Throughout my career in the markets, I've met an incredible number of smart and engaging traders, and beginning today we'll be holding Q&As with some of my favorites – thinking that you will find the discussions compelling and that you might even learn a thing or two about trading, the markets and what it takes to be successful.
My first interview is with someone who has been called a trading legend, Nick McDonald. Nick’s a Kiwi from Auckland, and we started working together back when the Tradovate team was still running Open E Cry. In addition to being an outstanding trader, Nick is a long-time educator, and in an industry that has its fair share of charlatans.
Nick's a straight shooter that every trader should listen to – both the newbie and the veteran.
Tell the readers about yourself.
I’ve been trading for 14 years, but when I first started, I didn’t really know what the term meant – though I thought I did. At the time, I was living in London and, as many people may, equated the job description of trader with that of broker. So, I did a quick stint in London and then headed back home to New Zealand to work alongside some of the country’s top brokers – folks who I thought could move my “trading” career to the next level.
Well, I very quickly realized that being a broker is really just a sales job. They were selling investors on what to trade, even though they didn’t know what the markets were doing. This was a surprise to me, as I always thought that brokers were supposed to be market experts. Disillusioned a bit, I started trading on my own.
Fast-forward a few years, and it’s 2004 and I’m at Citibank. I’m still trading on the side, and frequently making more trading on my own than I did working for a salary. I decided to go all in then, and for the next couple of years I did quite well, but got bored trading at home by myself.
I thought about moving down to a trading floor, but it was very expensive to do so. Then fate struck. A broker called and told me their education department needed to be improved; as with many trading education groups, it wasn’t run by traders. He asked if I could put together a curriculum to help their customers learn to trade from home.
That first education program began in 2009. Its success – better results at a smaller budget – led them to outsource the entire program to me. And since then, we’ve established a business serving exchanges and brokers all around the world – they come to us to create their trader education programs.
What’s your business?
Trade with Precision has two divisions. One is retail, where individual traders come to us directly. As you know there are thousands of competitors, and most of them are selling the dream of getting rich. That makes it challenging for us, because we sell the truth: Trading is not easy and requires hard work.
We do have a significant advantage over the rest of the educators, however, as we are the official education group for a number of top exchanges and brokers from around the world. Groups like the CME and ICE trust us to give individual traders the information they need to be successful over the long term.
How do you trade?
My approach – and what we teach traders in our programs – is to incorporate multiple technical analysis approaches. Too many traders (and educators) focus on just a single type of technical analysis, which makes as much sense as trying to make a cake with one ingredient. All of those tech analysis ingredients are good, but they need to be added together.
For example, I trade trends but leverage ten other factors. I look to support and resistance to protect portfolios. I look at candlesticks, Fibonacci, and so on, and then turn that it into a larger strategy. Basically, I have a checklist – and if an opportunity presents itself after going through my entire checklist, then I trade.
Looked at the first time, all of the different factors might seem too complex, but by creating a checklist, I’ve found it to really be quite simple. It’s like driving a car. When you break driving into all of the components – looking ahead, behind and to the sides, monitoring speed, shifting gears, merging, etc. – it seems complicated, but with time it becomes second nature and quite simple.
And quite frankly, the only way to make money is a consistent strategy over time. My checklist ensures that consistency.
Why do you trade futures?
I trade a number of markets, but I love the futures market because it gives me access to trade anything. In particular I like the small tick sizes of the Dow and Mini-Russell contracts. They’re very manageable and the contracts are liquid, both of which the individual trader needs, and I think futures are really the only good way to trade them. The same goes for commodities, of course – they have the movement and long-term trends traders need to be successful over time.
How do you look at the markets?
The market is an exciting place that rewards hard work.
That said, from an early age, I was drawn by the thrill of the markets. Pop culture has certainly romanticized trading, often to the negative, but nonetheless it has been presented as thrilling. More than the excitement, though, I stayed in the markets because it is also such a challenging environment. It’s like learning a new sport, where you first get to competence and then move to excellence. I like to win and like to be in the elite group, and trading allows me to do this.
This is why I’m in education, as well – I like to help other competitive people succeed, just like a coach. With hard work, intelligence and a good coach, traders can do well.
What advice would you give to traders?
I have a lot of advice!
Namely, I encourage individual traders to accept responsibility and to truly learn from their mistakes. I tell them not to blame books, charts, people, the markets or anything else. Success is up to them and no one else.
When your child falls off a bike, they get back on. And they take what they’ve learned and get better – they go faster to balance, go slower in turns, brake going down hills – and become competent. And then, as they ride more, they become excellent.
It’s the same with trading. Just as your child is not going to be riding the Tour de France right away, you also need time to achieve excellence.
How do you learn from a mistake?
Learning from a mistake does not simply mean experiencing mistakes. It means understanding what went wrong and why, and then improving on it.
There are three steps to learning from a mistake. First, a trader needs to start with a defined strategy to make it easy to compare various trading results. Second, they should keep records of their trades, using screenshots as a way to capture what they were looking at when they made their decisions. And then they need to do a thorough analysis and look at every step that went into making the trade.
I liken it to having a golf pro watch your swing – you might feel like you did everything right, but a good coach might see one inconsistency in your swing that pushes your ball out of bounds.
Unfortunately, people don’t learn because it’s easier to say something else went wrong. But it’s the trader, not someone or something else, who should be blamed when trades go bad.
How has the industry changed?
It sounds obvious, but the industry is all online now – not just trading online, but learning online, as well. And this has leveled the playing field for individual traders.
In addition, improved trading technology has made traders much more comfortable with leverage, which has drawn them to futures, options, CFDs or forex. In addition to better information, a wealth of trading tools give traders the protection they need when a trade moves against them.
What still needs to change?
Data fees for retail traders really need to be addressed. As an individual trader, if I want a collection of different exchange data feeds, I can be spending upwards of $300 each month. That’s nothing to the brokers at Morgan Stanley, but to an individual or a small trading team it’s a lot. Exchanges need to bring pricing down for retail traders – the non-professionals – it’s in their interests to do so.
What’s missing for traders?
There’s always a need for better education, and that starts with teaching good risk management and realistic expectations. Learning a skill takes time, and most traders will have to work awhile to get to where they want to be. In the meantime, managing risk is necessary to keep them from blowing their accounts out.
What do brokers and tech providers need to do better for the individual trader?
It’s so hard to differentiate these days. Many brokers compete on commissions, but that’s difficult. Some may compete based on technology or speed (though I don’t buy the speed issue for most retail traders). Where I think brokers can knock out the competition is by offering the best quality customer service and education. I hardly ever call a broker, but when I do, I need to be put straight through – I can’t wait for all the command prompts, and certainly can’t be put on hold.
There’s huge opportunity for any broker that figures out customer service. Brokers are inherently “sticky” when it comes to keeping customers, but good brokers are super-sticky. Up-front support, education and service are critical.
Last question: What’s exciting you these days?
I’m always excited – I’m excited that volatility is coming back, that volumes will rise and that we are getting closer to people feeling comfortable with trading again. I built Trade with Precision in dire times, and I’ve traded in dire times, but I think traders are positioned to do well in the coming years. I feel like there will be another economic boom in the not too distant future, starting in the U.S., and that will lead to more opportunity for traders globally.