 pips to make 40 but that may not come along often so I have to be patient to find it, etc. I’m not sure how people answer that unless they explore “what would make me happier: this kind of reward from this system or that one” Like would paying $600 a month be ok for a Mercedes Benz, some would be ok with that and some not but would want a $200 payment, or none at all. I think talking with some experienced traders would help, and say look, explore 2-3 different scenarios of trading and decide which one you are more inclined toward and paper trade it. From my experience the more I trade the more obvious it is.
So it sounds like talking with someone further down the road, but also just personal experience.
Personal experience but also if I don’t know what car I want, I do two things: talk to someone to find out why they like or hate them, and go try it out for myself.
Describe the system or method you use (& how long have you been using it?):
The method I trade is momentum trading. I use probabilities of linear regression and smoothed momentum (the “StochasticsRSI” indicator) to get the best idea of the direction of the trade and its duration. Price prediction is usually made by an expected range but I will adapt if my indicator says I need to get out before it hits my price target. This trading method is serving me well, and while I created this trading system for trading futures on my own time, I have found that it works well in currencies.
My entry is made on an upward trend with a temporary downward exhaustion of momentum. Usually the momentum resumes in the direction of the trend and makes me profitable. The moves follow quickly from the entry with the exception of the EUR/USD for which I waited nearly a week for the move to take place. The Euro did move in my direction eventually and it did work out well in the past week.
Linear Regression channel 50%, StochasticsRSI. I usually trade 3 lots, I also use Fibonacci projections. The idea is there is a price target for the exits.
How do you define the trend?
Linear regression: whether the middle line is trending up or down.
So what exactly are your buy and sell signals for the system you use?
Yeah, good question. When I get a StochasicsRSI line which falls beneath the 50% linear regression. It’s an exhaustion of the momentum upward, think of it as like trading flags of momentum (like the price pattern) – that’s a signal to go long (click chart to enlarge, entry signals in yellow bubbles.)
Exiting will be when the StochasticsRSI momentum hits above the 50% and then I have trending indicators to help me get out … I usually trade 3 lots so I didn’t want to get too in depth … when my momentum gets above the 50% linear regression.
I guess this is how I try and explain it all: If I took a hill that was going down and took a ball and bounced it at the top going down, wouldn’t we expect the ball to bounce an average height as it’s going down. So what the momentum does it try to anticipate that high peak exactly when to get in as that peak continues. Every time it bounces it should return back to the center of the linear regression. I don’t know how you get a ball to bounce upward so gravity threw me out of that analogy!
I assume you use some discretion?
That’s basically it I’d have to get into more elaborates for other items. I actually do not use discretion. But it is a very tight system. That’s why I sweated for years to find a system to not have discretion on.
Why sweat for years to find a system without discretion?
Because I’m not one of those traders who could trade by … I call variance, they will say chart formation, etc. but I couldn’t duplicate it. It’s like going to the bakery and someone’s made a masterful cake but they won’t tell you what ingredients went into it. I needed something with replicable results and I’ve found it highly rewarding — but very difficult.
When do you get out when wrong? What is your stop loss?
While I have and do trade intra-day sometimes, most of trading has had to revert to a daily chart. The stop loss is usually around 60 pips and my first profit target is 120 pips. I get our earlier if my indicator tells me to but generally if that happens I have a 30 pip profit.
Why has your trading reverted to the daily chart?
Just because of work projects. Trades come and go in a matter of 1-2 candlesticks. I could easily miss that if I was a few minutes late.
You said your first profit target is 120 pips – where is your second, third, etc.? Do you scale in?
Depends on the price action of the currency and the Fibonacci projections. I do not scale in.
How do you do your money management?
For money management I prefer to use 2-3 lots at one time. All lots have the same entry with different exits if the trade progress as I think the market wants. I have a short term bounce trade for lot one, a continuing trend trade for lot two, and a longer term price target based on fibs for price level three. For me this works best. I have fewer trades, they last longer, and I am more in tune for the duration of the trade because of the 3 lots I have involved. Money management risk levels are contained by the one stop for all 3 lots. If I can get the price target on lot one then I can raise the stops on the other two lots and look forward for a small profit even if the other two lots are stopped out. And there is still a good chance that the two lots remaining will hit their profit targets.
What risking no more than 2%, do you do that?
Yeah no more than 2%, sometimes up to 3%. It allows me to take fewer trades and get better returns. Because I have a good chunk of money in one trade it allows me to concentrate on that rather than have three trades all over the place.
Would you mind sharing how much are you up for the month?
For the month, good question … about I guess based on what I’m doing right now it’s giving me about 3% a week. I risked 1% of my account last week and am up 3.2% for the week. You can see I don’t always risk as much as 2%.
Is that typical month to month?
Yeah I expect it typically, historically that is typical.
Is there anything else you’d like to add?
Trading is simple but not easy. Trading tests the trader in many ways. Do you have the right system? Did you enter right? Did you use the right stop loss level? All these things make the trader question himself. If he makes a profit he feels like a genius. If it does not he may feel like a fool. The truth is simply in the middle. Many a trader can have a successful trading system and still fail at trading because the fault of not following the trading system is in them … not the trading system. So find a good trading system and follow it precisely. Good luck in all your trading.
Nice article keep good working