Today I’m posting another currency trader interview, tell me what you think. We are interviewing one of the Investools coaches: Brett Crowther.
I’ve known Brett for a long time and apart from being a great guy, he is an excellent FX trader and has been for years. As you read what he has to say, it helps to put up a chart with the indicators he is describing, to follow along.
Brett finds success in applying a more discretionary approach to the forex market based on price patterns. Specifically he has found a niche in reversal patterns in an attempt to jump in on a move as early as possible. Here is how he does it and how he learned to get where he is:
What is your background Brett?
I don’t have a real strong trading background like a lot of the guys in the office i.e. worked at Fidelity or something. I found out I could make money trading currencies back in the early 90’s while I was in Portugal and went to exchange money just as the Rodney King beatings came out.
Everyday I would walk past a bank that would post the current currency rates as I would pass by I would keep in mind what would happen and noticed different patterns evolving. As a result I would wait the dollar to reach a relative high point (later finding out that area is called resistance technically) before I would make the exchange and so forth.
Did you begin trading by doing this then when you returned home?
After I returned to the U.S. it wasn’t as easy to make the trade since I wasn’t as in touch with what was going on; remember this was all before the invention of the internet. I did do some money back and forth for the next seven years.
When did you begin trading currencies with a dealer then?
I don’t remember when exactly I got involved in trading currencies the same way we do it today, as near as I can figure it was three years ago (it was about a year before INVESTools started the forex program). My educational background is in Political Science which has worked out great for trading currencies since it involves the politics of different countries while incorporating economics, which turned out to be one of my favorite subjects in college.
How long did it take you to be consistently profitable?
After trading with charts it took me a good year to be profitable. I made some good gains only to give it back making stupid mistakes. By stupid mistakes I mean I would get into a trade without checking fundamentals and get kicked out on wild volatility due to a major news announcement. Or I wouldn’t put a stop on it as since I was watching the chart then forget and walk away only to have it lose more then I wanted.
Before you go to that point what other types of things did you struggle with and how did you overcome them?
I struggled with time frames. I am more aggressive by nature and want action so trying to trade a long term perspective was difficult, I felt like I wasn’t going anywhere. It was just a matter of trying different time frame at different time of the day till I found what I was looking for.
Learning how currency pairs move at different times also directed me on how to trade. Like most everyone I struggled with stop losses. I would get kicked out way too soon. I learned that I actually had to “risk” something to make something; part of this (getting kicked out too soon) came from an underfunded account.
When I started with a small account I didn’t want to risk very much but as a result I would place a stop too tight. Increasing the amount in my account really helped and understanding that different currency pairs have different stop loss needs. This is one reason why I wanted to introduce a “currency characteristic” segment to the AIC (live, at INVESTools headquarters in Salt Lake City) class. I was way too tight on the EUR/USD.
Without launching into your lesson on it, could you describe what you mean by “currency characteristic” since it is important to you?
Well I knew just by looking at the charts that different currency pairs acted differently and trying to understand the “personality” of a stock is something I really stress when teaching the stock classes so I knew I need to figure out why a currency pair moved so distinctly different one from another.
Could you give an example?
I found that just the EUR/USD alone comprises nearly 35% of the daily currency volume. As such it tends to be a slow mover with lots of players. Since there are so many players it tends to bounce around areas but doesn’t stick to them like the USD/JPY. Meaning it doesn’t exhibit strong support/resistance areas as well as other pairs and if it does it has a strong tendency to poke through either side often making it more difficult to short term trade with tight stop losses.
The USD/JPY exhibits better support resistance areas. Now I know that might be confusing since it too has strong volume, (yet still about half of the total currency volume as the EUR/USD), but candlesticks come form Japan, a country with deep in traditional methods therefore they tend to rely on candlesticks more so then any other country and as a result you get a self fulfilling indicator. As a result support and resistance tend to be “better” on the USD/JPY than the EUR/USD.
Some currencies are slow movers others move quickly. The GPB/USD tends to hold a position then make a move and when it makes it move, it move fast and hard.
What is the “secret to trading” if you had to pin one down?
Wow, that is a tough one. Honestly this may sound “out there” but I believe the “secret to trading” isn’t found in a chart, or indicator or anything like that. I have seen many different traders be profitable with so many different styles and approaches. I have seen traders who seem to do everything they can to “kill the trade” even when the trade is hot and continuing to do well. As a result I feel the “secret to trading” is in each one of us.
Here we go with the sentimental talk. As funny as it sounds it is true. We can all be successful and we can all do it with a different approach, but the success has to come from within. What I mean by that is almost every great athlete or practically and largely successful individual in any discipline will tell you they had to believe they could do it.
We have so many traders that want to be successful but deep down don’t really believe they can be successful as a result they find ways to kill good trades. Many times the success is in each of us and we often have to get out of our own way and let success take its course. In fact I don’t know how much room you have for this but we had one student who was the top producing individual in the country at his profession. He couldn’t believe it was him because he never honestly thought it could happen to him, so one day he “accidentally” injured himself in a manner that left him unable to continue at his profession … as a result his lifestyle changed and his belief and reality came back into harmony. He admitted to me that he feels that in a subconscious way he injured himself so his belief and reality would match. Many times as traders we do the same thing.
So again what is the secret to trading? Don’t look for it in a chart but look for it within.
Describe the system or method you use (& how long have you been using it?):
I have tried several trading systems and found most of them don’t match my style. What I really mean by that is a true system, like two moving averages crossing over. To do it I need to be at the computer when the signal appears. Since I get too impatient playing a daily chart, that leaves me playing 5 to 30 minute time frame. It was one thing I really had to learn about myself.
However there are lots of signals that pop up in the middle of the night of times when I am away from the computer and if I miss even a few trades on a pure “system”, it screws up the whole expectancy ratio. As a result I do a lot more discretionary trading.
I’m basically looking at trend and support/resistance. I will look at one time frame up to get a general idea of the trend then play to that bias. I look for a currency to either bounce or break support or resistance (in the direction of the overall tend of course) then I look at MACD for confirmation.
It is hard to really spell it out as a complete system since there is a lot of personal interpretation to it but that it generally what I am looking for.
So which time frame do you focus on for your signals telling you to get in and out, 5 or 30 minute?
Most of the time I am looking at 5 minute, it still works the same on the 30 minute and probably another time frame for that matter but I play short term.
How do you define trend?
Basically the Dow theory: you know higher highs and higher lows and so forth. Most of the time as I draw support and resistance the trend is already spelled out. Like if you draw a channel it is easy to see if the channel is head up down or sideways, well that is the trend.
How exactly does the MACD tell you to “get in”?
I like to draw lines on the histogram spelling out an overbought and oversold zone. Then when the MACD exits that “zone” I take the trade. There are times when I wake up and have missed the move out of the zone since it happened while I was asleep, then I look for the two lines to bounce off one another for another entry signal.
I am sorry. I use the “MACD his with two lines” so I have not only the histogram showing but also the two lines. The two lines really are the MACD with the histogram simply showing us the distance between the two lines. Many times as the currency starts to make a move the two lines with separate then come back together. At that point I am looking for them to bounce off one another. It is the same as the histogram returning to the zero line but not crossing
The bounce of the two lines shows continued momentum.
Enter discretion? The use of judgment, experience, etc. to expand upon the signals?
Yes. Like, it is really great when MACD is in an overbought area which I know is not a typical use of MACD but when it is really overextended in one direction or another is can move pretty good.
As an exit I use either hitting either support or resistance, depending on which direction I am heading, or MACD and RSI. It is amazing how accurate the RSI can be when it enters the reversal zone a SECOND time (the first doesn’t really count)! I will also use a divergence as an exit. My experience with divergences is they tend to be better indicators of a currency reverting to a prior level of support or resistance more than signaling a change in trend As such it can used to identify the top or bottom of a movement before it really reverts and by exiting at the extreme you can keep much of the profit we otherwise tend to give back.
When do you get out when wrong, usually using these methods you just mentioned? What is your stop loss?
Most of the time when it hits my stop loss, since I no longer stare at the chart all the time. I used to have a hard time stepping away from the computer — I would literally get up in the middle of the night to check my trades. Many times if I was losing on the trade I would exit it due to some concern or re-analyzing the trade only to find it making the move I originally expected the next morning.
“Setting it and forgetting it“, if I can borrow a line from Ronco (the famous kitchenware manufacturer), seemed to help out. Most of my stop losses are based on past movements around areas of support and resistance, which I know are quite arbitrary, but then pretty much any support or resistance is as well …
So why did you settle in on the MACD as opposed to some other indicators? I know you know a lot about many others …
In trading stocks I got very good at picking out divergences on the MACD. After you use an indicator for a while you become comfortable with it; as such I stuck with it in currency trading. It helps that I like the fact that it not only shows short term momentum with the histogram but longer term momentum as well with the “two lines”. This gives me the more confidence in the sense that I am incorporating two time frames of momentum. It is good to look at the bigger picture, then zoom in. MACD lets me do it without actually “zooming”.
How do you do your money management?
I would like to add not only money management but psychology here. Pretty much every trader talks of how after incorporating money management they did better. Instead of walking down that beaten path, and yes I no longer swing for the fence, I would like to talk psychology (one of my other favorite topics in college).
I used to double down a lot and make “revenge trades” and then learned that each trade is independent of each other and the market isn’t out to get me personally. Once I really learned that I am going to have losses, it made it easier to experience a loss without it getting to my nerves.
It is all about the big picture, meaning you might win some or lose some but in the end of it all you should be making money. Don’t trade for pride, trade for profit, which for me was so hard to do since I hated to be wrong.
What psychological components of money management are important to you?
Risk/reward is another big thing: allowing myself to make double what I was putting a risk. Man, there is so much I could say about this subject … Not only that, but quite analyzing I would study charts for hours even after I entered the trade and would look at it on several time frames, sometimes just to see what it was doing, at others to see if I needed to change it.
Later I discovered I looked at trades differently after I entered the trade than I would before I entered even if nothing significant changed. To me it was the equivalent of those who paper trade and make money then real trade and lose money, when there are funds on the line we look for more reasons as to why or why not we should stay in the trade. There is more I can say on this subject that we can talk about it personally.
Would you mind sharing how much are you up for the month?
Sure, I am a little over even for this month. Doesn’t sound too exciting but it is important for everyone to know that we (active traders) don’t “always” have stellar months. I have had my months of making great returns but I don’t expect it all the time. I have so many students almost in tears ask me what is wrong with them because they can’t duplicate what “others’ are doing. We all have good months, bad months, and indifferent months.
Is there anything else you’d like to add?
Yeah one other thing, trading is exciting but I have found that I can get too emotional about it as well, so one thing that has helped me is calling a time out. What I mean by that is if lose a certain percentage in a week it doesn’t matter if is Monday, Wednesday, or Friday at 12:00 I stop trading, otherwise I am too tempted to go back after the money. In doing so it lets me regain my focus and see what is going on. This stops me from making rash decisions and tossing money away.
We all get caught up in it from time to time, even professional sport players get caught up and do dumb things when they get behind. Just as they call time out, so should we. By calling a time out I have been able to preserve capital and hit it fresh, now honestly I don’t have to resort to calling time out all that often but it has saved me money when I have to.
Brett is well-likeable and tends to smile a lot, does high energy and inspiration show here or what? Perhaps as much as anything else, Brett’s success stems from a fantastically positive attitude, and what better fuel to have in your tank that that?
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