How a Full-Time Trader Uses Multiple Data Points To Drive Decision Making and Increase Probabilities.
Transitioning to a full-time trader can be a difficult one. We interviewed a trader with over 30+ years in the market who has accomplished this successfully.
Ro Patel is now a full-time trader and an ex-retail banker, economist, and Six Sigma Black Belt from Canada with over 30+ years in the market. He attempts to use as much data as possible to improve his probabilities in a trade. He uses many sources of data points to increase his probability of winning — short interest , option data, price, technicals, and fundamentals.
He is a rules-based trader.
-50% passive managed — macro
w/ covered calls or collars using technical &
fundamental screens — reviewed every week
-50% active managed — micro
25% high beta momentum/binary event technical trading -
daily scalping
25% low delta income-generating option swing trading -
reviewed daily
- Goal of active managed portion of portfolio used for day trading based on income generation of $300,000/year. Therefore, $300,000/10 months (2 holidays) = $30,000/month or $1,500/trading day.
- Daily, I use 25% of portfolio for daily scalping ie. 5 trades x $300 = $1,500. I use other 25% to smooth out monthly income by exploiting volatility & time decay to generate a buffer.
- I use numerous sources of data points to increase my probability of winning — short interest , option data (IV, IV Percentile, Put/Call Ratio, Max Pain, Delta, etc), industry/sector performance, analyst target price, technicals (Fibonacci, moving averages, VWAP, RSI, Chaiken money flow, pivot points, candles, etc.) & fundamentals (revenue growth, EPS growth, debt level, etc).
- Seems overwhelming but once you mechanize the process, it goes a lot faster. Once you have developed your screens, place your alerts, & created alarms, sit back and read some posts on StockTwits.
- I created and use a trading journal to ensure I understand my trades — wins & losses and an option trading calculator to ensure I am getting the correct premiums for my risk.
For the full transcript please GO HERE. To follow @Ro_Patel on StockTwits Click Here.
Rules based trading goes hand-in-hand with automation. Have you automated any of your order execution? — patrickrooney
Yes & no. I view trading as an art rather than mechanical in general, but becoming more mechanical everyday. HFT/IB employing AI to read analyst reports, Fed comments, Twitter feeds, etc to capture sentiment by key words. The art is when you have conflicting data points ie. flattening yield curve, USD up & cash equity market up. My worry in algo systems is how it responds to flash crashes, Trump tweets, binary events, etc. Plus, my broker does not allow algo trading systems. Have not looked into building a robust algo, maybe one day.
How was the transition to fulltime trader? Can you walk us through your last trade? — michaelbozzello
Transition was probably easier than most. I had background in finance & economics which provided a base. If becoming a full-time trader, then treat it as a FT job as an entrepreneur — eat, breathe, live — not as a 9–5 job Keep learning, ask questions, read more — there is no black box/system which guarantees trading success Anyone selling such a service = charlatan. If system existed, everyone would use. No outperformance. No mkt. Last trade: JPM. Usual run-up before earnings historically. Mkt up (SPY) & Sector up (XLF). Up AH yesterday in at 3:17pm at synthetic long (sold put & buy call) trading at $113.42 out at 3:37pm at $113.72 = $600 gain.
Should I hold my WLB Stocks? — BettyBoy
I do not follow WLB & in particular, penny stocks. Need more info: your buy price, thesis, tax-loss need, etc. Moodys downgraded CFR to Caa3 from Caa1 & PDR to Caa3-PD from Caa1-P
NASDAQ FSI:D. Deficient (Issuer failed to meet continued listing requirements). April 3rd: Possibly filing for Chapter 11 bankruptcy protection & suspended the search for a permanent CEO. I would not trade this ticker nor would I recommend it. IMHO sell & fight another day.
How do you behave when none of the rules seem to work for a sufficiently long enough time? — anooj
Einstein “The definition of insanity is doing the same thing over and over again, but expecting different results”. Adjustment need to be made. 2017 was an outlier year in terms of volatility — single digits. Volatility has doubled since. In addition, IMHO we are on back-end of business cycle — high debt co.s typically perform poorly vs broad market. Market is dynamic — rules, stock selection, weightings, etc need change. You can’t force the market to work the way you want. A surfer can’t change the tide — they simply need to adjust for the tide they want to ride.
Do you focus on a specific market cap or a particular industry like Biotech? Or do you trade everywhere? — stevegibson
I do not trade a particular market cap per se, but screen for volume (1M+) & $10+ share price & options. Last wk, FB traded most. In past year, GOOG was my go to stock to trade. Followed by $LMT, $V, $BA, $USLV, $TLT, and $WTW. I am agnostic, but I will not trade a stock if I do not know anything about the company. Peter Lynch: “Know what you own, and know why you own it”.
In general and in your opinion, what are the most important technical analysis indicators? — RonTurkey1
Great question. There are indicators I use for my type of trading, others will have success with other indicators. Seba Smith: ‘there are more ways than one to skin a cat,’ so are there more ways than one of digging for money”. Most popular seem to be MA, RSI, MacD, Chaiken, BBands, CCI, Williams, MFlow, Fib levels, & trend line. Eg. Why is 200MA important?? I don’t know, but becomes self-fulfilling if everyone follows & attach importance to it.
What affect does trading Algo’s have on your trading strategy? — Badboybiggles
I am not a fan in general b/c I get front-runned frequently. It definitely puts retail at a disadvantage. Also, spoofing prices, phantom volume creation, increase velocity of price action are problems IMHO. Algos arbitrage b/n an ETF & its’ holding. If XLF is up then typically JPM will go up. Algos can take advantage of mispricings faster than I can!!
Why does sometimes a stock stay green when general market is deep red, but next day market rallies this stock is red? — MaximaTrader
Any number of reasons, eg. short squeeze, earnings release, analyst report, etc. Could happen in reverse also. Market was strong today and RTH & XRT ETFs were up, but Walmart was down. C’est la vie.
What are your methods for when & how to enter/exit positions. Do you change strategy based on trade size? — UnicornTrades
Typically use technicals. Different time frames: Scalp: 1M charts, Income: daily, LT core: wk/monthly I have rules for each system plus additional rules if using options. Most important rule: DEFINE YOUR RISK. Trade size is irrelevant to me. I do not want to lose money. I do not buy OTM calls hoping for a lottery win. Statistically, a losing proposition. As described above, I bunt & hit singles, I do not need to hit homeruns. Home runs hitters typically do not have the highest batting averages. I am more Ty Cobb than Barry Bonds. Under 6 will be tough without taken an inordinate amount of risk….which is not advisable. Buffett: “Rule №1: Never lose money. Rule №2: Never forget rule №1”. With a low float/trade size, commissions will erode returns. IMHO get a job to increase float. Read, learn, & paper trade. Trade ETFs & options. Don’t try to hit home runs. Probabilities not on your side. I believe what is meant is to use 1 strat per portfolio type. I believe most have a trading acct & investing acct If you are trading 5% of portfolio per trade — what is happening w/ other 95% — I segmented further down Creating trading plan, set rules & option calculators. I am attempting to take emotional out of trading. I don’t want to chase stocks, I don’t stay too long in fad stocks, and I want to get paid for my risk. Once you figure out what your goal, then reverse engineer to the amount you need per month, wk, day. Then create a system to achieve it with the lowest amount risk possible. What’s the point in buying a weed or block-chain stock & have go up $5000 and then lose $7000. My mother told me never to over-stay my welcome. Bulls Make Money, Bears Make Money, Pigs Get Slaughtered.
Daily routine and people you read daily and products you use to track markets. — howardlindzon
Scan news dump from Reuters, Dow Jones, FT, SeekingAlpha, Street.com, Globe & Mail, etc. Check the futures market. Check pivot points on S&P & sectors. Check before pre-market trading. Pull up technical screening report (emailed to me overnight) — check charts. Focus on 2–3 stocks. Deeper dive (news, analyst ratings, short interest, option pegs, etc.). Determine how to trade — puts/call/stock Load my trades pre-market and adjust prices after market opens. If binary event, I will usually place a trade to take advantage of the volatility to scalp. Screeners for swing.
Can you give me your favorite screener setup? Crossover? Volume? Close over ema or price? Breakout? Etc. I know we all have different scans but what’s your favorite one to look at? Thanks! — nastynate1
Breakouts, H&S, Pin candle, double/triple bottom/top, gap up/down on optionable 1M+ volume $10+ shares. Nothing fancy — typically yields 10 stocks — Then pull charts to narrow down. Remaining I do deeper dive (news, etc).
What should a person consider before going full-time as a trader? What would be the ideal starting capital needed? — Yeeld
Will you treat as if you are opening your own business? Are you willing to devout that much time into it? Do you know what you doing? What are your goals? If FT trader, your only income is from trading + need to save to retire. Best thing is to work & invest until such time you have enough to trade portion of holdings to generate income lost from week.
If you could tell yourself a few things you know now you didn’t know starting out what would they be? — Garkaga
Creating trading plan. Create a set rules/check list. Create a log. Learn options. Listen to conference calls. Don’t buy mutual funds. Ask for lower fees. Learn statistics (probabilities, bell curve, standard deviation).
How long in the game before you felt your strategy come to fruition?Do you ever tinker with the strategy? — Moto_Trades
That’s a tough one. Tools have gotten exponentially from 10yrs — even 5 years ago. Fees have come down so much. Scalping when option fees were $240 a leg round trip eroded your return — that same trade is round trip is $28.00. After taking the Six Sigma course 7 yrs ago — that helped me mechanize a routine and system. Prior was hodge podgy. You do this long enough, begin to see patterns. Morning up, profit taking, lunch, margin call, 1st indicator, bump.
Did you use automated rule generation methods (e.g. evolutionary algorithms) or create the rules by “manual” analysis? — Dresdenboy
Manual analysis guided by system. My charts ping alerts — need to assess if false positive.
Rules based = fundamental rules or TA rules? — scinvestment
Shorter the duration of the trade, I rely on technicals more. If long, I employ fundamentals and sector analysis.
How often do you go over results to determine if the rules should be adjusted? Entry or Exit rules more important for you? — CustomTradePlan
I try to go over the trade daily — copy into spreadsheet & add notes about the trade. Rule that I need to add is to check OI on strikes I am trading. Getting out sometimes is creating some slippage Both important. Don’t want to chase the price & buy +2 deviations from VWAP — likely to get stopped out I don’t get sellers remorse. I rather take $40 gain than fingers crossed it doesn’t gap down next day. I don’t need to take that risk. My passive portion takes care of that as does income portion. But w/ lower risk — mitigated by covered calls & low delta put selling eg. $160wkly $FB calls — closed same day +$0.50 (Had I held +$4 now). Sold $150wkly put for $.75. Put delta < Call delta. Bought back Put at $0.20.
Being a noob, can you give me any advice on getting in early on squeezes (pennies or not)? — xian9
Squeezes tend to happen when there a shift in sentiment — analyst call, earnings, buyout, etc. Strength begets strength. Caution: once bids are exhausted, you tend to receive a reversal especially bloody if buying was based on a rumor. If sustainable like improved guidance, you will see follow through.
How much of your active trading is live with active intervention during the course of the day vs set-it-and-forget it? — bearcharts
No algo trading. Charts alerts of an event (LaGuerre RSI buy/sell & DarVas Box buy/sell) & need to verify signal and intervene & adjust the price of the trade (usually I input close ticket immediately after opening so I can maintain some order in my Order Status & faster to change the price — order over notional value of $50K get reviewed at my broker — they use an antiquated system and cannot adjust limit w/o rebuild!!).
What’s the best way for me to develop a winning swing trading system in today’s stock market? — bigfry
Not sure. I don’t make 40% this & 120% that. I am not Karen the SuperTrader (investigated by SEC) or turned 20K into 20M. I had a trade yesterday and I made $42.00. I am slow money. I have been criticized that my stops are too tight. Yes — my goal is $1.5K/ day = ~$300/ trade. Eg. w/ $60K trade at $60/share — I would need $0.30 or 0.005%. That is 1 x15 minute candle. I am not overstaying my welcome. Pigs get slaughtered.
Is there any one piece of data or set of data that makes up the biggest probability for your trade? — Stock_Bites
Daily: I subscribe to rising tide, lifts all boats. I start w/ Pivot Points on S&P/Sectors — If mkt up, choose…. sectors that are up & trade stocks in that sector. Reverse also. Stocks move in waves — run up above VWAP… bids get exhausted, sellers move in, down towards VWAP, consolidates then another runup & profit taking at EOD. Obviously, a generalization — but keep watching charts — you will see patterns developing.
Is there a hierarchy w/r/t ranking/weighting various technical analysis indicators/measures/patters? For example, when tools like mac-d, patterns, rsI, timeframes, etc. are in conflict, which things rule? — rdouglas41
You are taking historical data to infer a price movement. By using technical studies you are attempting to increase your probabilities. Why 200Day MA, I don’t know, self fulfilling? Why is 4% 10yr important? Historically, markets turn. Does it mean this time same will occur. No, but probabilities are in your favor if you respect it. Simple S&P 500 Monthly Chart since 1996 — (6mth SMA & 12mth SMA). 5 pos/neg cross. IMHO need to respect cross.
Here is 2 day SPY — which signal is better??
If you have found indicators & oscillators that work for you then keep with — tweak the interval/variables. IMHO it is irresponsible for anyone to say that you need to use this method/indicator/oscillator. Different trading styles will require different strategies & different tools. LT vs ST. Scalp vs Swing. Earnings trade vs trend trading. Low beta vs high beta. Contrarian vs growth. To each is their own. This is what I traded today and why I chose this stock. Sold out today. May get back in if earnings/guidance is good
Can you recommend a book or seminar on how to better read the market these days? — slickrick32
Technical Analysis of Stock Trends by Robert D. Edwards and John Magee — The Bible of Technical Analysis & Charting Technical Analysis of the Financial Markets by John Murphy — easier read — good beginners book Japanese Candlestick Charting Techniques by Steve Nison — learn what each price bar means on a chart In macro sense — PIMCO, Grant’s, Schwab, most banks have an economics dept. Bloomberg is second to none. Federal Reserve of St Louis has lots of great info — fred.stlouisfed.org/
What do think about $RH? — Chainsaw1
Not a stock I follow — but give it a go….Question: will it fill the gap??
Descending triangle add weakness in Chaiken, OBV, RSI, MacD — probability is lower. IHS Markit: api.markitondemand.com/apim… -
Up debt to buyback shares, 2 law firms investigating, CFO selling, Telsey cuts TP from $118 to $100.
I would not initiate a position.
Any thoughts on $NVCN short team or long term investments? — SellOne
Don’t follow ticker — penny stock. NASDAQ FSI:D. Deficient (Issuer failed to meet continued listing requirements). Funded by issuing shares — dilution every year past 6 year. Receipt of US$7.1M from Exercise of Series C Warrants
In my opinion, I would not initiate a position — Lottery tickets are not a trading strategy to I would recommend
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I am the Director of Community for StockTwits. Follow me @michaelbozzello.
