On this week’s show I interview Tyler Bollhorn and it’s a great show.
Tyler has been trading for 25 years and has spoken to probably 1000’s of traders through the seminars and speaking events he does as part of his Stockscores program along with the MoneyShow. Tyler doesn’t remember this but one of the 1st trading seminars I ever attended was one he put on almost 10+ years ago.
In this interview we cover a lot of ground but here are some of the Big Ideas.
In the show we talk about –
Tyler Bollhorn started trading the stock market with $3,000 in capital, some borrowed from his credit card, when he was just 19 years old. As he worked through the Business program at the University of Calgary, he constantly followed the market and traded stocks. Upon graduation, he could not shake his addiction to the market, and so he continued to trade and study the market by day, while working as a DJ at night. From his 600 square foot basement suite that he shared with his brother, Mr. Bollhorn pursued his dream of making his living buying and selling stocks.
Slowly, he began to learn how the market works, and more importantly, how to consistently make money from it. He realized that the stock market is not fair, and that a small group of people make most of the money while the general public suffers. Eventually, he found some of the key ingredients to success, and turned $30,000 in to half a million dollars in only 3 months. His career as a stock trader had finally flourished.
You know in life we’re taught to work hard and when the going gets tough, work harder. I like to tell people when the going gets tough good traders get lazy.
It’s about changing your mindset from a gambler to trader; gamblers don’t trade expected value, they just throw money on a stock and hope that it works out.
[03:47] Houston: Alright. Hi Tyler, thanks so much for joining the show today.
[03:51] Tyler: Good to be with you.
[03:52] Houston: Absolutely, now just a bit of an inside scoop, Tyler is actually calling in Maui so there’s a substantial kind of difference in time zones so I just wanna at first acknowledge and thank Tyler for staying up a bit late or getting up a bit early and staying throughout the day to do this podcast.
[04:11] Tyler: Hey, no problem; I’m staring at the ocean out my window so that’s not a bad thing to be doing.
[04:16] Houston: Alright, so just as a way of a quick intro and I’ll get Tyler to talk about himself in moments but Tyler has been trading the financial markets for about twenty-five years. You may often find him speaking on circuits like The Money Show, speaking on BNN as well as coaching and mentoring other traders. But what really drew me to Tyler is that I found out about Tyler about ten years ago when I first started my trading journey. And I think he really has an approach that’s quite methodical and that really works for him and I’m gonna ask him to maybe talk about his background and his approach. So, why don’t we start there, Tyler tell us more about how you got started with trading and what’s your approach to trading the markets nowadays?
[04:56] Tyler: Sure, I was a student at the University of Calgary I guess twenty five years ago and started by playing a stock simulation game where you bought and sold stocks with pretend money and that was sort of part of what I was doing in school and I really enjoyed that aspect of it; and I also hung around – being in Calgary – we had a group of friends who all traded pennies, stocks in the very speculative area, mining and energy stocks and we all broke students with not a lot of money and that was what we sorta did for fun and some of those guys were pretty good at picking stocks and I sort of got enamored with the idea that I could make money far more easily than if I was actually working for a living. So, that’s kinda what captured my interest. Now, in the beginning I did what I was taught to do in school which is find good fundamentals and look at earnings and management that kind of stuff. But I found that that didn’t work all that well and so I sorta just by luck happened upon a guy who was doing technical analysis and keep in mind twenty five years ago technical analysis was not something that many people did and we almost looked at it as a weird thing to do and we kinda laugh at this guy when we started seeing him drawing up lines on charts. Again, back then you didn’t have the internet where you could look up charts, you had to actually draw them up by hand; but he was really good at picking stocks so I kinda took an interest in that, then started developing my own methods, revolving around abnormal trading activity; I used to hang out at the Alberta Stock Exchange – there they had real time quote feeds on some computers outside the exchange and I would just sit there and look for abnormal stock movers and I’d race home and I had a charting service where I could download one chart at a time over the very early stage of the internet and it took forever but that’s kinda how it started and just carried on from there. But interestingly enough what I do today is still based on the abnormal trading activity that I was doing when I was in my early 20s sitting at the Alberta Stock Exchange – that hasn’t changed.
[07:03] Houston: So what is the philosophy around that, so you’re looking for – we kinda talked about it before the call today – you’re looking for abnormal patterns in stocks?
[07:53] Tyler: Not necessarily abnormal patterns but abnormal trading activity so if a stock normally trades a million shares a day and then one day it trades five million shares for the day – that would be abnormal; if the stock normally moves up or down one percent in day but one day it moves up seven percent in day – that would be abnormal. And my philosophy is that the stock market isn’t fair – there’s always gonna be some people that have better information about what a company is doing than others and with that better information they can have an edge in the market, predict where those stocks are gonna go so I’m really just trying to follow those well-informed people – those who really know the company well and know the sector very well because when they act aggressively in the market, when they have new information that justifies paying a higher price or accepting a lower price they will do so quite aggressively and that creates the abnormal activity so I wrote some computer algorithms many years ago that look for abnormal trading activity and once I have that list of abnormal stocks then, I monitor them for patterns and so it’s sort of abnormal activity plus predictive chart patterns is how I pick my entry and exit points.
[09:06] Houston: Ok and that applies across all time frames so whether you’re talking about day trading or swing trading or position trading, you’re looking for the same type of abnormal activity followed by some sort of technical set-up for your entry and exits.
[09:19] Tyler: Yes, the philosophy on how I day trade on a two minute chart is not a whole lot different than how I would position trade on daily or weekly chart. The execution’s a little different – you obviously have to think quicker when you’re day trading but yeah, it all revolves around abnormal activities from predictive chart patterns whether you’re a two minute chart or a weekly chart.
[09:00] Houston: Interesting; so what do you say those folks who say that technical analysis is all a bunch of you know, witchcraft; it’s just a bunch of self-fulfilling prophecy , you’ve been in the game for a long time and you’ve been able to eke out success so you know where do you stand when you hear that type of reasoning?
[09:57] Tyler: Well, you know I think counter to a lot of people that do technical analysis and I have encountered a ton of people that really don’t do it very well so I can understand where the skepticism comes from – I mean how can you predict the markets from lines on a chart, I get that. I don’t really consider myself a technical analyst; I don’t use indicators except my own. You won’t ever see me talk about a MACD and maybe there’s credibility to those things – I just don’t use them, I only use chart patterns; I basically look for rising bottoms, falling tops, support resistance, price volatility and abnormal activity – six things that are the basis for every trade I do. But with that said, you can be the best chart analyst in the world that doesn’t mean you’re gonna make any money because the most important part of trading well is risk management and so I also use chart analysis for risk management knowing where my exit points are, if I’m wrong, knowing where the stock will likely get stuck, knowing where to reverse – it’s all part of the risk management calculation and I think that is more important. When I was a student in University, I was a good stock picker – I knew how to find the hot stocks – it’s actually not that hard but I wasn’t great at risk management so I paid my way through school but I wasn’t getting rich. And it was only, probably after eight years of trading that I really started to focus on the risk management side and building big positions when I’m right and taking small losses when I’m wrong. Those are important things.
[11:00] Houston: That’s very well said so was there some sort of turning point that kind of turning point that allowed you to become very, very successful; was it just a lot of small incremental gains that generated that success?
[11:57] Tyler: I think it’s just about changing your mindset from a gambler to trader; gamblers don’t trade expected value, they just throw money on a stock and hope that it works out (Houston: they want to win) and so Im very much a strategy trader and I come up with a set of rules for when to buy, when to sell. I test those rules- both back testing but also with real money without a lot of risk and after I’ve tested something I can say OK if I do this strategy, these set of rules a hundred times, I know that I make money 67% of the time and my average profit is twice as large as my average loss so that’s what I mean when I say that I’m a strategy trader or I trade expected value. A gambler trader who might fool themselves into thinking they’re a trader bit in fact they’re a gambler will say “Oh I heard a tip about X,Y,Z company that someone on TV said it’s a great company so I’m gonna buy it and they really don’t really know anything more that what that person told them and so they’re not trading expected value, they’re just – gambling as far as I’m concerned so I think there was a time when I listened to stories and sometimes it would work, I’d have big wins and then other times, it wouldn’t work and I’d have big losses and it was just kind of a vicious cycle where I basically went up and down with the trend of the market.
[13:19] Houston: Right.
[13:20] Tyler: And now my focus is entirely on strategies, I don’t watch TV, I don’t read the newspapers, I don’t look around on chat websites and things like that, I just follow market activity and that’s ultimately the truth because people vote with their money in the market and you see what they’re actually doing with their money as opposed to what they’re talking about.
[13:54] Houston: Right. That’s very well said, so we’ve talked about some of these elements already so, where do you find a lot of traders getting tripped up, like we talked about how a lot of traders especially when they first start out are very, very …I guess they are just interested in set-ups and like you said the narrative of a company . Where else are traders getting tripped up as they move from beginner to more intermediate stages?
Tyler: Well, so let’s assume that you’re really good fundamental or technical analyst – you know how to do that well – as I said earlier, I don’t think that those things are gonna make money; you have to be a really good risk manager, a lot of people aren’t so they don’t manage risk very effectively but most – the most common problem I think is succumbing to fear – whether it’s the fear of losing money, the fear of missing out, the fear of being wrong – there’s all these fears that come into our heads which cause us to make mistakes. I could write down one of the rules for one of my trading strategies on the back of a napkin in twenty seconds; I could then publish those rules on the cover of the Wall Street Journal and most people still wouldn’t make money with them because they succumb to their fear and so you have to be able to overcome that. So one of the common things is just the fear of missing out which causes people to take marginal trades, they’ll see a stock that looks pretty good, it kinda looks like it wants to go up and it really meet their rules but they take it anyway because they don’t want to be saying the next “if I would have bought that stock I would have made $5,000 today and so they end up taking marginal trades and I think that’s what happens a lot with experienced traders – they have a fear of missing out and they take a lot of marginal trades or they don’t sell when the markets tell them to sell because they don’t want that winner to turn into a bigger winner.
[15:37] Houston: Right, and so you work with a lot of traders from a mentoring and coaching perspective; how do you begin to shift that mindset, how do you get traders to better manage those emotions if we know that that’s kind of the game, how do we begin to manage that?
[15:54] Tyler: I think there’s two ways to overcome your emotions – two important ways – there’s many ways but the two important ways are, one: to have a written plan and two: to not take on more risk than you’re comfortable with or accepting of. And the enemy I guess is yourself, you will make mistakes in trading if you take on too much risk if you can’t handle the loss; so let’s say a $100,000 portfolio – mathematically, you say, I think I should be able to take a $1000 loss but mentally you may say well, anything more than a $500 loss makes me uncomfortable, I can’t sleep well at night on that and so if you then take a trade where your risk on that trade is $1,500 or $2,000 if you get stomped out for example, it’s very likely that when the stock gets to the stop loss point you won’t take the loss you’ll find every reason in the chart – you’ll look for things that aren’t even there to convince yourself that the trade is worth sticking with and the result then is that you end up taking a bigger loss than you had planned for and so I think it’s really important to understand what your tolerance for risk is and let that determine your position size and also to have that written plan so that in those moments of emotion, you have something written to go back to – a written process, a step by step – this is how I execute my buys, this is how I execute my risk management, this is how I execute my exit strategy and it should be something so specific on a one page plan that you could basically program a computer to do the same thing – if you were a computer programmer. So, you don’t want to leave any room for judgment so as little as possible and if you do those things well, you’re part way there but at the end of the day, you have to desensitize yourself to risk and that comes with time.
[17:49] Houston: Yeah, it’s kind of funny how powerful confirmation bias is…
[17:52] Tyler: Yeah, exactly.
[17:53] Houston: You can definitely find a story in anything to confirm or disprove your opinions, so it’s one of those things about being a human. So talk some more about desensitizing – is it just a matter of getting the hours and just getting screen time and just taking the trades over and over again until you can just marginally increase your level of rick until you get comfortable; is that the approach that you think work?
[18:20]Tyler: Yeah, I think that what you have to do is get to the point where you don’t care about the money and what I always tell my students to do is start by trading in a simulator. So I built a simulator that my students can use, where they can fake trade but it’s quite realistic, you can’t cheat at it you’re actually buying and selling on a website that I built – Tradescores.com and once you’ve done that to the point where you’ve made ten time your risk amount say on paper you’re risking $500, if you make $5,000 on paper then you’re ready to start trading for real and perhaps when you start trading for real, you’re gonna start with a risk tolerance of $100 per trade and once you’ve made $1,000 at that level, now you’re ready to move your risk tolerance up to $200 per trade and I wanna state that when I talk about risk tolerance, that’s not the position size – you’re not buying a $100 worth of stock – the risk tolerance is the difference between your entry price and your exit multiplied by the number of shares you buy or sell. So, basically how much you’re gonna lose on the trade if you get stopped out and it’s that kinda process where you gradually start moving up; most people don’t have the patience for that – most people wanna become millionaires overnight of course if you have that mindset rarely does it happen. You have to get there slowly and carefully and recognize that trading is the most – it’s the highest paid occupation that I know of. You know we talk about professional athletes and actors and actresses and the millions that they make, that really pales in comparison to what top traders make. You know there are traders that have made over a billion dollars a year and you won’t find Tiger Woods making that kind of money, so with that said realize that it doesn’t happen overnight; you don’t go into an occupation and expect to make to the highest level of pay for that occupation unless you’ve gathered some experience. When you come out of law school, youre not gonna make half a million dollars a year, you’re gonna get paid next to nothing and learn, right. And the same can be said for trading, you have to go into trading and say my goal is to be a trader and for my first year I might lose money, my second year I might break even, my third year I might start to make some money and in four or five years I will be achieving the kind of income that I want to have; and its kinda like going to university to get a degree to get a job in something. Here you’re going to stock market university – it’s self guided, tuition is expensive potentially, the market is cruel – it gives the test first and the lesson second (Houston: I like that) but if you just take that big picture view of it then you have reasonable expectations of becoming a trader . It doesn’t take everyone five years, some people gets trading in six months; other people will never get it and it’s just a matter of having a realistic expectation for what you’re trying to do.
[21:18] Houston: Yeah, that’s a powerful comment: expectations are one of those things that the financial media does good job of selling the dream of trading and then we see what happens is people go in a very unstructured environment to try to impose their will on it really all that happens is that they act like bulls in a china shop and it usually doesn’t turn out very well. So what is a reasonable expectation for traders; do you have like milestones that people should be hitting or be thinking about as they progress from new trader to someone a little bit more competent? Do you have any idea or views around that?
[21:57] Tyler: I think it’s dangerous to have expectations ‘cause there’s an element that’s out of your control and that is what the market is doing? You know if I say I wanna make a hundred thousand dollars this months and I say that’s my goal and I put a little sticky note on my computer screen: I’m probably not gonna achieve that because now what you’re doing is you’re putting the emphasis on the money as opposed to putting the emphasis on the process and the rules. You can only do what the market gives you – today there weren’t a lot of good trading opportunities unless you’re trading the VIX which is what I was doing. Yesterday there was one good day trade but it was a great mover at the opening hour here was nothing because I’m here, I’m in Hawaii so I sat in the dark and I thought “why did I even get out of bed, there’s just nothing going on” and then all of a sudden out of the blue one stock comes alive and it ends up having a great move through the day and I don’t control that. I don’t get to work harder to make more money so my point is don’t have expectations, don’t set goals at least around money. Set goals like I will follow my rules, I will be disciplined, I will take losses when the market tells me to take losses – those are the kinda goals that you wanna do. One of your goals might be to say I’m gonna look at a thousand charts this week so you can really learn how to feel the chart and understand that but don’t have a goal that I wanna make 21% this year – that’s dangerous.
[23:29] Houston: Yeah, that’s such a important lesson there around focusing on the process rather than the outcome cause the outcome like you said is not controllable especially since the markets for the most part are random so if you expect your system is a positive expectancy even then you can never tell how it’s gonna play out so you try to force it to happen in seven days or fourteen days or thirty days is certainly unrealistic.
[23:54] Tyler: You know in life we’re taught to work hard and when the going gets tough, work harder. I like to tell people when the going gets tough good traders get lazy (Houston: I like that) You know you work hard when the market’s easy and when there’s a steady flow of trade and there’s trends and there’s flow through that’s when you work hard. If the market is tough, you’re better just to turn off the screen or not try very hard.
[24:18] Houston: So true
[24:19] Tyler: And that’s a hard thing for people to do because of how society programs us.
[24:23] Houston: Yeah. So, so true and there’s also an element of scarcity. I think a lot of traders, you know when they show up to the market, they already have that in their mindset, like they have to make something happen, right – like I need to be a good trader so that I can buy this or that or so that I can quit my job or so that I can provide for such and such – that level of scarcity going into trading puts again another difficult layer of expectations on a trader to try and make something happen.
[24:48] Tyler: These are all the emotional sides of trading and I always say that if you’re a normal human being you’re pre-disposed to fail in the stock market because normal human beings do all those things that you’re talking about and we dream of the big win, we fear the big loss and we fear missing out and it’s that human element that makes us make mistakes.
[25:09] Houston: And so what’s the – like you said in the beginning right, unfortunately for a lot of traders in the stock market in general is that there is no kind of hard and fast rules around how to learn how to trade. A lot of it is unstructured, unguided and you kinda need to figure out by yourself where you’re kind of making mistakes and how you can improve, is that trade plan the most important place to begin to collect your thoughts and to improve as a trader, what kinds of tools or tips do you use to make sure that you’re kinda in that positive feedback loop where you learn from mistakes and getting better.
[25:44] Tyler: Well, at the end of every day and again I primarily day trade; I write newsletters where I focus on positions in trading but for me personally, I primarily day and swing trade so that is short term so at the end of every day at the end of every week I run through my computer models and say what are all the trades that I should have made if I was perfect. And by the way, don’t expect to be perfect and a lot of the lessons I’m talking about today is because I’m far from perfect, I make a lot of mistakes but anyway at the end of the day I will say if I have followed my rules perfectly and it’s very mathematically driven so it’s pretty easy to say I should have bought these four stocks and I should have made X or lost X and then I compare that with what I actually did and I try to do some self analysis on what did I do wrong. A lot of time, it’s just bad focus; it’s easy to miss something, sometimes it’s getting your emotions involved, sometimes it’s listening too much to common sense and saying I know this company is such a piece of junk, I have traded it before so I’m gonna ignore this trade because I know the company is a piece of junk and then the stock ends up doing really well, so we can’t have those judgments, right. At the end of every week I look at what are the swing trades that I should have done – I have a little scan that I do that shows me the top ten or the top movers over the last ten days and then I go through that list and you know a lot of them I wouldn’t have traded so those that I either did trade or should have traded, I just test myself o see if I executed the trade properly. It is rarely that I execute anything perfectly; I mean it’s unrealistic to think that. One thing I would like to stress to people is that you can’t try to be perfect because then you’d end up blowing up but that’s a way that I just keep trying to confirm my rules and if you find that your rules aren’t working day after day after day maybe it’s time to modify them but it also typically for me, it says yes the rules that you have do work and you have to believe in them and you’ve gotta execute them properly because every day, every week, every month I put myself through that process then my rules work and sometimes I find ways to change my rules which is another way to improve my overall trading performance.
[28:03] Houston: This chart really reminds me of that saying by John Maxwell he says that “failure isn’t the best teacher, neither is experience- evaluated experience – so you know going back and using not just failure as that kind of milestone but rather going back and kinda tweaking things and seeing where things are working or not working; have you ever used anything like a trade journal or do you still use a trade journal to capture ideas, what’s your thoughts around that?
[28:39] Tyler: Well, I tell all my students that they have to do a trade journal and it’s a case of I don’t do what I tell them
[28:44] Houston: Do as I say and not as I do.
[28:48] Tyler: Yeah, that’s right. I don’t write it down, I don’t mark up charts and put them in a book like I tell people to but keep in mind that I have done this for twenty five years so I can look at a chart and know exactly where my entry and exit points are. I sort of become lazy to doing that but with that said, I still everyday go through the charts that I should have traded and I might not print out the charts and put them in a book but I go through the analysis just to confirm different thoughts and if I see myself making some mistakes that are recurring basis, I’ll often put a little reminder on a Post It note and stick it to my screen in order to get myself back on track ; so I’m doing a process I just don’t actually do it the way I teach people to do it.
[29:33] Houston: No, and it sound like you have a really good routine or habits to just kinda engrain what you wanna do more of and …
[29:01] Tyler: You have to have a process – it’s essential because it keeps you in track and step by step, this is what I do at this time of the day and that’s how I sort of set myself up each day.
[29:52] Houston: That’s beautiful; so what are some ideas around – I’ve spoken to traders and they’ve been trading for a while where they’re struggling is around trade compliance so they have their trade plans, set out; they’re all written down and that obviously quite rare because not many traders have it written down or a trade plan even in place but – they have these really good intentions of following the trade plan but when it actually comes to game time everything seems to fall apart and they can’t seem to comply to those trades that they need to be taking or want to be taking. Do you have any ideas around enforcing or somehow managing trade compliance?
[30:26] Tyler: Well, I mean really what you’re talking about is having leverage. The reason we don’t speed is because we have a police man in his car with a radar gun pointed at you otherwise we’d all speed. In trading, there’s no one to get mad at you – your bank account will dwindle. I find that if someone is married, it’s not a bad idea to have their spouse check their trades because they have a level of respect there that you don’t wanna disappoint your spouse perhaps; you could do that with friends, so you know I used to meet with a couple of guys on a weekly basis and we would talk about trades and we’d kinda give each other trouble when we saw that person breaking rules and that sort of thing. I’ll often joke that when I break rules, I’ll do push-ups and I sometimes run a live trading webcast on my website and I think people think I’m kidding but I’ll actually put down my microphone and actually do push-ups if I make some mistakes ‘cause it’s just something that has a physical link to what is going on so and it also helps to clear my mind. There’s nothing like doing a little bit of exercise quickly to get your mind clear so there are tricks and things you have to do but at the end of the day you just have to write down that plan and if you’re not following the plan, you have to understand why you’re not following the plan. Is it because youre taking too much risk is it because there’s a lack of confidence in your plan if so you need to test your plan more so that you believe in it. You’ve got to look at the root cause of your problem and it usually comes down to simple fears that you have to overcome.
[32:09] Houston: And so you know we talk a lot about trading is a performance activity and you just talked about pushups; so what do you do to get yourself in the best kind of peak state for trading? Do you trade intra-day, every day; is there some sort of routine that you have to make sure that you have to turn it on especially when it’s [3:30] in the morning in Maui?
[32:35] Tyler: Yeah; I have lots of things that I do which people might be surprised about (Houston: We’d love to hear it) I am quite active, I do a lot of exercise, I love to cycle so I always try to stay in shape I guess is what I’m saying because I think your mind is sharper when you’re in good condition. I do meditation, there’s a product out there – I think it’s called Muse – it’s a headband that you wear and it measures your brain wave and there’s an app on your phone and it basically plays the sound of the ocean in your ears while you try to relax and calm your mind and it reminds you with a sound in your ear when you’re not being calm and then when you are it has little birds chirping in your ear and its great little tool – a $300 piece of hardware that you strap to your head and you look kind of funny meditation has huge benefits, at least I believe it has huge benefits overall in terms of your health and mental wellness so that’s something that I do. I do like brain puzzles, mind games – you’re probably familiar with Lumosity – it’s a website where you can measure your – I don’t know if it’s IQ but it measure your intelligence and you can actually improve it over time by playing these games. So that’s actually what I do every morning when I wake up – when my alarm goes off which I set on my iPhone, I open up the Lumosity to the app and I do some brain games – there is one where you have to park a bunch of trains in train houses according to their color and you have to do it very quickly and it gets my brain moving and then I hop out of bed and do a few quick exercises and get my blood flowing
[34:17] Houston: No stretching, yoga, push-ups?
[34:20] Tyler: Yeah, I actually don’t like yoga but I feel great when I do it and I do a lot of stretching but I’m terribly inflexible and one other thing is when you sit in a chair all day trading – it’s really not good for you. I actually have at my home a desk that goes up and down so I can stand in front of it rather than always sit …
[34:39] Houston: I saw your picture of that on Twitter a while back
[34:43] Tyler: Yeah, so that has a huge benefit for your health, I think and even when here I am in Hawaii right now I don’t have that desk so I make it a point to try and stand up every hour; you know I have my Apple watch that reminds me I’m supposed to stand up every hour and just try to keep your mind active. I also have noise cancelling headphones that I wear just to get focused. It’s so easy to miss out on trades – you know I have three kids and I’m in a home where I don’t really have an office – you know it’s beautiful. I’m sitting literally a nine iron from the ocean but at the same time I’ve got my kids bugging me sometimes and they know that if I have my headphones on they are supposed to leave me alone so it’s just another way to block out the outside world.
[35:31] Houston: I’m gonna have to incorporate that trick – when Daddy wears his headphones that means do not bug him. That’s a very good one. And what do you think about Muse – I’ve played with that before but I’ve never tried using that while trading; do you wear that while trading or is it just more to get yourself kinda mindful and peaceful before you start trading?
[36:01] Tyler: Yeah, you know they say you should meditate twice per day for fifteen minutes; in fact I don’t do it twice a day but I do try to do it, it’s something you have to learn how to do. It’s actually kinda hard to do but it actually can calm your mind but when you do it you can actually feel quite energized and when you do it well it actually centers your body and your mind I guess and just lets you speak and think more clearly and be better focused on all the things that we as traders need to do well.
[36:27] Houston: That’s so true. It’s really fascinating because probably about half of the guests I have had on the show also meditate; certainly I think traders realize there’s much power to meditation – we’ve talked about it numerous times on the podcast already about just how much it can influence someone’s decision making process and just the emotional process as well.
[36:52] Tyler: Yeah, you know three years ago if you’d told me to meditate I would have just said get lost but you have to really try it and try it successfully to get why it really works but it really energizes you and clears up your mind.
[37:10] Houston: That’s the thing with us traders I think some of us are wired to expect some sort of immediate ([33:36]) out of mediation I don’t know why like I’m going to invest thirty minutes and that means I expect to have $500 bucks coming out of the market because of I meditated, right ?
[37:15] Tyler: Yeah, yeah, it doesn’t work like that
[37:17] Houston: It doesn’t work like that, no.
[37:18] Tyler: But I think it if something if you make it part of your routine like I talk about all these things in my routine – I bike ride, I do exercises, I stretch, I eat well and I really avoid sugar that’s another thing about that because everyone should try not going on sugar or having no sugar and see how they feel. And I’m not talking about fruit because natural sugar is OK; it’s attached to fiber and digested differently than eating a chocolate bar or drinking fruit juice is also not good for you so. I just said I’ll try and I did it for a week, I didn’t have any sugar and it was hard ‘cause you really crave it but once you get over that hump of craving it, it’s amazing how much more energy you have and of course the effect on your physical self is profound.
[38:04] Houston: I didn’t know we were going to go in this direction but I actually did a cool experiment, last year I went on a ketotic diet – nutritional ketosis where basically you don’t eat any sugar at all and you have to eat under 30 grams of carbohydrates a day and 50 -70 grams if I was doing a lot of activity and man, after you get over that first little hump which for me was about four weeks, you kinda get that – what do they call it – the low carb flu, after that you feel like your brain is on fire and the ketones starts to generate and you start pulling energy from those fatty acids and then wow, you feel really, really alive.
[38:48] Tyler: My wife has done that as well, I haven’t done it but I watched her go through it and she was pretty grumpy for the first little while but it has a dramatic effect on your physical body but it just clears your mind – she’s way more calm and relaxed and so I do think there’s benefit to these things and don’t be afraid to try new things and don’t be silly about the stupid stuff that people on the internet try to ([35:35]) but I mean I think we will all agree that sugar isn’t great for you so try that – not having sugar, not eating processed foods, those kind of things. I’m all about making money; I’m not some hippie tree hugger type person – that’s not my style. I race around in Ferraris and I don’t have that typical outlook but I wanna be healthy and I wanna make money in the market and anything I can do to give me an edge is something that I’m gonna try .
[39:44] Houston: Absolutely. So it sounds like that set of routines that you ritually have in place to kind of prime you for the day – I just wanna thank you for sharing that because it sounds like you have a really interesting set of rituals that you do to kinda get you ready for the day. (Tyler: Yeah) So what about – just talk to us about edges, what do you consider to be your own personal edge so what is it that you’re bringing to the table of trading that’s maybe unique to you?
[40:12] Tyler: I’ve written my own indicators, I use trade station for day trading – I execute my trades through trade station but I use it for my analysis and I don’t use it for any commonly used technical indicators because I don’t wanna do what everyone else is doing so I wrote my own. They’re centered around the activity concept that I talked about earlier, they’re also the basis of what we do at stockscores – at stockscores.com, you’ll get abnormal activity on daily intervals so it’s more useful for position or swing trading, some use for day trading as well but when I’m actually day trading I have these proprietary indicators that I’ve programmed in Trade Station and that just allows to find things before anyone else and I can find something and then see the crowd pile in after me because they’re also looking for the same thing but they don’t have the tools to find it as quickly as I do and process. It’s not just the indicator but it’s the process the step by step process that I go through and those are things that I will teach my students but I really don’t share them otherwise and it’s something a that there’s a small number of people are using. I don’t teach a lot of people on a regular basis but for those of us that are able to use those tools – that gives us an edge. And I think my other edge is just experience – I’ve been doing this a long time and not to say I don’t make mistakes but when I make mistakes, I know what I did and I know how to fix it so many times.
[41:35] Houston: So what does your average trading day look like then – it sounds like you trade pretty much every day if there’s good opportunity and you’ll be lazy if there’s less opportunity. What does your average trading day look like? Let’s say you’re at home and not in Hawaii – when do you get up and when do you wrap up for the day?
[41:53] Tyler: So I’m usually sitting at my desk maybe fifteen minutes before the market opens, honestly sometimes its two minutes before the market opens; I don’t do any pre-work , I don’t look at the news or what happens pre-market. I’ll sometimes flip through Twitter lying in bed as something I’m just curious about ‘cause I follow some economists and guys like Jim Cramer who are knowledgeable, I don’t see a lot of value in the information but I like to know what people are talking about so I’ll maybe do that a little bit but I really don’t build a pre-market watch list or something like that ‘cause I wait for the market to open and they don’t tell me what’s moving. So once the market opens, I just start my process – I have three or four steps that I do through to build my watch list of stocks. I have a watch list for swing trading and a process for swing trading. I have a process for day trading so for example when I’m day trading I start with a little watch list of stocks that are trading abnormally and then I monitor those stocks for my entry signals so I have some simple rules to look for, for when to buy and when Ive actually gotten them alarmed in Trade Station so that if one of the stocks on my list triggers one of my symbols or signals it will ring a bell and a little window pops up and then I look at that stock for the visual inspection to make sure it has what I want and then I’ll exit the trade. Of the alarms that come up, the majority I don’t take so there’s an element of human judgment that I’m putting through there so that I can actually pick the ones that I like and then with swing trading I’m looking for something called an action candle – I’m looking for stocks that nobody cared about that all of a sudden somebody cares about; so for example, yesterday WPCS is the symbol – I don’t know who the company is but it wasn’t doing anything for the first hour and then all of a sudden it came alive in volume and price and from y algorithms that I’ve written find them for me quickly. But I have to do the process so it’s like every few minutes, I’m running that process. I’m more active in the first hour, throughout the middle of the day you don’t have to be as active but I just basically do that all day. I don’t really get up from my desk too much – if I haven’t taken any trades by the second or third hour of the day and it just doesn’t look like anything is going to happen sometimes I’ll go do something else but it seems like every time I do that something comes alive at 2 o’clock Eastern time and it makes a big run and then close, so you never know. There are like – there’s been in the day many times when I’ve said the day is a write off and then I miss out on a big winner that just came alive. So you really have to have that discipline focused to stick with it and it’s tough when you’re – like I said I’m in Hawaii right now and it’s kinda hard to wanna go scuba diving in the ocean and something…but it’s the challenge you face.
[44:59] Houston: Yeah. So do you have any rules in place where you’re OK, if I’m up a certain amount or if I’ve taken a set number of trades by the second or third hour then maybe I don’t need to look at the markets in the second half of the day or are you always at the desk – from the opening to the close?
[45:17] Tyler: Yeah, you shouldn’t have any rules based on how much you’re up or down – well maybe down because people tend to be really emotional when they’re losing a lot. There’s a point when you just want to turn off the screen and say OK, it’s a bad day but as I said earlier, if the going is good you wanna work hard so if you’re making money then you should actually work harder because obviously the markets’ got good follow through that day . If you have a loss limit – let’s say your risk tolerance is $100 and you’ve lost $500 for the day , so five times your risk – it’s not a bad idea to have turn off the computer because otherwise you’re gonna break your rules because you’re trying to make back your losses so you want to take away the pain that you’re feeling and that’s dangerous but I don’t think it’s wise to ever say well im up $5000 so I’m gonna quit for the day and go shopping cause you could be up $10,000. You’ve gotta remember your good days gotta pay for your bad and so the good day could end up being a great day and don’t turn off the screen because you’re making money; turn off the screen because you’re losing.
[46:20] Houston: That’s great advice and it just goes back to before and you were talking about setting goals – maybe even daily goals like maybe its best lie you said to better manage your losses than trying to manage your gains – that makes sense.
[46:38] Tyler: Yeah, we are normal human beings and we say oh I don’t want to be greedy and so Ive made $1000 today, that’s good enough for me. That’s a bad idea – you have to think like a computer and if you’re strategy isn’t working or your execution of that strategy is poor then it may be time to step back but if your strategy is working , why would you quit. If you’re at the – if youre in a football game and you’re up 30 points do you quit? Like do you say, oh we’re up by 30 so you guy just play by yourselves and we’ll just sit over here. You’ll never do that, we’ll just – that’s so dumb right and then you see sometimes – I like to watch hockey as any Canadian does and you’ll see my team is the Calgary Flames and I’ve seen the Flames be up by 4 or 5 goals and they kinda get cocky and casual and all of a sudden it’s a tied game all because they gave up – they quit. So you don’t quit when you’re winning, you quit when you’re losing maybe to try to manage the loss, I guess.
[47:00] Houston: So what’s your perspective, you sound like you’re using algos as decision support; why not go fully automated and use your strategies completely. Do you still believe in the human element to visually inspecting those patterns before executing, what are your thoughts around that?
[47:58] Tyler: I haven’t defined my rules well enough yet to just let the computer do it and some of rules require using patterns and the patterns are a little bit hard to program; in ascending triangle you can look at a chart and say it’s an ascending triangle but to tell a computer how to recognize an ascending triangle is kinda hard to do. I haven’t figured out how to do that so and not to say I only trade a set of triangles – just trying to point out that I still have that experience of being able to look at a chart and say that’s good. I’m sure that if I had a PhD in Math and a PhD in Computer Science, I could probably program those things but I don’t so I have to still do some of it manually.
[48:45] Houston: And that just seems like the direction that things are going and we talk about this before launching the call today but what are your thoughts now around the markets being overwhelmed with HFTs and algos, do you think it makes it harder for traders; what are your opinions around that aspect of trading?
[48:58] Tyler: You know most HFTs are competing on time so they are trying to be faster and faster and they basically kill the scalping game; so when I started day trading the game was to scalp – I never did it but that’s how lots of people traded, they will do 500 trades a day trying to make a couple cents each time by trading the bid ask spread but that has been taken away by HFT because the computer can do it so much more quickly. And so all the scalpers ran out of business so there maybe someone else’s definition of scalping that still works but my definition which is to trade the ask spread is a tough game because the computer’s gonna do it better. But what you almost should do as a trader is to slow down instead of trying to speed up; instead of trying to do trade for a few seconds, slow it down. I typically hold stocks for a few hours and I’m trying to go to the market and I can see the HFTs coming in because when markets run up too quickly, those algorithms hit the bid and they push it back to the trend line so rather than chase stocks as they move up and away from the trend line which is what I would do in the past, I now wait for the pull back to the trend line because I know the HFTs are gonna be in there to support it. So it’s not that the HFTs hurt; it’s just that they change the market and you have to understand how they change it and use it to your advantage and realize that there gonna be there to back stop the market when there is a pull back and there’s always gonna be there to sell into the strength when there is a rip higher and so you have to sorta trade accordingly.
[50:33] Houston: Nice. That’s a great perspective, so we’re coming up on the end of our time so I just wanna fire a few questions at you if you don’t mind. Number one is: you work with a lot of traders, what advice would you give a trader who wants to go from good to great – they’re already at a good place where they’re making decent money, how can that trader go from good to great?
[50:56] Tyler: Well you have to recognize that trading is simple but it is not easy and if you’re gonna be a great trader – you’ve got to love it. If you’re trading to make money and it’s tedious and boring and stressful, whatever the thing is that you hate about trading then probably you should quit because I think that the best traders are the ones that love it – they do it because it’s fun. I mean, I’m in Hawaii right now – I probably don’t need to train everyday financially but I love it – I don’t mind getting up a 3 in the morning and trading the markets. It drives my wife probably crazy but I love it and so I just can’t imagine not doing it. I think it’s what pushes me some time and I have the determination to figure out what I’m doing wrong when I’m doing something wrong and to capitalize on things that I’m doing right and so if you find that you’re struggling with trading, do some self analysis and say “is it because I hate or it’s because I don’t know enough yet.” Everyone has to learn the mechanics of trading and that’s in 2 or 3 months you can learn the mechanics of trading after that it’s all about overcoming yourself, overcoming the fact that you’re a normal human being and that is the challenge and so I don’t read books on stock trading – I don’t think I’ve ever finished a book on stock trading but I do read a lot about human psychology and about fear and greed and behavioral finance and those things because those are the things that helped me overcome myself and that I think is where people can put their focus – in their education.
[52:29] Houston: I love that, so can you recommend us some books then around Behavioral Finance or Psychology; what are some titles that are tat the top of your mind- anything that you really like?
[52:44] Tyler: They are not trading related, they are like – I don’t know, there’s a book called Drive – I’m drawing blanks because I usually listen to them in my car; you know I buy the audio book and f I’m on a long drive I’ll listen to these books but there almost like those self-help books about how to be a better human are the things I look at because there’s still parallel s that you can take out of those that work with trading. The only book that I’ve finished on the markets is Reminiscence of a stock operator which was written in 20s or 30s or something and that book is really focused on the psychology of trading. There’s a book that’s out of print that’s Overcoming the Seven Deadly Sins of Trading or something like that, I had it on my desk and I’m looking around to see if I see it. It’s out of print and it’s really hard to find but there are people on the internet who will sell you copy for few hundred dollars. (Houston: That rare, huh) Yeah, I was lucky I got a copy and I keep it very close because I tell my students to get a copy and they’ve told me the struggles they’ve gone through to get one. It’s not an easy book to find and it’s by Ruth Barons Roosevelt and I think that’s a great book – it’s not very thick , it’s a very short book but it really gets to the mental side of trading but other than that, I don’t know. I’ve probably given you the indication; I probably look at things about being a better person, a better thinker, more focused – whether it’s how I eat or exercise and what I do that kind of stuff. So much of trading is just overcoming yourself and being focused.
[54:18] Houston: Absolutely, I found that on my journey as well – the better person I am the better trader I become so I’m still on that virtual cycle – you feed one it feeds the other.
[54:37] Tyler: And if you’re not having fun then you’re probably struggling and you have to evaluate what you’re doing. Sometimes trading can be boring but it should be fun, if it’s boring and stressful it’s either your rules aren’t very good and you need to figure out better rules or have someone teach you some better rules or else it’s not the rules – it’s your execution of the rules – in which case you have to overcome yourself.
[55:05] Houston: Yeah, I like that fun as a barometer for success. So just two more questions: if we could go back twenty five years and manage to give yourself some advice around trading or actually around anything – it doesn’t have to be specific to trading – what would you tell a younger Tyler about the next twenty-five years, would you give him any tips?
[55:26] Tyler: Slow down! Don’t rush to make decisions, take a little bit of extra time to think about things. Don’t be impulsive and I think when you were younger, I started trading when I was nineteen – you make fast decisions because of the fear of missing out, you wanna maximize your profits, its kinda greed and fear put together and I find that now is I don’t try to trade everyday – I look at a trade, I do my analysis, I slow down, I think about it – not to say that I’m slow, I’m making decisions pretty quickly. I’m going through the process that I have to go through and I don’t skip any steps in the process and if the stock runs away and I don’t get on board because I’m doing analysis and I haven’t caught it, then I just let it go. The great thing about the market is that there’s always another bus – there’s buses coming many times a day so typically if you miss a bus, just wait for the next one.
[56:21] Houston: That’s great advice so just one last question; for folks on the podcast today and like what they heard, where can they find out about you; where can they follow you on the internet?
[56:33] Tyler: My website is stockscores.com and there are lots of free tools and things on there you can get the stock scores ratings and the stock score ratings are really, really related to position trading. If you wanna know more about my day trades and such then go to some of the links on the home page – they are around some of my educational programs that I do. I really don’t teach a lot anymore, I might do some teaching once or twice a year so you kinda have to subscribe to my weekly newsletter – it’s free. At least there is free advertising for when I’m going to do something and I also have a YouTube channel stockscores.com on YouTube – search for stockscores.com, spell out dotcom and you’ll find me there and you can find me on Twitter as well; you can follow me on Twitter at stockscores. Yeah, I put out stuff that are just my free daily comments and that kinda thing that I think will help people learn a little more about how I trade and then if you want to take it to the next level, the you can buy some of my educational but start with the free stuff and see if you like them.
[57:34] Houston: And Tyler has a great weekly newsletter there as well which I think is, I believe it’s free and you can definitely sign up for that so he’s always sharing lots of great nuggets so, check that out as well. So thank you so much Tyler for your time today, I just wanna tell the audience again as usual you can view the show notes, the transcripts and the resources we talked about today on the website: the tradingedge.org/episode11. And before we go I’ll just ask one last thing to the audience: what’s the one biggest thing insight you got from today’s podcast? Tyler shared a bunch of great nuggets here and a bunch of ideas, so what would you be willing to try for the next month or so – pick some of the ideas that Tyler has shared with us and share with us in the comment section – what would you be willing to try and see how it affects your trading.
Alright, so thank you so much Tyler for your time – we had a lot of fun.
[58:08] Tyler: You’re welcome.
www.stockscores.com – Learn more about Tyler and the Stockscores approach
@Stockscores – Connect with Tyler on Twitter
– In Drive, Daniel Pink asserts that the secret to high performance and satisfaction-at work, at school, and at home—is the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world.
– Overcoming 7 Deadly Sins of Trading – Hard to find but recommended book from Tyler. This book identifies seven dispositions that impede trading profitability.
Tyler’s weekly Market Commentary
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