TradersCALM - Principal Coach
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Who is the principal coach at TradersCALM and what is his/her experience?
This is the story told by Ric Ingram, the current principal coach at TradersCALM. It is a story he describes as of "one very naive trader and his dogged persistence".
Ric had left university and was apparently doing very nicely in his chosen line of work. Well enough to put a little money aside for a house deposit, then to pay the mortgage and with repeated promotions to have some left over.
Ric was in his early 20's and on top of his little world. He could not see himself working to 62, his companies retirement age - who can in their 20's. What made Ric different was he was determined to do something about it - he decided he wanted to retire at 40. At that point Ric reckoned life was not about work. He wanted to live much longer in retirement than he had worked and so he reckoned on investing his surplus and yes, it could be done - if he got a reasonable investment return of 7% per annum compound or better. Quite feasible he thought, in a tax-free pension fund and being able to take a long term view.
So started a journey that continues to this day.
His investment time horizon suggested stocks and shares to Ric - so he set about studying mutual funds via pension fund and other investing vehicles. Ric needed to invest some moneys outside a pension fund as he needed sufficient funds to live on for 10 years until he could draw a pension at 50.
By 30 he was ahead of target to retire at 40, but then Barbara, that extra special lady came along, and they got married. This put a dent in the plans and anyway Barbara did not want him 'under her feet' at 40. So a compromise was reached and 50 was the new retirement target.
Barbara, his wife was also interested in stocks and shares - her father had made his money with a house cladding business and had recently retired at 50 after successfully leveraging this money in stock option trading. She liked the idea of repeating her fathers success, so now added to the persistence of Ric was the ambition of Barbara.
They decided options were too complex, at least to start with, and decided to open a futures trading account.
Barbara's enthusiasm lasted through 5 years of (slowly reducing) losses and Ric was then left with his persistence and some encouragement from Barbara.
They were trend-followers. They found it easy to make decisions together readily and quickly. At first they lost, and over several years, the rate of monthly losses slowly declined - but still they lost.
At first they tried futures and they were good at running profits, but neither could cut losses and this was the source of their problem. This was partially solved, reducing the overall loss rate by an idea from Barbara - buying options - because they had limits on their losses.
Slowly, by learning new skills, correcting one error after another, going from discretionary to system trading, exploiting options... the losses slowly reduced some more and finally Barbara was able to celebrate their first winning quarter by telling her father.
Now they were at least not losing, they met fellow traders in the same position. From his job contacts, Ric and Barbara met friends of friends who were pit traders.
They all seemed, independently, to be telling Ric and Barbara a similar story - but neither Ric nor Barbara took it in. The story boiled down to doing the opposite of what they had been doing and had struggled to make work for so many years. One such story was from Martin.
Martin was in his late twenties when he retired to Bermuda and also to a small place in the Bahamas. Ric and Barbara were invited to the 'small place in the Bahamas' - it turned out to be so small it only had seven bathrooms! Martin's story was just misunderstood by Ric and Barbara, because their vantage point was so different.
When discussing the market with Martin on the phone almost every day for years, Ric said he thought the market was going to rise over the next few days. Martin said he did not know which way the market was going to go, but if it did rise by 15 points or more as Ric suggested, he would sell it at that point.
Ric, just assumed Martin was confused and meant buy it. Even when Martin made 40 points for Ric and Barbara's 10, and 100 points when Ric and Barbara lost 5, neither Ric nor Barbara puzzled out what was going on - they were not even aware there was anything to puzzle out!
Long after Martin had retired to the sun, and Barbara had died of cancer, Ric finally managed to retire at 48. He was able to accelerate the retirement date by supplementing his various investments with substantial trading profits.
Everything started to turn around in his trading when he started repeatedly buying put options cheaply into rises and repeatedly selling them back at higher prices into falls. He had finally noticed that when an equity index rose, everything worked for the put buyer - the futures premium was higher, implied volatility tended to fall and of course the underlying market was rising.
And of course when the index was falling, futures premium fell or even went negative in a big decline, implied volatility tended to rise and of course the underlying market was falling. He also noticed that slippage was in his favour most of the time and there was never any liquidity problem - there were always plenty of willing counter-parties for his trades.
It was as if a veil had fallen from his eyes - he was making a little money, each from a lot of traders, by providing a service of willing buyer to their urgent sales and willing seller to their urgent purchases. By doing what few did, he got more profits because there were fewer to share them with.
Only when he applied this principle - of doing the opposite of the majority - to trading option spreads in his 46th and 47th year did he realise two of his dreams of making more in trading profits than his salary and making over 100% on the account value in one year.
It was finally the buying of diagonal put spreads into the 1997 rise and selling them back into the subsequent fall that was the catalyst for retirement just before his 48th birthday. It was all done using a cell phone while sitting in the back of the morning taxi to the client, while working in the winter of Northern Finland, or back in the hotel room in the afternoon (work stops early in the winter in Northern Finland) before meeting clients or colleagues for an evening meal.
Now retired, Ric had the mental space to realise how naive he and Barbara had been. Martin and the pit trading acquaintances had been telling them both about making good regular profits a decade earlier: repeatedly serve and fade the majority and repeatedly reap the rewards of the service of the few to the many. Ric said he thought it was funny - they had been too busy struggling all those years to see what they were struggling against!
Since retiring, as he employs steadily increasing reward to risk ratios, he has lost count of how many different trading systems he has discarded in the last decade. The amusing thing he says, is that all the discarded systems were all more profitable than he had dreamed of before he saw where Martin and the others were coming from - their vantage point as he calls it.
So now he says he is more interested in learning new vantage points and to leverage old vantage points than in new trading systems unless they regularly make at least 6% a month (100% per annum compounded) with less than 9% drawdowns. Other trading interests include finding new concepts to exploit, or using position sizing with a new trading system to further even out his profits over time.
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