How To Trade For A Living (With Peter Brandt)

Hey, hey, what’s up, my friend?

I’m excited because today we have Peter Brand on the show.

Peter has been trading for the last 50 years.

Well, 49 years to be exact, but you know…

I think his trading career is older than I am and I’m pretty sure it’s older than many of the viewers and listeners who are tuning in right now.

Also, something to share with you is that…

I have two grandfathers.

One of my grandfathers passed away before I was born and the other grandfather passed away when I was about 10 years old.

If I recall.

When I spoke to Peter on the show, it felt like…

“Man, this is like speaking to my grandfather”

I never had the experience before.

So it was heartwarming, it was enlightening, and it was inspiring.

If you’re going to connect with Peter, I will put his social media profile in the description below.

But moving on, here’s what my conversation with Peter is about.

• What was life like after WW2 (the jobs he did, the kind of kid he was in school, etc.)
• How he got started in trading
• His favorite chart patterns and the ones he avoids
• How he has been profitable with it over the last 50 years
• Entries, stop loss, targets, trade management (from start to finish)
• Risk management and position sizing
• And much more…

All this and more in today’s conversation, listen to it right now.

Rayner (02:27)

First and foremost, Peter, I just want to say that outside of trading, I’ve been following you on Twitter for a while now and I respect that you are not afraid to speak up on what’s on your mind.

You are someone who dares to stand up for what you believe in.

Sometimes I see comments trolling you and I know personally I get those myself and I know it’s not easy for me to take it.

I feel that you’re doing a way better job than me.

Maybe from the wisdom and experience over the years, you can kind of like take them a lot easier on your strides.

I respect that and I have to learn a lot from you in that pre-cut.

Amazing stuff man.

It gave me the strength; you know sometimes people are not too kind.

I look at if I were Peter Brandt at this point, what would his state of mind be like?

I kind of feel comforted.

He probably you know tell them to screw off you know. [Laughs]

Life goes on right.

Enjoy the mountains and whatnot.

Peter (04:21)

We get trolled.

I mean you know I think my parents did a good job at teaching me you’re not going to make everybody in the world happy or can make anybody in the world happy all of the time.

You’ve got to be honest with yourself.

You’ve got to know what you’re thinking.

You’ve got to be willing to share what’s on your mind, even though you know that there are going to be times when people agree and approve of what you say.

There’s going to be times in which people just find what you say to be horrible.

You know, I came in today, and somebody tweeted me and said…

“Peter, I sure wish you would just stop commenting on all of these political, social, environmental, and global issues and just focus on your charts”

My response back is…

“I’m a stakeholder in my trades but I’m also a stakeholder in life”

I have children, I have grandchildren, I have a wife.

I have a community in which I live, I have a country in which I live, and I’m a stakeholder in those things.

I have a stake in things that are taking place in the city about me, the state about me, the country about me, the hemisphere I’m in, and the world I’m in.

These things matter to me deeply.

I just think that it’s important for me, not that I’m going to win anybody over to my way of thinking, but I need to be able to express how I feel.

Whether there’s somebody out there who was listening or likes it or not It’s important for me to at least lay claims to the belief system that I have.

Rayner (06:10) 

Yes, I totally can see where you’re coming from.

Maybe earlier you talked about how your parents since you were young.

You talked about how you should set up for what you believe in.

So I’m curious because I think this is something that I’ve not heard at least on the other podcast.

You know in one sentence or one to two sentences, how would you describe your childhood?

Peter (06:29)

I was forced to be independent from a very early age.

Rayner (06:39)

Why is that?

Peter (06:41)

Well, I had parents who divorced.

I was raised by a single mother on welfare.

We’re welfare children and we had enough to live on from month to month and week to week, sometimes from day to day.

While money doesn’t bring you happiness or sadness, it’s a reality of life.

You know, from early on, if I wanted to buy better clothes than I had, that came from the local used clothing store.

I had to earn the money myself.

I’ve been pretty much self-sufficient, ever since I was 12 years old.

I know what hard work looks like, what it looks like to be dependent upon yourself and so I think coming along with the baggage that my parents had was they were dealing with so much stuff.

We really kind of raised our kids really kind of raised ourselves in some ways.

We had to kind of find our path in life.

Sure we had parents who from time to time would speak into our lives and provide us with advice or guidance or restrictions or limits.

But day-to-day life for me from really pre-teens on was of my creation and my finding.

I mean the reality is when you’re young, your reality is what you have, right?

It’s not somebody else’s reality, it’s the reality of what you’re going through in your own life.

That was my reality.

I didn’t have any sense to say…

“Well, I wish it would have been different or I wish I would have had this or that because I had what I had”

But I think the reality is it made me a hard worker and I learned to solve problems early on, which is a great segue into trading, right?

Because trading is a never-ending process of solving the next problem that’s in line.

I think that from the life that I came out of as a younger person, I think equipped me to do what I’ve done now for not for 50 years.

I made my first futures trade in 1974.

Yeah, and quit my day job and went on the board of trade exchange in 1975, but made my first trade in 1974.

That’s 50 years ago.

A lot of lessons that I had to learn when I was growing up were lessons that I think I put to good use as a market speculator.

Rayner (09:37)

So I’m curious, you mentioned you started being self-sufficient at age 12.

What was your first job?

Curious to know.

Peter (09:41)

Boy, I did a lot.

I mean, it was, this was back in the 19…

You know, the 1950s really where you had corner grocery stores, everybody had their corner grocery store.

You had your corner meat market, you had your corner laundry, you had your corner gas station.

Life was much more community-based, I think, in the America that I grew up in.

I would hand out flyers. 

The local grocery store would have a weekend special on steak and so, on cans of soup and they would print it all up in a flyer that would announce their special sale.

You know I would get a big handful and I’d walk door to door and I’d fold them and put them in people’s mailboxes or I would collect newspapers.

Back then I think we did a lot more recycling so I would let neighbours know that rather than throw their newspapers away, put them in a pile and I would come and get them.

I’ll come and get them with my wagon.

I would get these newspapers and I would tie them up with string and I would sell them to the recycler.

I would collect metal hangers, you know, back in, we were just back then coming out of within 10-15 years of World War II.

America was still relatively frugal on raw materials.

It’s not like today where we have a disposable world.

I collected metal clothes hangers brought them back and gave them to the dry cleaners.

The dry cleaners didn’t have to keep buying new white metal hangers for their laundered shirts.

They could use the metal hangers that I would sell to them or pop bottles or tin.

This was a pre-tin can.

I’m old enough that I remember when we didn’t have aluminium cans.

Aluminium cans, that was kind of one of the greatest inventions of my lifetime.

But we all had bottles that were glass bottles.

Usually, in these glass bottles, you’d buy a bottle of Coke and it would be an eight-ounce bottle and it would have a metal can there’d be a one or two-cent returned deposit on the bottle.

I could collect these bottles and return them to a grocery store for a couple of cents.

It was just a matter of collecting a few bottles and bringing them back getting my money and turning around and giving it back to the store in exchange for the candy that I wanted to eat.

So yeah, it was a whole line of things that I would kind of figure out as a kid.

Yeah, I can make a little bit of money doing this.

Then eventually when I became a little bit older, I was delivering copies of the city newspaper, the Minneapolis Star and Tribune.

Tar Tribune is what the newspaper is still called to this day.

You know, would have the morning paper.

I had a paper route and I would go around it.

This was pre-internet.

Now you read your newspapers on the Internet, of course.

But this was back when people got physical copies of newspapers just as they do with some newspapers today, the Wall Street Journal.

I had about 115 newspapers that I would deliver each day.

I’d go down to the local distribution area for my zip code, although we didn’t have zip codes back then from my neighbourhood.

Load up 150 newspapers in my wagon or my bicycle.

If the weather was right, I’d go out and I’d deliver them door to door people.

Then every month I’d go around and I’d collect money for the newspaper.

In effect was a commissioned newspaper salesman, except I had to deliver the newspaper.

But of course, when they were done with them.

That’s when I would always say…

“Don’t throw these newspapers away after I deliver them”

Read them and then keep them, because I’ll be back for them.

I’ll get money on the front end, and I’ll get money on the tail end of these newspapers.

Rayner (14:06)

When you were like 12 years old studying, doing such odd jobs, right?

Is it like, when you get such job opportunities, is it like just all around you?

Or is it like a lot of your friends are already doing such things as well?

Peter (14:17)

No, I mean, some of these things, of course, people brought to my attention, such as newspapers.

I mean, newspapers had been delivered by newspaper boys long before I became a newspaper boy, is what they called me, newspaper route salesman.

So that was just a matter of knowing those jobs over there and that there was money attached to them.

But things like delivering flyers for the local store.

I mean, a lot of these things were kind of things that entrepreneurially I made proposals.

So sure, there are some of these things other people had figured out that there was a way to make money.

I didn’t get an allowance.

Like we pay kids today an allowance.

We give them a weekly or monthly stipend for school lunch and so forth.

But some of these things were entrepreneurially created by my creativity and ability to go out and talk to adults and say…

“Hey, I’ve got a business proposal for you”

Rayner (15:19)

Wow, that’s amazing.

It’s something that I rarely hear of these days and age anymore.

All the kids, they kind of have it easy, right?

Allowance and meals are provided for, life is good, right?

I guess the downside is it kind of like, it doesn’t inspire or give them the hunger to try to go out there and get shit done.

Peter (15:45)

Absolutely.

Part of that is just the age we live in, right?

I mean, the world changes.

We can’t expect the world to stay the same.

We have to be willing to be flexible enough to adjust to changes that come about in our lives.

But I don’t see the same motivation, for instance, my grandchildren.

I have five grandchildren.

I don’t see the same motivation in my grandchildren as I see in my children and as much as I saw or experienced by myself or my son, my sisters, who also had to do odd jobs babysitting or sewing clothes or whatnot.

I think that to some degree kids that are being raised today have a free pass that we did not have.

Uh, you know, I think there’s good and bad in that.

I mean, it’s good in that if kids use their free time and ability and not have to go out and work for their school food or clothes, they can use it to apply themselves to learning.

Even again, I think a lot of these kids use their spare time to play iPad and be involved in watching YouTube videos not to promote them.

I’m not trying to take their audience away from you right now because I know you do a great job educating.

But I think there are always opportunities for young people today who are willing to learn and willing to find things that they fail at to find things that they can succeed with.

To some degree, along with maybe having that a little bit easier, I think one of the disadvantages young people have today is they don’t cope with failure well.

You know, they’re used to success.

You know, we would, we had to earn our grades.

There were no free A’s in school.

When I went to school, we had to earn our A’s now we live in an age where there are trophies for participation.

All you have to do is participate in the sport and you get a trophy.

You know, back then you had earned the trophy and there were a lot of teams that went home from tournaments disappointed without trophies or some sort of piece of paper to frame.

But so we’ll have to see each generation hands down the baton to the next generation.

We’ve handed the baton to our kids and I think they’ve done a wonderful job.

But now their kids are just coming of age and we’ll see how the baton is handed off to the next generation.

Rayner (18:46)

Because this is not something that I can experience.

So at your age right, maybe back then when you were 12 or 13 years old.

Could you maybe just, if you remember right, could you maybe just walk me through a day in your life at an age where you have to juggle with your studies?

As well as your entrepreneurial drive and the things that you’re doing outside of school.

What’s a day in the life of Peter Brand at 12-13 years old?

Peter (19:10)

Yeah, I mean, get up and get dressed and go get the newspapers to deliver, right?

Rayner (19:15)

What time are we talking about?

Peter (19:24)

Oh, 5 AM. Yeah, 5 AM.

Go get the newspapers, deliver the newspapers, and get home.

I have cereal, my mom, kind of with the age of Wheaties and oatmeal and fruit and milk and a banana, and go to school.

We pretty much walked everywhere or used our bicycles back then.

You know, it was typical for families to have one car.

Still, they did a family have two cars.

Families had one car.

Back then, mothers generally did not work.

You know, most mothers in the 1950s in America were homemakers and mothers.

Well, some had outside jobs, maybe part-time outside jobs to help supplement income, but back then we had a thriving middle class in the United States, which we no longer have the middle class in America has pretty much been decimated.

We had the baby boomers because our fathers went to war, World War II.

My dad was in World War II.

All of his friends were in World War II.

These fathers came back to a thriving industrial age in the United States where jobs were aplenty.

There were the growing two-bedroom homes, small homes.

I was raised in a very, very small home.

Shared a quite small bedroom with my brother and my two sisters slept with my mom and dad before they were divorced in their bedroom.

We had one bathroom with one bathtub to share with the whole family.

That was not untypical of these war veterans who came home and started raising their families went back to university got jobs and founded great corporations.

You look at the corporations, many of the stocks that are on the New York Stock Exchange today were companies that were built and became large industrial concerns coming out of World War II.

That was kind of post-World War II my childhood.

I’d go to school starting at eight o’clock in the morning, we’d be done at three o’clock.

I’d come home and generally change clothes and go play with the neighbours.

Whether it was baseball in the summer or ice hockey was my big sport.

But of course, that was only during the winter in Minnesota where we had outdoor ice ranks.

That was kind of, and then as I became a little bit older again, pre-teens, an awful lot of my free time was devoted to trying to find a way to raise money.

I knew that the money that I wanted to be able to buy lunch at school as opposed to bringing a brown bag with a peanut butter sandwich.

If I wanted to buy a pizza or a hamburger, I had to figure out a way to have that money in my pocket to do so.

A lot of my time as I became a little bit older was devoted either to sports or finding some way to earn money as a junior high schooler or high schooler.

To be able to support myself and so forth.

That kind of brought me through my high school years.

I was fortunate enough that I was a pretty good ice hockey player in high school and Minnesota, in the Northern States of the United States, North Dakota, Minnesota, Wisconsin, Michigan, New York, Massachusetts, Connecticut, and Vermont.

Ice hockey is a huge sport for kids.

In many areas of those states, it’s the single largest sport for kids.

It was back then and it still is to this day.

It’s a sport that draws the attention of young kids in the Northern tier of the state.

But of course, now with indoor ice arenas, that’s true also in many of the big urban areas in the South.

I was lucky enough to be a good hockey player and I earned a scholarship to college.

For my first two years of college, I went to a school called St. Cloud State College in Minnesota, which is at the upper tier of college sports.

It plays the best of the best of the best.

College ice hockey teams are played by St. Cloud State University.

I played college hockey for two years and realized that college was pretty much, and I wasn’t a good student.

I hated high school.

I got out of high school with barely passing grades.

I mean, the typical grade for me was a C-minus or a C.

Sure, my parents wanted me to do better, and I was going to get an allowance because I didn’t get an allowance.

I didn’t take school seriously.

Even for the first couple of years of college, I didn’t take school very seriously.

I kind of felt like I was just a college for me a placeholder.

It was a bookmark.

It was just something you did after high school because I wasn’t in the mood to go to work, go to work.

Doing blue-collar jobs, I felt like…

“Yeah, there are good jobs out there, uh, that will require a high, uh, college education”

That brought me to college, but even during college, I lived at home.

I did dishes at the university to be able to buy my lunch at school and paid for my college education.

After two years of being an ice hockey player, I decided I needed to get an education.

I need to become a student.

I need to take school seriously because I’m running out of track.

I’ve got two years done and I can see the end of the track.

I actually, what am I doing?

I become accomplished at something where I can market myself.

I transferred to the University of Minnesota, which was a great place with, a fine college education.

It was a very well-regarded school.

Again, lived at home for a year, and worked numerous jobs during college.

I mean, during college, I loaded UPS trucks.

I worked and made cardboard boxes in the cardboard box factory.

I drove trucks.

I drove school buses.

I drove a taxi cab.

I painted trucks for the highway department.

I had tractor dealers. I had a wide, I worked and cleaned out the cages of an animal research facility where I’d clean out the monkey cages and the rat cages every day.

So then as a junior in college, I got married very young.

My wife and I were very young when we got married.

That’s why I had a wife to sport. Children came very quickly afterward.

Even during college, I had a family to sport.

Thankfully my wife pitched in and worked.

Her mother took care of our young son.

So my wife could work full time.

I patched together pretty much a full-time job while I was going to school, taking a full load of credits.

But I did very well. I took school seriously.

For the first time in my life, starting as a junior, I decided I was going to get all the A’s, which I was able to do then for the final three years of my college.

I didn’t get through in four years because of the pace at which I needed to be a husband and father and bring in food, bring in money for the family.

It took me some extra time.

That was three years of working and getting my college degree, which I finally got in the field of advertising.

I got a degree from the University of Minnesota in advertising and that then kind of launched me into the next phase of my life.

Rayner (20:31)

Wow, if there’s one word to describe it, I would say it’s a hard worker man, Peter, hard worker.

Do you plan to get married at a young age, right?

Was it something that you always wanted?

Peter (28:40)

Yeah, I mean, I think back then, of course, people did get married. It’s, you know, we meet a lot of people our age that were married young.

I mean, if you were to do research and look at the statistics of the average age of first marriage, let’s say, I’m sure our United States government did have plenty of Excel files on that that can be downloaded.

But that has been steadily increasing, not only the percentage of people getting married because in today’s America, fewer and fewer people, you know, a lot of people live together and don’t become married.

But back then at that period, which is the late 1960s, people got married a lot younger, and they started their families a lot younger.

The idea of being barely out of your teens as my wife was before she had her first child, that’s pretty much unheard of today.

Of course, I was in my early 20s, but we weren’t impressed by this idea that…

“Oh my gosh, we got married so young”

Because other people were married as young as us.

You know, we are probably a little bit younger than most of our friends, but not by a whole lot.

People generally get married late in college or right out of college.

So we weren’t unusual.

Rayner (30:05)

Just one last question, before we talk about trading.

You shared quite a little bit about your childhood, right?

So what do you remember as some of the most formative moments, during this period that you’ve just shared?

Peter (30:11)

I was kind of a troublemaker.

In high school, I guess you’d call it a juvenile delinquent. I put myself in a way of mischievous more often than I probably should have, and some of that had to do with the fact that I didn’t have a lot of adult supervision.

But I think through that, I think what I discovered is adults are willing to forgive kids if kids are willing, to be honest about what they did.

If you step forward and take responsibility for your actions, if you’re honest and transparent about what you’ve been involved in, people are…

I think that’s probably true throughout the world, not just in the community that I grew up in, but I think it’s probably true even to this day.

It’s a universal truth that people are willing to forgive others when others are transparent and ask for forgiveness and seek to do better.

That was something that was impressed upon me.

I think the other thing is if I want something, I have to earn it.

I have to go get it.

It’s not going to come to me on a silver platter.

It’s something that I’m going to have to figure out how to do.

I think a third thing, Rayner, would be you’ve got to figure out how to solve problems because your life is filled with them.

You’re going to be solving problems, you know, for the rest of your lives.

So you might as well be good at trying to be creative and find different ways to do things until you can find a way to do things.

That at least will get by, if not be successful.

Rayner (32:00) 

I agree that life is full of problems and it’s a skill to be able to solve problems and now since that, you have children who are already pretty much adults.

Do you recall any things that you’ve done for them to help them train to become problem solvers?

Peter (32:16) 

I think from an early age, for our kids, we told them that they were going to have to get a job.

You know, we’re going to try to help them the best we can.

Then, fortunately, by the time my children came of age, I had succeeded at being a trader.

And so, you know, I’ve raised my children in different economic strata with the benefits that are incurred upon that than I was raised by.

We were able to help our kids in ways that my parents wouldn’t have even conceived of.

Nevertheless, we instilled in them the need to come home from school and tell us things that they probably knew that we wouldn’t want to hear, but we were willing to bite our tongue and listen.

It was more important for them to be honest than…

You know, if they were to do something wrong, the worst thing they could do is then lie about it, because they’d be more in trouble.

They’d be more trouble for lying than they would be for whatever they did.

That they had to work.

There wasn’t going to be a free pass.

They had to find summer jobs.

If they wanted money during the school year, they might have to work part-time during the school.

So those were things that we really kind of, we didn’t demand great grades by our kids, and to some degree in your hemisphere, in Asia, parents place a lot of emphasis on great academic achievement even in the United States.

The Asian Americans who are most successful academically, we didn’t place that upon our kids.

I mean, we’re happier with A’s and B’s and more happy with B’s and C’s, but we saw a lot of C’s and didn’t demand A’s and B’s.

Although we did demand B’s if they wanted to drive our car, only because with B’s, the cost of our car insurance went down.

Rayner (34:29)

Very practical.

Let’s move on and talk a little bit about trading.

How did you get started in trading after college?

Peter (34:38)

I’m 77 years old. I love trading.

I’ve been trading since my mid-20s.

I’ve traded for a living.

I sometimes almost pinch myself and say…

“Really?”

Rayner, I was able to figure out a way to support myself and my family by speculating in commodity markets.

I mean, how crazy is that?

After college, I started a career in advertising.

We moved to Chicago.

We lived in Minneapolis and we moved to Chicago because I had been recruited by one of the principals of, at the time, the third or fourth-largest advertising agency in the world with offices all over the world.

Huge advertising agency.

I was recruited.

We moved to Chicago where I went to work for an advertising agency and while in Chicago, there was a kind of friends we met through our kid’s activities.

Father who was a trader in the soybean pit at the Chicago Board of Trade, I got to know him.

John invited me down and he said…

“Come on down to the Board of Trade someday, Peter”

We were on the fourth floor of the Board of Trade, are all of the exchange pits and there’s a dining room for members.

We’re looking at the exchange floor and the fifth floor.

Come on down and I’ll show you what we do and I’ll show you around the building.

I was just absolutely captivated because back in the days of exchange trading, especially back then when we had just a huge volume that had exploded in the early 1970s.

The United States coming off the gold and silver standard and inflation, crop failures in Europe and Russia, was the era of modern commodity markets. It was 1971-1972 into that era.

These exchanges and hearing all of these guys yelling and screaming and pushing and shoving and fist fights would erupt and it was just pandemonium.

I just went…

“Golly, that looks like a cool thing to do”

I was on the fast track in advertising, they liked me.

They knew I was a hard worker and they knew I was a “producer”

I didn’t wait around for things to get done in my world in advertising, just as I didn’t in my world as a person.

I was kind of on the fast, young executive track in advertising.

Back then, I think this was 1974, I was making $25,000 a year, something like that.

Rayner (37:35)

That’s a lot of money.

Peter (37:36)

That was a lot of money back then.

I decided I was going to try this commodity trading deal.

I went and I found a large grain company, Continental Grain Company.

Second largest grain raw material exporter in the world next to Cargill.

Continental Grain was a growing business.

They were looking to hire young guys who wanted to work hard.

The deal was…

“Okay, we’ll train you and we’ll give you a stipend for some time, just enough so that you’re not starting with no money at all”

This was not an MBA fast-tracked world back then in the commodity business, everybody started at the bottom.

You didn’t start with a young executive job.

You had to earn it to get it.

So, the deal was — If I brought in grain business or brought in raw material business, I’d get a fraction of a cent on a bushel of corn if I could find somebody to do their grain business through Continental Grain.

They offered me, I think, the equivalent of 1,000 – 1,200 a month, something like that for some time, a year, I think it was.

Then after that, I was on my own.

I went back to the advertising agency and I said…

“Look, I’m leaving”

I’m going to work for half the money and if I don’t make it as a trader, will you hire me back in a year with a 50% raise?

To which they said…

“Yeah, we’d love to have you back and we hope you fail”

It was, you know, down to the word trade and learn the business, learn the symbols that, the letter F meant January and the letter G meant February and the letter H meant March and the letters for July platinum was PLN.

How many 100 troy ounces of gold were a contract and you had margin requirements and delivery months and there were speculators and there were hedgers and there were all of these things.

I had to go find a way to bring business into the shop.

I had to go find a way to bring large traders in so I could earn a living.

After the end of the year, I had income.

I knew I wanted to be a trader back then, Rayner, I knew that my end goal was to figure out how to trade.

I was told by people who I believe that this is a very difficult thing.

If your goal is to be a trader, you are in for a very steep learning curve.

This is not rags to riches overnight.

This is not, I’m going to come in and do 100 every year and grow my accounts from a thousand to a million in two years and buy a Lambo and a big house in the suburbs with a swimming pool.

This was going to be hard work and it was going to take a while.

People told me that and I happened to believe them.

I was humble enough to think I wasn’t going to be this instant success.

So I was going to have to figure out a way to do it.

I hustled for business and I brought in some very large accounts into the business that would do their clearing business through Continental Grain and I would earn.

In effect, fractions on the contract or commission, considered commission against the contract and I could build up my business while I learned how to trade.

Learning how to trade for me was a three-dimensional puzzle.

You know, there’s a lot to learn.

There’s just a lot of things that have to be figured out.

If you’re going to say…

“Okay, I’m going to quit my day job because that’s what I wanted to do”

I knew I ended up really at the end of a year or two, making more from commissions, from bringing in customers to the board of trade and the New York Merc and so forth than I made in advertising.

It didn’t take me long to earn what I was making in advertising and more by bringing in large customers into the business, but my goal was to learn how to trade.

I’d earn enough to open an account, 5,000, 10,000 because the continental would let us trade our account.

But their stipulation, well, you’re not going to open an account for $100 and trade the dollar/Yen pair.

You’re going to have to trade futures.

Their requirement is you have to open a $10,000 account.

I’d earn a $10,000 account and blow out the account.

I tried trading in different ways.

I tried trading fundamentally. I mean, after all, I was working for one of the largest grain commodity broker-dealers in the world.

There was a lot of good fundamental information that I had access to by very smart people who understood the fundamentals of the businesses I was in.

I tried to trade it based on economic supply and demand considerations and that wasn’t a success.

Then I tried trading spreads where you buy March corn, and sell December corn.

It’d be called an old crop, a new crop spread or I would try seasonal.

I tried trading seasonal tendencies and I tried trading cycles and I tried trading point and figure charts and I tried several different techniques and, in the process, there was 1976-78, I probably blew through three or four columns, but I was insistent.

I had a big advantage that a lot of these young kids sitting down in their mom’s basement under iPhones trying to trade didn’t have for one.

I had an income coming in from commission business from companies, large chicken growers that needed to sell 120 million chickens a year and we were buying all the corn and meals to raise them.

A gold company, the largest gold miner in the United States I had as a customer.

I had this incoming coming in.

A lot of these young traders who are trying to trade don’t have that.

They don’t have a steady income.

I had that to an advantage.

I think I had another huge advantage as I was in a building entirely dedicated to the business of commodity trading.

Where on every floor in just about every office in that building, some successful traders were willing to share information and knowledge with me and do so out of their interest in seeing a young guy who was willing to work hard, become a success.

So, I heard this chatter all day long from successful traders who were floor traders as well as speculators within the building.

I think I was lucky enough to learn from people who were willing to share things with me, and who were successful.

I was in a building filled with successful traders.

They weren’t pretenders.

They weren’t wannabes.

Some guys had cut their teeth in trading and had succeeded at trading.

There were several of those guys who were willing to share an awful lot with me.

I think the most successful things, the most important lesson that they were willing to mentor me on is that…

“Peter, you got to stop losing money in your accounts. You’ve got to figure out a way to put a tourniquet on so you don’t haemorrhage to death. You have to figure out this risk management side of your trading because if you don’t figure out the risk management side of the trading. You’re going to be starting new accounts and blowing out accounts the rest of your life until you learn that”

It doesn’t matter how you trade.

It doesn’t matter if you’re trading spreads or seasonals or fundamentals or point and figure charts or cycles.

You can’t control the outcome of a trade.

It doesn’t matter the trade you put on.

What you do with the trade after you put it on is 100 times more important than the trade you put on to begin.

You’ve got to manage your risk and you have to be just aggressive, aggressive, aggressive at managing risk.

These were very successful traders who were willing to spend hours with me talking to me about the philosophy of trading, not the techniques.

I had no desire to know how they were trading.

They had no desire to teach me what they were doing in their trading.

They wanted to talk philosophy.

I think that was a big difference back then in the business I came into is people were willing to share guidelines, philosophies, principles, not techniques.

Not, well, you’re using the wrong RSI here.

Shouldn’t be using a 14-day RSI.

You need to be switching over.

Have you done a computer run on that thing?

Are you sure it’s an 18-week moving average?

Is that a simple moving average or a weighted moving average?

You know, that is all that stuff is so much BS that it hurts my ears when I hear people talking about it.

I mean, it is painful for me to hear that kind of nonsense coming from people who are trying to tell other people a thing or two about the whole business of trading.

These were people who taught me things like getting out of all your losses on a Friday.

Don’t take a loser home on a weekend because it’s going to bug you all weekend.

It’s going to ruin your weekend.

You need to spend your weekend recovering and getting ready to get beat up next week.

Take your bruises on Friday go home and come in ready to start anew on Monday morning.

They taught me principles.

I think principles of trading, not techniques of trading.

They taught me philosophies of market speculation and more than that.

They taught me that my worst enemy as a trader is the little inner demons that are part of my character that want to sabotage me at every turn.

Because I think in the end, it’s one of the biggest factors that are overlooked by people is that trading is a human endeavour.

It’s far less an intellectual endeavour.

It’s a human endeavour that involves figuring out who you are.

I always tell young traders, if you want to know who you are, the good, the bad, the ugly, become a trader because you’re going to find it out and you’re going to look in the mirror and you’re going to see at times personality traits that you don’t like and until you’re willing to be honest with yourself.

This is where human self-transparency becomes so important.

Rayner, as you know, until you’re willing to become transparent with yourself as a trader, become real, and face realities for what they are.

The idea of becoming, quitting your day job, and becoming a trader just will never happen.

Whether a young person wants to seek a career as a trader.

Or seek a way for trading to supplement their day job as an engineer, a doctor, a truck driver, or garbage pickup guy, or whatever the case may be.

There are legitimate ways.

Not everyone has to be a full-time trader, but until a person is willing to face their inner demons, I think success as a market speculator is always going to be out of their reach.

Rayner (49:41)

So what’s your trading approach today?

You know, I heard you talking about, you know, the point and figure chart fundamentals and stuff like that.

So today, you know, how are you trading the markets?

Peter (49:49)

Okay.

So let me roll back the clock to answer.

I’m going to roll back to roll forward.

Okay. 1978, you know, I’d blown out account after account, after account, but still had the aspiration to trade, had an income coming in, and could fund new accounts.

A friend of mine, a man that’s still a dear friend, he said…

“Peter, come with me and we went across the street to a bookstore and he bought me the fifth edition of Technical Analysis of Stock Trends by Edwards and McGee”

I consumed it.

I mean, I just, have a voracious appetite.

I just consumed this book.

All of a sudden, it kind of made sense to me.

I could relate to it.

I don’t know why.

I could probably wander off and write a hundred pages on it.

How that fit my personality in certain ways where other approaches didn’t.

But it just meant things to me.

Here was a way where I could have an opinion in the market.

Here was a way where this technique gave me an idea of where I should get in.

It gave me an idea of where I should get out if I’m wrong.

It gave me an idea of where a market might go.

It just, and it was graphic. I’m a real visual person.

Even as a kid, I loved books on maps.

I could look through, if I’d go into a doctor’s office and there was a book sitting on the table filled with maps of the ancient world, I could spend hours looking at maps.

I loved maps.

I was very visual in this idea all of a sudden that I could figure out a market and maybe trade it based on drawing lines on the chart.

This just inherently made sense to me.

I pretty much worked through the Edwards and McGee book more than once.

Then I adopted the fact that I was going to trade the markets based on classical charts.

Of course, Edwards and McGee drove me back to Schaub Acher because Richard W. Schumacher’s Technical Analysis and Stock Market Profits, 1934 was written, was the book that Edwards and McGee were based on.

I drove back to the original manuscripts of Schaub Acher, which I just consumed, and memorized.

Then it was just a matter of working things out.

I mean, it’s one thing to say — I’m going to trade on the charts.

Another thing to do is, figure it out.

How do you size trade?

How do you time trade?

How long are you going to stay in trade?

How are you going to set a stop?

What are you going to do?

Back then, you know, we didn’t have computers, Rayner.

Where you can turn it on and you have 20 different charting pieces of software that you can use.

You know, this was back in the day when we used graph paper.

We bought plain graph paper and we would create the X and Y axes.

We’d wait for the markets to close and on a quote machine, we’d see the high open, high low close.

So I draw the line.

You’d get a bull market where I had to tape, and grab paper to the top of the chart because we went off the chart.

That’s how we created charts.

Now during that time, of course, we had some of the early services come out where we could see simple charts on a computer monitor.

So that started coming in.

At that point, there were also services where you could buy printed charts that you would buy and then keep up on your own with a fine, big pen.

Then a month later, you’d buy a new set of charts.

So, you didn’t have to create it based on your graph paper.

That’s really what I did.

I’d draw in these high-low closes, and I’d look at charts.

I’d say, well, that looks like such and such.

I’d go back to the Edwards and McGee book, which was very well worn, um, and look through and compare things.

It seems the world you and I live in right now is filled with people who do charts.

That was not the world I started in.

There were very few charters.

Charters were few and far between.

People didn’t use charts to trade.

I mean, there was a subset of traders that were chartered, but it was very, very small.

The reality is still, while we think that there are a lot of people who use charts to trade today.

If you were to take a look at the composition of open interest, what percent of daily volume, what percent of the composition of open interest of these futures contracts are represented by people like you and me who keep up charts?

It’s a very small number.

It’s maybe two, three, four percent at most.

The people who trade markets are not, for the most part, trading markets based on chart patterns that you and I might look at, it was just a matter of working out.

I started charting markets in 1978 and I started making a little bit, losing a little bit, but holding it together and making a little bit, making a little bit more.

You know, in 1979 came around and I had a really good year, and at the end of the year, I looked, I’m starting to understand this.

I’m getting a feel for what I need to do.

But then I think the problem was I’d know what to do, but could I overcome myself?

Did I have the patience to wait?

Did I have the discipline to pull the trigger?

I think, you know, for the first year, year and a half, as a chartist, it was kind of figuring out what that looks like.

Then it’s been my entire life ever since to be cut, to keep working on discipline and patience and overcoming the human, human component of trading.

79 I was successful; 80 I was successful.

1981 I gave up my commission business, quit the grain company, and started factory research and trading as a clearing member of the Chicago Board of Trade.

I have been a trader ever since.

Rayner (56:11)

Right.

So do you recall what was special about 1979 that kind of like gave you your big break?

Peter (56:15)

Currency markets.

Well, there were great grain markets throughout the 70s.

We had these huge bull markets and grains and raw materials that were followed by huge bear markets.

You know, it’s like a big yo-yo.

Soybeans would trade from four and a half bucks to 10 bucks, back down to four and a half bucks, up to 10 bucks.

So somewhere to go look at quarterly charts, let’s say — and look at quarterly charts of corn or soybeans or copper or silver throughout the 70s, what they’ll see is that these markets were in big wild ranges.

We had these big range trading that would take place over a year, a year and a half where you’d have big bull markets followed by big bear markets.

I swear, those were the markets I came into.

They were good markets.

They were great commodity markets for traders.

Then in 80, 81, we just had some spectacular moves.

We had spectacular moves in the interest rates.

We had in 1981, keep in mind, I started Factor in 1981.

In 1981 Treasury bills in the United States reached a high of 20%.

Bond rates were 10-11%.

My wife and I bought a home with a 14% mortgage rate in 1983.

We had these very volatile markets.

We had great bull markets.

We had great bear markets.

So we just had some wonderful markets that charted very well.

I think it just so happened that I started the company and came into existence with the company with just fabulous markets to trade.

Then of course, in 1982, we started this massive bull market in stocks, with Ronald Reagan as the president and economic policies.

Before 1982 the Dow Jones remained under 1,050 for its entire life.  From 1968 to 1982 the Dow Jones would go up to a thousand and back done to 500.

When 1982 came, we had this huge, huge bull market that came upon us in the S&Ps.

Back then we didn’t have the Nasdaq, but we had the S&P contract around.

Dow Jones contract was not, but we had S&Ps, we had a major market index with the New York Stock Composite Index.

Those were the futures markets we had that covered stock indexes.

We didn’t have any of the markets like we have right now.

We have wonderful commodity markets in Singapore.

I have to tell you, I love the Singapore markets and I trade them all the time.

They’re great markets to trade.

My hat’s off to Singapore.

But we pretty much had domestic markets.

We didn’t even back in the 70s have financial markets.

Financial markets came into being late 70s, and early 80s, when we didn’t have bonds, we didn’t have T-bills.

The first interest rate market was Ginnie Mae mortgages traded at the Chicago Board of Trade.

Of course, we had T-bonds that came at the Board of Trade with T-bills and then Euro Dollars that came into being at the Chicago Mercantile Exchange.

We just had wonderful markets and those fortunately were the markets that I came into as a trader then when I started the trading company and gave up all my client business.

Rayner (1:00:07)

The trading company, the factor trading company, is it like a company that just runs the account that you’re trading?

Peter (1:00:13)

It’s always been a prop firm.

The phrase prop trading that’s used today is an incorrect word.

It has no clue as to what prop trading is.

I mean, prop trading is trading with your own money.

It’s not trading customer money.

It’s not being on trial, paper trading, and getting ripped off, paying a monthly fee to paper trade, thinking that you’re going to be assigned all of this money by this…

“We fund you prop firm”

Back then, I started, I started factor trading with $88,000.

That’s the amount of money that when I quit the brokerage business, gave up my brokerage customers, and decided…

“Okay, for every trader, you have you come to the point of taking a leap of faith where I had to say —Young guys today that want to quit their day job, there’s a point which they take a leap of faith”

They say…

“My paid job is behind me; I now have to earn it myself”

That was the case for me when I gave up the commission business and opened an account for $88,000 with the decision that I was gonna have to make money to support my family.

This is it.

If I lose this money, I truly am going back to advertising or I truly am going back to the commission business and working as a customer man the rest of my life because that’s back then we didn’t have computer trading.

Computer trading didn’t come in until about 16 years ago.

Back then the exchanges weren’t open 24 hours a day.

The Chicago Board of Trade was open for, I think it was four and a half, five hours a day, then closed and there was nothing.

Commission rates were super high.

You know, back then as a member, we had cheap rates, but if you were a customer back then, you were paying $50 per contract round turn.

Now people trade for a couple of dollars contracts for futures trading.

Some brokerage firms offer it for free.

Well, you have to pay the exchange rate, and the NFA fee, but there is no brokerage commission.

Back then, brokerage commissions were pretty steep.

I went in with the idea that I was going to have to now make money.

I’m going to have to turn.

Even then I knew that most of the big trading prop firms, you know, at the board of trade had a minimum of half a million to a million dollars guys were trading.

As these prop firms grow, they bring in other traders to whom they pay salaries.

Back then you paid salaries to get good traders to come in.

Then if you found a good trader that worked for another firm, you’d be willing to give them a raise to come and trade for you.

I mean, that was the goal is that factor trading would not just be me that we could add traders.

But over time, it pretty much became me.

I’ve had employees.

Now that’s not true anymore because I’ve kind of retired.

I factor as a prop trading firm is still me, but with a lot less money than I was trading back in the prime days because I’m kind of on the exit ramp to full-time retirement at some point when maybe I won’t trade at all.

I mean, I don’t know if that will happen. It might happen when I lose my cognitive abilities.

But they take my computer away from me, my iPhone and my iPad, they’ll confiscate it.

They’ll say — Dad, you’re losing all your money.

We have to steal your iPad.

But it was just a matter of that.

I had a rented space and I had to pay rent and I had to pay for a computer.

CQG started, they were the first company that offer small satellite dishes.

That’s what I had.

A small satellite dish on my house and I’d get data and the data would be fed into a computer and I had some abilities to do charting on that computer.

By about 1983-1984, we had computers that had some charting capabilities, but I had to pay about $1,000 a month for my data.

Data was expensive back then.

You had to pay exchanges for their data.

But I had to figure out a way and I was lucky that 81 was a great year and 82 was better, and 83 was better, and 84 was better, and so forth.

I had early success and I consider myself fortunate.

I had some spectacular success early in the early years. I’ve had success since.

I haven’t had the years like I had in the early years.

But then again, I almost start shivering, Rayner.

When I think about the risks that I took back then.

The risks I took back then were unusual compared to the risks that I would take now.

I mean, I think in the early years, there were some trades where I bet five…

If you consider that $88,000 was my staff.

That was my staff and I knew I had to grow that staff.

Because I needed to take some of those chips off the table and convert them to cash to pay my rent and buy food for my family.

But I’d have to replenish that stock if I wanted that stack to grow into a real pile of money.

Because I felt back then I needed a million dollars.

If I got to a million dollars, then I could consider myself to be a trader.

Until then, I’m still kind of a wannabe.

Because generally speaking, prop traders.

Back in the mid-80s were guys that generally had a half million to a million in their pot.

And so, you know, I was lucky in the early years I would risk five, 10% of my pot on a trade.

To me, that’s inconceivable.

That spooks me today.

I mean, that frightens me.

The idea of risking 10% of my capital on trade to me is frightening.

Because I’ve learned a lot about statistics and the probability of trading.

I know today that if you risk 4% of your capital on a trade, you’ll go broke.

It doesn’t matter how good a trader you are.

The probability theory tells you you’re going to go broke.

I think I was lucky, partially with the markets I was in.

Partially I was a hard worker, partially I was skilled as a chartist.

But I think a lot had to do with the fact that I was taught by some really good traders about risk management.

I happened to get into good trading markets.

That was kind of the story for me.

Then so the prop trader and remain the prop trader.

Then in 1986, I was approached by at the time what was the largest pure prop for not.

They paid their traders to trade.

Traders didn’t have to pay them to paper trade and be on trial.

You pass through their interview process.

If you showed them enough of your track record, they did fund and so I was approached by Commodity Corp, which had the best of the best traders.

I mean, you know, when we think of Goldman Sachs, right?

We think…

“Boy, these are the guys that have figured out how to be king of the mountain and they remain King of the mountain”

There are various firms in each commodity industry, which tend to be the big dogs.

Commodity Corp was the big dog prop firm.

They had guys like Paul, Tudor, Jones, Michael, Marcus, and Bruce Kovner, and some of the greats of all time traded for Commodity Corp.

They approached me and I had to provide an idea would I be willing to trade their money in addition to my own money?

Because I wasn’t interested in trading other people’s money commodity Corp approached me to earn their money.

I had to show them three years’ worth of my statements and I had to be interviewed by a lot of really good traders who would ask me deep questions such as do you use an 18-day RSI or 14-day RSI?

I mean, these were tough questions that dealt with digging deep and how what are you going to do with the trader.

So then they would assign you money and if you did a certain performance on that set of money, they would give you more money.

But again, unlike these robber scam prop firms today, where you have to pay them to paper trade back then, prop firms would pay me.

The standard fee that we would receive from prop firms to trade their money was 5% a year plus 15% of net profits.

If I manage a million dollars for me, they’d pay me $50,000 a year to manage it.

Then they would pay me 15% of whatever I earned.

Instead of me paying them like these robber baron prop firms today, they would charge.

Back in the olden days, pure prop firms paid their traders to trade, but traders had to prove themselves first.

Rather than pay to prove themselves paper trading, you had to show that you were a real guy going in.

So that was a great thrill for me to trade Commodity Corp money for several years.

I traded Commodity Corp money in addition to my own money for the next seven, or eight years.

Then Commodity sold their business, Goldman Sachs.

Goldman Sachs moved that business to London and ruined the purity of the prop firm so I no longer resigned from the commodity corp.

Rayner (1:10:52)

So fast forward to today, right?

You adopt classical charting principles.

Let’s say, you know, you look at a chart today, right?

Whatever market.

What are the things that you look for before you place a trade?

Peter (1:11:00)

I mean, I look for patterns.

You know, I’m a futures trader, so if there’s a futures contract, it’s what I look at.

I look at all major futures contracts throughout the world, Singapore, Osaka, Australia, Canada, Paris, London, United States, and so forth.

I’ve got those all.

My job begins.

On a Friday afternoon.

It’s weird because some people consider Sunday or Monday the start of their week, right?

I consider Friday afternoon the start of my week.

The reason is that’s the time when I scroll through the weekly chart of every contract of every market that I would conceive of trading.

I scroll through those weekly charts and I kind of go by the premise that if I don’t see something in one second, it’s time to move on.

Is it that I’m not looking for patterns?

I’m looking for patterns that find me.

I’m looking for classical chart patterns, McGee and Edwards, and Shaw Barker chart patterns.

Head and shoulders, rectangles, right angle triangles.

Those are the patterns that I focus on.

I despise trend lines.

I despise symmetrical triangles.

I look for patterns that have horizontal boundaries.

I look for patterns that appear very, very quickly on a weekly chart.

So I have to see something on a weekly chart.

I have found that for me, my preferred pattern, my sweet spot, so to speak, my sweet spot is a pattern that’s between eight weeks and 16 weeks long.

That appears as a classical chart pattern, a rectangle, a right angle, a triangle, or a head and shoulders on a weekly chart.

I’ll scroll through hundreds of charts because it won’t be just one soybean chart I’ll look at.

Look at different continuation charts and different contracts.

I’ll scroll through it. I think my scroll list right now is somewhere in the area of 300 or so charts.

That’ll take me about an hour.

So, I’m checking the charts that pop out at me.

Now, obviously, among those charts will be markets where I have a position that I’m carrying home on a Friday.

On Friday, I don’t flatten up each day.

I’m a position trader.

I carry positions over the weekend.

There are positions that I have on a Friday.

So obviously I’m interested in those markets, but I’m not interested in any other markets that pop out at me as a really good pattern that I recognized immediately.

I check the market and I end up after going through all these charts, I’ll end up with a list of maybe 15 markets, 15 contracts, 10 to 15 contracts for which I may have a position in five.

Then it’s a matter for me to go back through those charts and now look at daily charts.

Again, I’m looking at daily charts not to study.

I mean, people used to say to me…

You know, I used to hear traders say… “I’d say, what are you going to do tonight?”

Well, I’m going to go home and study my charts.

What a crazy ass idea that is.

Who studies their charts?

I have no desire to study a chart.

If I have to spend time enough to study a chart to find a pattern, there isn’t one.

So, I want to chart, I want to find a pattern that grabs me by the throat and says…

“Look at me, I’m here”

That’s the pattern I want.

It’s self-appeared and ready, no contradiction, no doubt about it.

If I have to wonder, well, I wonder if I draw the line here, I draw the line here.

No.

So, I end up with this and then, I have that list and then I forget about the markets on Saturday.

Get to the markets on Sunday morning, because I have church.

Then about two in the afternoon on Sunday, my time, Asia starts thinking about opening.

I start then going back through this list of 15 markets and asking myself the question, where do I want orders?

What markets am I going to place orders in?

I know I’m going to place orders in the markets for which I have a position on because in that market I automatically have two orders that I’m going to have in and I put them in as GTC orders good for the week.

I’ll have a stop order to protect my trade and I’ll have a target order to get out if it reaches my target.

Those are the two orders that I have going in on any trade in which I have a position.

But then I look at the other markets and I say…

“Okay, what markets am I considering a new position at?”

There are usually three or four markets.

So those are the markets that I already know.

I already know on a Sunday afternoon what markets I’m likely to trade during the week.

They’re very seldom will I add to that list during the week.

I might add a market or two when the week starts progressing.

Someone may bring something to my attention that all of a sudden I’m looking at a market that I had not considered on a Sunday, but that’s rare.

Usually, on a Sunday, I pretty much know what orders I’m going to have during the week, and what markets I might consider a new position in during that week.

That’s pretty much just based on, I do some candlestick charting, I’m not a candlestick guy, you are and you’re a good one.

I talked to some traders that I have respect for that are candlestick people.

I don’t know what, I don’t care what their positions are and I don’t care why their positions are.

But I might just ask them, does that candle tell you?

You know, that might then come into the equation because then I don’t day trade.

I don’t like entering orders during the day.

I like having orders in at the start of trading.

Tokyo opens and I got markets that open and the Osaka futures and then the Nakae futures and Singapore rolls around and we get Singapore opening up.

I want those orders in.

It’s good till cancelled orders and I don’t want to change those orders on Monday.

What will happen then is I get alerted if any orders that I have get

I get alerted, I get blasted on my iPhone, I get blasted on my iPad, and my computer starts making very loud noises that I can’t ignore.

Then I know an order is filled, and so I want to know which.

Then I let things trade, and about four in the afternoon mountain time, which is six in the evening New York time, things start opening up in the U.S.

We have Currencies that start opening around the world, you know about three in the afternoon my time I can start seeing the early currency pairs open up.

You know corn opens up for me at 7 o’clock.

The grains open up so I’m aware of markets opening.

But I’m not interested in what markets are doing because I’m interested as a trader I am a glorified order insurer, you know people glamorize the business of trading.

Trading should not be glamorized.

I have been in the offices of some of the most successful traders in the world.

When you go into the offices, you think you’re in an undertaker.

Like an insurance company, it’s all business and it’s quiet.

No one’s yelling, no one’s screaming.

People are just diligently doing their work quietly.

That’s the way that I try to run my trading business.

I get my orders in and every afternoon I’ll go through the daily charts of my list of 10 or 15 markets.

I’ll go through the daily charts and ask myself…

“Is there any reason for me to change the order that I will have tomorrow?”

If there is a reason for me to change the order that is intended for tomorrow, I will then make the change at that point, late in the afternoon, or early in the evening.

I’ll make the change.

Get ready for the next day.

So today’s Tuesday, tomorrow’s Wednesday.

All my orders will be in by the time I go to bed tonight.

I won’t change any of those orders tomorrow.

I’m not looking to day trade.

I’m just looking to place orders that make sense based on charts.

As I read the chart for me, Rayner is the critical question.

I have to ask myself.

Based on how I read charts, the orders that I have in, whether they be orders to take profits, protect a trade, or enter a new trade, does that order make sense?

Is that chart compatible with the order?

That is always the major question that I ask myself about every order that I put in.

Am I going to be able to look at this chart a year from now and blow this chart up and paste it on a wall and go and stick pins into that chart wherever I bought and sold it and step back 10 feet?

Look at that chart and say…

“Did the orders I put in that chart make sense?”

Whether they were profitable or not does not make any difference because I’m wrong on 45-50% of my trades.

I am okay with being wrong on 50% of my trades.

It just doesn’t bother me one bit.

But more important to me is not whether a trade is profitable or not, but did the trade makes sense.

Was it a smart trade?

Not a winning trade.

Was it a smart trade?

I think that’s something right there that knowing you, you can relate to.

Rayner (1:21:30)

Yep, totally.

Also just to backtrack a little bit earlier, you mentioned that on Friday, you looked through about 300 charts on the weekly time frame between 8 to 16 weeks.

If I recall correctly, then you like to go down to the daily timeframe to place your orders.

I would like to know, what are you looking for specifically on the daily timeframe before you decide whether to place that order or not?

Peter (1:21:54)

Okay…

I know I have to have…

A great example here recently was the Nikkei index traded both in Singapore and in Osaka.

I traded in Osaka.

I could have traded in Singapore.

I happen to trade at Osaka.

But we had a pattern there.

We had a massive multi-month cup and handle pattern, and then at the tail end of that, at the handle itself was an ascending triangle.

You look at a chart and see that.

Rayner (1:22:36)

The decay, right?

Peter (1:22:37)

OK. Yeah.

Rayner (1:22:38)

You call it the decay, decay. Yeah, it’s a trade-off of four different exchanges, if I’m not wrong.

Peter (1:22:39)

Yeah. Yep.

Rayner (01:22:40)

Sometimes I’m guessing in January this year.

Peter (1:22:43)

Yep. Okay.

Rayner (1:22:47)

January 2024.

Peter (1:22:47)

Yep. So I’ll see that chart and I’ll say…

I like that chart.

That is a chart where we’re placing a buy stop above the market because I enter on breakouts.

I’m a breakout trader.

I wait for breakouts.

Now I know there are some people I know try to get in early and I think that they’re different.

There are different daily bar patterns and especially candle patterns that do allow a trader to try to take a run at a pattern before it completes.

I once did that.

I no longer did that.

Not because I don’t like that approach.

It’s a matter.

I don’t want to trade as much as I used to.

 You know, I used to enter 30 to 40 new trades every month.

As I get a little older, I don’t want to have to work that much to manage my order book.

I am trying to keep myself down to maybe two trades a week and kind of want to work in the direction of only an average of one trade a week.

I don’t need a trade.

It might be a week when I do three trades.

Might be a week when I do no trades.

Last week was a week that I did no trades.

This week, I think I’ve already entered three new trades.

But, and so if I see a pattern I like, then I’d enter on a breakout.

I use ATR, the average true range.

I use a 30-day average true range.

Again, I’m not going to get into an argument with anybody—

Well, Peter, why don’t you use 20 ATR or 40?

I haven’t been more successful with 40 ATR.

I hold my nose at that one. That one stank.

You know, I don’t care what it is.

You know, it could be a 10-day ATR.

I’m not going to get into that argument.

But whatever it is, use it and use that alone.

Be consistent.

Be smart.

So, I use a 30-day ATR, and I have a grid to say the pattern is an 11-week pattern.

I look at a pattern. I say…

“What’s the critical level where we break out?”

I want to know, in the case of the Nikkei.

I don’t have the chart in front of me.

I’m not in the computer room, but if it’s in the Nikkei, I had a price that said…

“This is my breakout point”

If it’s an 11-week pattern, I look at this grid and I say —an 11-week pattern.

I’m going to use X percent of that ATR as the place to which I’m going to place my buy stops.

The longer the pattern, the more I worked toward a hundred percent of the ATR.

If it’s a six-week pattern, I might only be using 20% of the ATR to determine my buy-stop place.

I figure out my buy stop, I put my buy stop in, and when I put my buy stop in, I don’t wait to be filled to already be thinking about my risk management.

Because my risk management has got to be thought through in advance before I go into a trade.

I want to know where am I going to say I’m wrong in the trade.

I want to know in addition to what trade I’m going to do, where I’m going to enter the trade, I want to know in advance, where am I going to get out of this trade.

Once I get to the end of I’m wrong, where am I going to take my loss?

I have various little techniques I use to determine where is my, once I’m filled on a buy stop and in a Nikkei, I don’t want to wait for that to happen to put in a sell stop to protect my trade.

I determine that in advance, and then I attach a sell stop to my buy stop.

As you know Rayner, it’s what is known as a contingency order or a what-if order.

Different exchanges call it by different names, and different brokers call it by different names.

But it’s a what if or a contingent order that says….

“If my buy stop in the March Nikkei on Osaka is filled, the minute it’s filled, I have an order that slips in behind it to protect that position”

Once I know that position is filled, I also then will enter usually on the same day in the open order to take profits at the indicated profit.

So I just always want to make sure that I’m covered with orders that are covered.

At any given time, then typically I’m in a losing trade.

I get out quickly.

I do not mess around once I’m in a trade.

My driving ambition in the trade is to try to find a way to have break-even stops within a week.

I want to within a week be managing that trade so that if it goes back against me, I get out at breakeven, in some cases even a small profit.

I don’t want to get into a trade, have a profit, and then have it dig into my pocket.

So, my driving ambition is to try to find a way to move my stops quickly.

Now I don’t trail stops much past where I got in because I want to give markets a little bit of room to move.

I want to give a market a little bit of room to back and fill the general rule, if I have a losing trade, I’m out within a few days because I automatically cover losing trades on a Friday.

If I have a loss on a Friday, I look at my book. I mean, I’m not always in my office, but I am in my office late in the session on Friday because I want to get out of losing trades on Friday.

I want to know any trades that I have that are losers on Friday because I want to enter an order before the market.

Closes to exiting the trade, but I don’t want to lose or go home.

Then it’s, you know, so generally I’m out of losing trades anywhere from a few days to a week.

As a general rule, I’m in winning trades anywhere from a week to a couple of months.

Rayner (1:29:04)

Okay.

So you shared a lot.

Let’s unpack these different components one by one.

So you talk about setting the…

Buy stop order, for example, in the K, you say that if the pattern is shorter in duration, the percentage ATR percentage is smaller.

If the pattern is longer, the percentage ATR is larger.

I’m guessing that you use that as a buffer on top of the high and add that amount to your buy-stop order.

Peter (1:29:28)

Yeah, I add it to the high.

Rayner (1:29:29)

Why does a larger pattern require a larger percentage ATR and why does a smaller pattern require a smaller percentage ATR?

Peter (1:29:36)

Well, and it’s just not smaller or larger.

It’s not, I’m not measuring this in duration.

I’m also measuring this based on the width of the pattern because I have found that for me, the patterns that generally have the best outcome are patterns that from high to low are no more than 15% of the value of the underlying contract.

So if we’re talking about $10 corn or $10 soybeans.

We have a big pattern that develops in soybeans.

I would not want that pattern in soybeans to range any more than a buck, let’s say…

10% of the price.

I’m looking for patterns that tend to be tightly compressed.

You have a lot of buying and selling in a very narrow range because I have found that the tighter the compression, the more explosive the exit.

So that on a shorter pattern that’s tighter, I can have an entry stop that’s closer to the price, knowing that as a general rule, once it breaks out, it’s going to break out more vigorously than a big, broad, lazy, what I call them, long and lazy pattern, where it’s a six-month pattern.

20% price range from high to low and it plays out over a long period.

A small breakout doesn’t mean that much in that market condition.

It’s not that important if you have Bitcoin at $45,000.

What does $100 mean?

It means squat.

It doesn’t mean anything.

It’s a meaningless number.

I try to gauge that and I measure that and that’s something I do when I’m entering entry orders I make that determination and I’m sure that you young guys would have computer programs to do this all the easy way for you.

I’m kind of old school right now.

I’m very much old school.

I kind of have a sheet of paper and a calculator and work it out by hand.

Rayner (1:32:01) 

You’re not alone, right?

I have my calculator here.

Peter (1:32:04)

Is that a Casio?

Rayner (1:32:05)

Oh yeah, it is a Casio.

Peter (1:32:11)

I love Casio Traders.

Rayner (1:32:11)

It’s been over a decade and still alive. Still alive and kicking.

Peter (1:32;16) 

Well, I have an old one. I still use an old, a little old handheld Casio.

That’s how I figured out these ranges.

I read it down on a piece of paper.

You know, I’ve kind of graduated in the last 5 or 6 years to an Excel spreadsheet that I’d leave open and never save, but have calculations that I’d look at a few days later and have no idea what they were.

Rayner (1:32:40)

So next one, right?

We talked about the entries.

What about stops?

I think it’s something that’s not covered yet.

You mentioned you have stopped to know when you’re wrong.

How do you kind of like decide at which point, I should be out of the trick?

Peter (1:32:50)

Let me cover something even before that, that I think is even more important.

I think you’ll agree when I start talking about it —“Sizing”.

Sizing is where the thing that ends up flunking people out more than anything else is sizing because they are oversized.

They’re too big.

They get too big.

They get too big quickly.

They get winning trades on and want a pyramid.

They get too big.

I just think that sizing is one of the least written about, the least understood, and the least appreciated component of trading that there is what’s your sizing going to be.

For me, I calculate that sizing based on okay I know on Nikkei that this is resistance.

I know I get in here and I know that I get out back down here that if it goes back through and works its way back into the pattern a certain amount I blow out.

I know the distance.

I know I’m in Nikkei here.

I’m all in a tie here and I calculate what’s that worth for contract.

How much are we talking about the contract?

Because when I enter a trade on a million, let’s say a million-dollar account, a million-dollar bucket of money, I don’t want to lose any more than $6,000.

$6,000 to 8,000 is about the maximum that I want to lose out of those million dollars.

By going in and the Nikkei.

Now the Nikkei I want is heavier.

I went up to 100 and I went up to 1.1% in that in the Nikkei trade because there were a lot of things going on that I liked…

So, I went up over 1% of my capital 100.

I expressed that in basis point.

I have a 1% 50 basis point 1% of capital is 100 basis points.

I don’t want to risk any more than six-tenths to eight-tenths of 1% of those million dollars on a trade.

I know I’m in here.

I know that initially, I’ll get out here if it’s a loser.

Then I calculate my sizing based on that is that if I know that this is what it is and I know that I’m going to risk, let’s say…

$10,000 on the trade, how many contracts can I go into?

That determines my size.

So then after that, it’s a matter of how do I bleed the risk off.

That’s my initial risk.

My goal then is to bleed off that risk.

I want to get rid of that risk and pass it on to somebody else.

It’s a matter of trying to figure out, and usually, when I enter a trade, I divide it in half.

I’ve got this many contracts as part of the trade, this many contracts as part of the trade.

I’m more aggressive on a half.

A little more willing to give the market a little more room on this half.

On at least half, I want to go to break even maybe by the end of the first day even, or for sure within a day or two.

I want to start moving the stop up on the other half within a day or two.

My motivation then is to try to bring that trade down so that within four or five days.

In that trade, maybe the worst that’s going to happen to me is I’ll break even or maybe lose two-tenths of one percent of my capital, $2,000, let’s say — per million.

So that’s my motivation.

I’m looking to do that.

Again, I make those changes at 4 p.m. each day.

Rayner (1:36:48)

You decide how much to risk on each trade, 60 basis points on average.

Before you decide how many contracts to buy.

The other side of the equation is that you have to know where is your stop level before you can decide how many contracts to buy.

If the stop is kind of nearer, then you can have more contracts.

If it’s further, then less contracts.

So how do you assess which level to base your number of contracts to buy on, or which level?

Peter (1:37:11)

Wonderful question.

I get asked that a lot.

A lot of guys use ATR, and trade lane stops.

I don’t like ATR, or trade lane stops.

Never have, never will.

I like stops to be based not numerically, but visually based on bars.

I always know, I mean, so keep in mind that before I get into a trade, it’s still in the pattern, right?

I hadn’t broken out of the pattern the day before I was in the trade, I hadn’t broken out of the pattern.

I always know what the last day bar within that pattern is.

I know it, you know, I can go on my charts and I can find out any market that’s still in a pattern that I’m looking at, I know what the bar is, that last bar, assuming it’s going to break out tomorrow.

I try to, let’s say in the case of the Nikkei, I had my initial stop below the low of the last full bar in the pattern.

I can look at that chart, it hadn’t broken out yet in early January.

Day by day, I can know what’s the last bar that’s on that chart.

My protective stop is below the law of the last full bar in the pattern.

Now that can create havoc and has this week already because we had huge last-day bars in the currency.

If you look at the currency charts, British pound, Australian dollar, you look at the charts we had in currencies, we had huge last day bars, which were last Friday’s bars.

We had huge last full bars in the pattern.

That creates a problem for me because my risk is much larger per contract than I want, which means my sizing gets cut down to the point where I go.

I’m taking a lot of risks, really my whole risk-reward met matrix gets all blown out of whack.

You know, it becomes lousy and I don’t like that.

I’d rather have a market rather than be way up within a pattern.

Like if you look at the chart of the British pound, it was way up and slammed down through the lower boundary of a chart pattern with a huge range the day before the breakout occurred.

I don’t like those.

So those create some difficulties for me, where I then will say, rather than use the high of the last bar within the pattern, I may try to look at a four-hour chart and see if I can’t trim that risk out a little bit.

I won’t go any lower than a three-hour bar to make that determination.

You know, I don’t want to go into hourly charts or 10-minute charts or minute charts.

I view that as kind of kissing your cousin.

You know, I don’t want to kiss my cousin.

I want to have a real affair with a trade, not a kiss and cousin affair.

So, you know, I’ll try to find a meaningful spot that says…

“I’m going to make this market get back into this pattern, at least initially, at least initially, I’m going to have to make this market prove me wrong”

By trading a substantial amount back into the pattern for me to say — maybe my analysis was wrong, maybe my timing was wrong, but that doesn’t matter because you can have bad trading or you could have bad timing, you could have bad direction, but any one of those means a bad trade.

It doesn’t matter if your direction is wrong or your timing is wrong, you’re wrong on either run, it’s a trade you don’t want to be in very long.

Rayner (1:41:07)

Let’s talk about the Shifting stops the break even.

You mentioned that you have two different trenches.

You want to call it the first one is more aggressive; second one is more conservative.

So how do you then decide, let’s shift the stops to break even?

Maybe for both trenches, what’s the top process?

Peter (1:41:27)

OK, so what will happen?

I don’t know how deeply I want to go into this next subject other than just to mention it and passing, do a drive-by shooting, so to speak.

I have just found every year, every year, every year, year after year, year after year, year after year, year after year, somewhere between 10 and 15% of my trades produced pretty much all of my net profits.

Last year I did, I had let’s say 150 tranches or 75 trades, Let’s just use the round number.

Let’s say this year I do 100 trades.

This year I made half a million dollars trading.

I know out of those hundred trades 15 of those trades will account for at least 80% of the net profit.

I call those Pareto trades.

They’re the trades that delivered my bottom line.

You’re in and you’re out.

You’re in and you’re out for me.

15% of my trades produced 85, 90% of my profit.

Now the significance of that, Rayner, is that those 15% of their trades have acted very differently than all of my other trades.

When they break out, they generally go.

The trades that coincidentally put in my bottom line are trades that don’t mess around.

They break out and they go.

They don’t horse around.

They don’t put me through emotional cruelty to determine whether I’m right or not, as I have a profit by the end of day one and I never really have a loss after day one.

I know that that what I’ll try to do is once a market breaks out, no longer use the low of the last full day in the pattern.

As in the case of the Nikkie, all know what the low was of the breakout day itself.

I’ve just been filled.

I get an order back that tells me I bought Nikkie, I bought March Nikkie, and I can look at a chart and I can say that was the low of the day which I bought the March Nikkie, and I can immediately move my stop to below the low of the last day in which we exited the pattern.

So that’s my first chance to move stocks.

Then if the next day, let’s say the market comes back down and it kisses the boundary line, but then firms back up, maybe it even closes a little bit lower, but it goes down and it kisses that boundary line, maybe it really even re-enters the pattern just a tiny little bit, but then starts to recover.

Then what I have is a case of a retest low and I can move my stop to the retest low.

So those are the first two levels that I can move my stop from below the low of the last full day to below the low of the breakout day to below the low of the retest.

Automatically I’m starting to move my stops in the direction of a trance.

Rayner (1:44:44)

So Just to do a quick recap in case the listeners are confused.

So the first stop level, if I’m hearing correctly, is before the breakout, the candle before the breakout, that’s the first level.

The second one is you shift up higher when the breakout occurs on the candle, that low of the candle is your second one.

Then if you break out and do a retest like the previous resistance becomes support and it bounces up higher, that new low will be another reference point where you can shift that stops up higher.

Peter (1:45:10)

Yep.

It’s at that point I moved from high low bar chart to a candle chart

Because what I may know about, I may know that you have a little retest low on a bar chart, but when I look at a candle chart, you have some spindles and you’ll have a real body, is I may be able to sneak that stop up to below the low of the body of the retest day.

I’ve jammed it even a little bit more.

I’m always looking to jam a stop.

Rayner (1:45:52)

When you shift your stops, are you, let’s say…If the market touches the level, does it mean that you’re immediately out or you’re waiting for a close below the level, for example?

Peter (1:46:02)

Immediately.

Because who knows?

I mean, you may have a market that cascades.

You may have some news that comes out in the market.

You may have a grain report, USDA crops in all positions.

You may have an action by the Fed.

You may have bank intervention.

You may have some politician say something stupid, which in the United States happens.

Not every day, but every minute.

You have all of these things, Rayner, and the reality is that I don’t want to come in and look at a market that all of a sudden, rather than risking 30 basis points.

I’ve just lost a hundred basis points.

I’m okay getting stopped out in her day.

Getting stopped out of trades is not something that bothers me.

I think the fear of being wrong in a trade is a crippling condition for a trader.

It’s just if you’ve got people out there and I meet a trader who wants to be a trader and I ask them just the question, how does it affect you when you get stopped out of a trade?

If I get a certain answer, I’ll say — You know, I think you probably ought to just quit trading.

It just may not be for you. It may not be for you.

The reality is that trading is not for everybody’s emotional makeup.

Now someone can do better that way.

Someone can learn skills that can compensate for certain things.

But I think the sharp reality is that only a certain percentage of people who start down the road of becoming a trader succeed and a lot of those succeed, not because they used an 18-day moving average rather than a 10-day moving average.

They succeeded because somehow they had the mental and emotional constitution to persevere.

Rayner (1:47:54) 

Beautiful.

For example, just a side track, my mom, ‘s someone who can’t stand losing money, like 50 cents, a dollar on the floor, she drops her money, she’ll freak out and panic.

People who nickel, and dime every single cent, right?

Tracking where they lose their money, and how they spend it, I find it’s better to be a trader because you got to let it go, the losses, you just got to let it go and trust that, follow the process, and eventually the money will flow.

So such people like my mom, she’s not going to make it as a trader.

Nothing wrong with that.

Peter (1:48:23)

No, nor my wife.

My wife would never make it as a trader.

I knew early on my boys would not make it as a trader.

I didn’t encourage my sons to be traders because I felt they had giftings.

They had other giftings that could have done them better in life.

Then from there on, I tend to be slower to move stops after that point, Rayner.

Once I have a trade locked in where I know I’m pretty much breaking even.

It’s from that point I’m not real quick.

I have no desire to look every day and to move a stop in the direction of a trend every day.

I want to at that point start being a little patient with the positions I have on.

Rayner (1:49:12)

So earlier you mentioned that there were two trenches.

So was it the first trench where you’re more aggressive in shifting the stops?

Peter (1:49:16)

Yeah.

Rayner (1:49:17)

Okay.

Let’s say this first trench, the stops is it.

What about this second trench?

How do you then manage the stops of this second trench?

Peter (1:49:24)

I often will just use, I want to be long on the market if the moving, and I do use moving averages, but I don’t use moving averages systematically.

If I were to start today, I, like you, would probably go in the direction of systematic trading.

It just wasn’t a career path when I started trading.

It is now.

I’m glad it is.

I would tell anybody that wanted to be a trader, to learn to code.

If you don’t know how to code, you shouldn’t be a trader.

You need to learn how to code.

I don’t know how to code, but I’d say, don’t even think about being a trader if you don’t know how to code.

The key thing on that, you use some moving averages.

I use an eight-day moving average.

Now I could use a six.

I could use a 10.

Some of your listeners will say…

“Peter, why don’t you use a 10? Why do you use an eight?”

Well, I use an eight and I use an 18, but I don’t use them where some people use trend lines.

I kind of use these moving averages as a proxy for a trend, right?

Did nothing but a proxy for a trend.

I know that if I’m long in the market, those moving averages better be pointing up and the price better be above them.

The minute either of those moving averages goes down, I’m not going to go into complications on the interaction between those two moving averages and price, because I think it’s frankly irrelevant because they’re mine and everybody else has to figure out what’s theirs and how they use that stuff.

I just know that as long as I’m in that trade, and if either one of those moving averages were to flip in a certain way in relationship to price, I want to come out of a trance.

The tranche that I am slower to move in is very key to an 8-day moving average.

Rayner (1:51:16)

Now we’ve covered the entry stop.

Let’s talk about targets and how you then decide the way where we take profits.

Peter (1:51:21)

Measured moves inherent in a chart pattern are what Edwards and McGee called the measured move.

That is if you have a pattern like the Nikkei, you should look at the Nikkei index and see this huge cup and handle pattern.

There’s a way to determine the coming out of a cup and handle pattern, the possible magnitude.

I’m using the word possible, not probable, because I don’t believe in probability applied to patterns, but the possibility of a market going a certain direction.

I know that’s there and shows all the terms and targets in the case of the Nikkei high there is a target measure move target that was developed by the handle portion which was in the descending triangle.

As well as by the cup and handle portion which was the larger weekly trend I have two targets and show I intend to come out of half my trade at each target.

I have open orders to come out of half my trade at each target.

I determine those targets based on the principles of measured moves as laid out by Edwards McGee and Schaub Acher and go into the process of determining the targets that are generated from certain patterns.

Rayner (1:52:57)

Okay.

What if let’s say the price reaches 80% of the pattern, right?

But somehow it starts to show signs of reversal.

So what, do you let it hit breakeven or kind of like give it room to breathe?

Peter (1:53:09)

No, no. Once it gets to 70%, I say, I’m not going to let you take all this money.

I’ve got enough money in my pocket that I’m not going to let your hand go in there.

Certain things take place for me when a market gets to be a certain percentage of what I think will be the move, where I become at least on one of the tranches.

Very very aggressive in protecting our traders.

I will move stocks up extremely close to the market.

Like in the case of the Nikkei, we are down-testing some recent lows here from the last couple of weeks.

We blow through the recent lows the last couple of weeks and then the Nikkei, I blow out of a trudge for half my position.

Rayner (1:54:00)

You also talk about, how you like to close any losing trades on a Friday.

So is that kind of like based on some stats that you might have, or is it just to help your psychology overall?

Peter (1:54:11) 

Well, I think two things go into that, Rayner.

There are two things.

It’s because I don’t like negative energy.

Part of my deal in trading is how I shed negative energy.

How do I get rid of negative energy?

You know, whether it be through the practice of religious faith, whether it be through exercise, whether it be through relationships with others, whatever meditation, whatever the case may be, how do I get rid of negative energy?

So, part of it is you carry a trade home on a weekend, you tend to think about that loss.

If it’s a losing trade, it’s kind of a go, my goodness, I have a loss.

What’s Monday going to bring?

Oh, my goodness. You’re alert to the news.

You’re you’re long gold for the weekend.

What’s going to happen?

What’s happening in the Middle East?

Oh my goodness I don’t want to have to think about a losing trade on the weekend I want to get rid of that negative energy.

But there’s another thing and that is I just know from 49 years of trading the trades that are at a loss on a Friday generally get bigger the next week and so the probability of a trade that’s a loser on a Friday stopping me out with a bigger loser the next week is quite large.

Rayner (1:55:35)

All right, got it.

I’d like to talk about the markets that you’re trading.

You’ve been trading since the 1970s.

So compared to the markets that you’re trading today, do you see any differences back then?

You know, between the 70s, 80s and now?

Peter (1:55:52) 

Yeah. Charts don’t work as well.

I mean, charts in the 70s and 80s were magic.

I mean, they were. I mean, you’d see a pattern.

Patterns didn’t fail very often.

They fail all the time now.

There are false breakouts.

Premature breakouts, morphine of charts.

I mean, that’s standard now.

So, you know, I have to trade more patterns to find the ones that work.

That’s one thing. I think the markets are more volatile now.

The volatility is greater.

I mean, it’s greater in absolute terms, right?

Because we’re not trading 60-cent copper now, we’re trading $3.50 copper.

The daily range in value per contract of copper is bigger now just because the average price volatility is bigger.

But even beyond that, if you take the percentage of the average daily range relative to price from back then, it was less than it is now.

So not only do we have greater absolute volatility because of prices being higher, but we have greater relative volatility.

I think due to greater global participation as well as high frequency and algo traders and high frequency and algo traders are the traders that tend to produce the spindles where we didn’t spindle as much.

We didn’t use candle charts back then, but if we were to abuse candle charts back then, we would have larger real bodies relative to them.

Full ranges than we have today.

All these spindles today, I don’t pay much attention to spindles.

I tend to draw my lines right through spindles with no regard whatsoever.

Rayner (1:57:50)

So now I’m going to cover a few tweets that you have mentioned previously.

Maybe just let you expand a little bit more on it because I thought some of those tweets that you’ve written were quite interesting.

So let’s see.

This one.

OK.

This quote reads

“I believe it is important for a daily chart pattern to launch the completion of a weekly or monthly chart pattern”

Can you expand a little more on that?

Peter (1:58:12)

Yeah.

So if you have a weekly pattern in the Nikkie, and you go then to a daily pattern, in most cases, you’ll see some components that look alike.

If you have an ascending triangle on the weekly chart, the chances are then when you go to the daily chart when you go out to the daily chart you’re going to see something somewhat similar.

I have to determine ATR. I have to determine the average range. A

I’m interested then in the daily pattern because, after all, I can’t trade a weekly continuation chart.

I have to trade a real contract.

So, in the case of the Nikkei, in the case of currencies right now, I’m trading the March contract.

I want to know where those breakout points on the individual contracts are because that’s the contract that I’m trading.

That’s the contract in which I’m entering.

I would rather, and I think you’ve got, I don’t know whether maybe I tweeted that incorrectly because if so, I’m going to correct myself.

I like to see the weekly chart break out before the daily chart because that tends to tell me that the strength is coming from the nearby contract as opposed to a deferred contract.

What if I’m trading on the long side of crude oil, let’s say…

I want the March contract to be stronger than the April contract to be stronger than the May contract to be stronger than the June contract.

I want to see the nearby contract lead to the back contract, whether it’s going up or going down.

I want to see the greater weakness or strength in the nearby contract, which means the continuation chart will in those cases break out before the daily chart.

Rayner (2:00:06) 

Okay.

Speaking of trends, I wanted to ask you this earlier.

So I understand you focus a lot on the classical chart patterns, but do you take into account, let’s say, the trend of the chart that you’re trading on the time frame?

Let’s say you have a head and shoulders pattern that’s forming, but it’s in an uptrend, so do you give way to the uptrend against the head and shoulders pattern?

Peter (2:00:29)

No, I want to trade each chart for what it presents to me.

I don’t want a bigger narrative than the pattern I’m dealing with.

Which also will comprise where the movie averages are.

I want moving averages then to be the determination of trends for me, rather than something that took place months before.

I want to be as real-time as possible into the duration of the pattern itself rather than dig back and create some narrative that goes back three years.

Rayner (2:01:06)

From what I see on Twitter you also you know tweet about Bitcoin.

So what is your take on crypto? Curious to hear.

Peter (2:01:12)

I think Bitcoin has a store of value.

You know if I look at where my money is you know look at the amount of money I have let’s say with the amount of money I have in QQQ.

I’m talking retirement money, not trading money.

Real assets are what I consider real assets.

I have more real assets in Bitcoin than I do in any stock.

I am kind of a Bitcoin believer.

I wouldn’t call myself a full maximalist by any means.

But I have a fair chunk in Bitcoin, and I think probably because I got in early enough, and I’d done a pretty good job sidestepping some of the big corrections.

Not a perfect job by any means.

I happen to think that the surest trade of all time, the most sure trade that I could ever tell anybody is…

Is that the fiat currency that runs their country will be worth less in 10 years than it will be today?

I know that the US dollar when I was born, a dollar bought a dollar’s worth of goods.

That same dollar today buys five cents worth of goods.

You can go around the world to the Singapore dollar, you can go into any fiat currency in the world.

The surest bet is that that will decline in value because of the printing press and the actions of the Federal Reserve Bank.

It may change, but I think right now Bitcoin is a really good case to say it is a great store of value against the destruction of fiat currencies.

Therefore, I want a portion of my assets in Bitcoin if for no other reason than to be an insurance policy against the whole rest of the portfolio.

Rayner (2:03:11)

Great, thank you for sharing.

So I’m guessing that would be like, kind of like HODL, right?

Just kind of like hold it till forever or till you change your mind.

Peter (2:03:16)

I only have half of what I had in 2021.

I will trade in and out of half of that half, but half of the half, which frankly represents,

I’ll say somewhere between two and 3% of my network.

Now, if I’m a younger person, I’d want it to be a lot more than that.

But I’m not a younger person and if I should pass away, my family wouldn’t know what to do with the Bitcoin.

So I have to be conscious of that.

I’m happy with that.

I just think that people of my age do not want half their money in Bitcoin.

But the younger people are the greater percentage.

I think, there should be a consideration for something that they consider to be a store of value whether it’s Bitcoin, whether it’s high-grade corporate bonds, whether it’s blue chip stocks, whether it’s companies you know will exist 20 years from now.

I think we all know McDonald’s will be around 20 years from now.

I want to own some McDonald’s stock because I think it’s a store of value.

I think Apple is a store of value.

I think Bitcoin is a store of value. I just think that for me,

I look at Bitcoin as a store of value.

Rayner (2:04:43)

OK.

Another tweet, right?

I think this is just one last tweet over here.

Let’s see.

Oh, this is actually about stocks.

We haven’t talked much about stocks.

So I’m curious.

Do you trade individual stocks or?

Peter (2:04:44)

No. I don’t.

I do in retirement money.

But that is money that’s entirely separate from my business account.

My business account is the Factor Prop account.

That’s my trading account.

That’s what I do day in and day out.

But under the law here, we’re able to bypass some taxation by putting monies into longer-term equity, buy and hold positions.

There I will look at, I own Brookshire Hathaway, I own Apple Computer, I own McDonald’s, I own Procter and Gamble, I own companies like that.

That sits in an account that I don’t actively trade.

Rayner (2:05:42)

So I’m just going to read this tweet, and then we’ll just kind of hear what’s your take on there.

So it says…

“Whenever the general market gets whacked, be alert for stocks that quickly move into the important new high ground”

So I’d like to hear your thoughts on that statement.

Peter (2:05:57)

If I was a stock trader, I would have lived and died by this tweet.

This tweet would have been my bread and butter.

But I’m a commodity trader, so it’s a little different.

But I’ve noticed that whenever you have a big correction in the stock market, like 10, 15%, broad indexes, right?

They get clipped by 15%.

What if I was a stock trader, one of the things I would look for every day then would be stocks that made a new 52-week high.

Because there are going to be some stocks that weathered that storm that didn’t have that big correction.

They didn’t have a 15% correction.

They had a 3% correction and a 5% correction.

Then the minute the bottom is formed for the bigger correction, these stocks are already poised to make a new high.

Those would be the stocks I’d want to own.

Rayner (2:06:51)

I believe this is the concept of what they call relative strength, right?

Peter (2:06:53)

Relative strength, yep.

Rayner (2:06:54)

Do you use this concept in your own futures or currency trading?

Peter (2:06:57)

I do. I do.

If I want to be long in grains, I mean, we have grain markets, we have Canadian rapeseed or canola, we have European rapeseed, European corn, European wheat, we have US corn, we have Brazilian soybean.

So I want to look at all those charts.

If I’m constructive toward grains, I want to own the grain that’s the strongest.

I don’t want to own the lagger.

I want to own the leader.

I’m long the US dollar against some different currencies right now.

I’m long where I think the US dollar is its strongest.

For instance, Singapore.

Singapore hasn’t broken out to me yet.

It’s not as powerful a chart as let’s say— some of the other currencies.

That’s what I’m looking for.

If I want to be short currencies against the dollar, I want to be short the weakest currency.

From long grains, I want to be long the strongest grain.

From short interest rate currency to interest rate futures, I want to be short the weakest interest rate future.

Rayner (2:08:15)

So between classical chart patterns and relative strength, which would you say comes first for you?

Would you look at the relative strength first then?

Peter (2:08:18)

I think charts.

Charts are a relative strength for me.

All I have to do is look at a chart.

I don’t need a metric, a relative strength metric reduced to a metric number for me to determine relative strength.

I just need to look at the chart.

What chart is breaking out first?

I mean, if we look at Japan, it was TOPEX.

I was for a while very tempted to go to TOPEX, not the Nikkei because the TOPEX was stronger than the Nikkei.

Now, there are some reasons I didn’t, I’m not going to get into it.

That was a case where…

I wanted to be the strongest index in Japan.

Once I concluded that I wanted to be the strongest futures contract in Japan.

Rayner (2:09:03)

OK. So let’s say, for example, you’re trading the grains.

Let’s say corn, wheat, soybean.

Let’s say you determine that corn is the strongest market among all, but it has already moved and then you might have a potential setup.

Let’s say, in soybeans, but it’s not the stronger.

Maybe it’s just around the middle tier or the lower tier.

Would you still consider trading breakout on soybean even though it’s not the strongest of the categories?

Peter (2:09:24)

Sure, sure. It’s just that I’ll probably be long corn before that and the position in corn will be profitable before I intervene.

That’s not an unusual situation for me.

You know, that’s the case often is, you know, I just look at a chart and maybe I’m long something.

An example is I was short the euro currency before I became long the US dollar because the chart broke out first.

So I took the short position in the euro currency weeks before I went long the US dollar index.

But finally, the US dollar index broke out. It broke out last Friday.

And so, but you know, that was a week after I had had a position on in the euro. So I’ll trade each chart based on its merit. Now there’ll be a point with if I’m still long in a dollar position a month from now, I’m not going to take a new signal.

You know, I mean, there’s a point of which I’m only thinking then about getting out of stuff I got already on.

But at least I have the consideration of creating each chart on its merit.

Therefore, if a chart pattern presents itself in its appropriate and kind of meet my criteria, I’ll take the trade.

Rayner (2:10:49)

Okay.

Awesome, right?

So Peter, let’s kind of like, you know, move into the closing section.

If you could, you know, give advice or maybe, you know, you have great-grandchildren, I mean, grandchildren.

Your children are already old, maybe your great-grandchildren, right?

And, you know, you’re seeing them at about 18, 19, 20 years old, right?

What advice would you give to them?

Peter (2:11:09)

Get an education and it’s something that you can earn a living in.

Don’t be a philosophy major.

Don’t become a history major.

I mean, all of those things, you major to get a Ph.D. so you can teach.

What a wasted life.

Although teachers are valuable, you do a great job teaching.

I like to think I try to do a great job teaching.

You’re a great teacher.

So teachers are valuable.

But to be a history major, to teach history to a bunch of 18-year-olds, that doesn’t cut it for me and so get a job, become an engineer.

Think about med school.

I tell my grandkids, don’t rule out learning to be an electrician.

Don’t rule out becoming a skilled tradesperson, learning to operate a computer-generated lathe machine, or building high-precision equipment.

Don’t rule out working with computers and becoming a geek.

But get training in something that you can make a living in and support your family.

That’s the first thing I’d tell them.

I tell them — stay out of debt.

Do what you can to stay out of debt.

Now there are certain things you have to be in debt for.

When you buy a house, you know, few people can afford the luxury of paying cash for a house.

You know, and really few people can afford the luxury of paying cash to buy a car.

I mean, so there are certain things you have to take a loan for and I understand that.

But the degree possible, don’t carry a balance on your charge card.

Know where you spend your money.

Keep track of where you’re spending your money.

Not to be a miser, but just to always be apparent how much you’re spending on stupid Starbucks coffee.

Was it worth it when you could have gone to McDonald’s for one-fifth of the price?

So, you know, I want to teach him the value of money.

I want them to know that money doesn’t come free.

You’ve got to work for it.

Your parents had to work for it.

You have to work for it.

You have to know what it’s worth.

To know what it’s worth, you have to have a value for it.

You have to know what its value is.

It doesn’t come out of a printing press.

You don’t press a button and have money deposited in your credit card or check it out.

So know that.

Be honest.

Be a hard worker.

Have your employees be proud of you and have value in you because you are honest and work hard.

I would say also, that there are more things in life than your work.

I know people, they live to trade.

I have no desire to live to trade.

I trade to live.

Other aspects that take place in my life outside of the market are far more important to me than what the Nikkei in Tokyo today and what’s going on in the currency market.

I do that to earn a living so that I can enjoy life and be fulfilled in other aspects of my life.

Those are far more important to me what happens in my off time when I’m not dealing with markets, what relationship with my wife, my Christian faith, my relationship with my kids, my friends.

What’s going on with my activities, my sports activities, because I still try to stay active in some athletic things.

So those are the things that are more important to me.

I tell them, you know, work to live, don’t live to work.

Rayner (2:14:42)

Wow, thank you so much, Peter.

It has been such a pleasure speaking with you for the last two and a half hours.

So, words can’t describe my appreciation, right?

We’ve covered a lot of ground today.

We talked about your side of growing up, your trading, diving deep into the individual tactics of chart patterns, and words of wisdom that you have just shared throughout this conversation.

So thank you once again for your time, Peter. I appreciate it.

I’m so happy to finally see you on the screen.

Peter (2:15:13)

Well, keep doing what you’re doing.

I’ve watched you from afar.

There’s not a lot of people out there

Young people are developing their trading abilities, improving them, but also helping other people along the way.

I am familiar that there are, there are a lot of questionable characters out there doing that.

I’m not about to be on any of their podcasts or radio shows that I knew who you were before I agreed to be on your program.

Because I know a little bit about just enough about what you’re doing to know that you’re somebody that I can have credibility in.

So thank you for the education you’re providing to people who want to take trading more seriously in their lives.

Rayner (2:16:03)

Thank you, Peter. I appreciate you.

Peter (2:16:05)

All right. We’ll check back again.