Interview Alan Farley

 

Alan Farley  -  I started trading almost twenty years ago after reading all the stories about the 1987 crash. My routine back then was to go  to the library on weekends and review Value Line charts. I didn't know the difference between fundamentals and technicals, and tried to make decisions using Peter Lynch methods, i.e. success stories. That didn't work too well.

I opened early accounts at a big brokerage firm where the fees were ridiculous.  I switched over to online trading as soon as Compuserve made it available in the early 1990s. There I hooked up with a bunch of market professionnals, including Jimmy Rogers and John Bollinger, who here hanging out and chatting on the Investor's Forum.
Before trading, I was a manager in the insurance claims industry for over 20 years. They facilitated my education when the were downsizing in the early and mid 1990s. I was the boss and I had the only modem in the office, as wall as plenty of free time. So I used to watch the markets all day and trade while I was supposed to be working oon claims.

AF - I match my risk to the market. During quiet periods of lower risk, I can have 15/20 overnight positions active on one time. In bad markets, or volatile one, I just day trade and carry nothing overnight. I'm trading very small right now, until the market makes up its mind about the larger scale trends.
My day trades far exceed swing trades in quantity. I probably do 5 or 6 day trades for each swing trade. That makes sense because I'm testing the waters ans doing a lot of scalping, while I'm waiting for overnight holds to set up.

AF - Control risk, control risk, and control risk. As long as I focus on the profit side, I'm doomed because that's what the market gods want me to do. Underlying greed sucks money out of your pockets. I've also learned that it's not a fair or efficient market. It's a dirty place where powerful people are playing all sorts of cruel tricks on smaller traders. You have to see this instinctively to avoid traps. Then you can play with them, or get out the way.

AF - Most traders react to situations rather than being proactive. So they follow price movement around and get caught in all sorts of reversals. Also, most traders don't really want to put in the hard work required to make money over a long time period. They see the market as a quick and easy way to get rich.
I also believe many traders don't want to succeed on a subconscious level because this requires too much self-analysis and self-discipline. It sound easy in theory but is is more difficult to put it into practice every day. Just ask someone who is trying to quit smoking.
Successful traders have controlled weaknesses in other aspects of their lives before they risk money in the market. They also know how to observe, without letting their own bias influence what they're looking at. Finally, they're fearless and not afraid to lose money, because they know they'll get it back.

AF - Trader psychology is way overrated after you've been trading for a number of years. At that point in the learning curve, pure performance is the only issue and psychological analysis is just a crutch.
Going back to what I said earlier, controlling risk is the single most important aspect of successful trading. That falls under the category of money management.

AF - It can takes5 years or longer to figure out the markets and have a plan to take advantage of price movement. If you're committed, stay in the game until it all makes sense. But lower your share commitment until you have a track record that tell you its Okay to risk high levels of capital.

AF - I took my worst drawdown in three years in 2006. My focus now is on avoiding those periods by shortening my time frame, and taking a hit and run approach with most trades. I've also increased my size and overall exposure to the highest in my history because my results tell me its foolish to trade smaller.

AF - Absolutely. I've stopped looking for new technical indicators and just rely on the patterns, a few moving averages, a few moving averages and Stochastics. They tell me just about everything I need to know about trade entry and exit.

AF - I've been to France three times in the last three years, conducting seminars and speaking to traders.  I absolutely love the place and the people. French traders are extremely focused and knowledgeable about their craft. They're also far less cynical about their market obsession than amrican traders. I find that extremely refreshing.