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Knowledge I Basics of Trading

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Interview: Volume spread trading in stocks

Basics of trading

[Traders`Mag] - There are several professions known for attracting those who are adventurous, daring to take risks, or want to get rich carefree. The list of the most coveted professions includes rock star, top model and ... successful trader. Well, the road to success in these professions is rocky, mostly full of detours and not without danger. Only the really stubborn and determined cross this rough terrain and reach - even if a little scratched and worn out - the desired goal. What would you do if you had a successful trading strategy? Of course, continue trading in any case, maybe give a few seminars to let other traders benefit from their knowledge and then you can spend free time in your holiday home on the Mediterranean Sea or in Australia - sailing and enjoying the sun. If that coincides with your visions and ideas, then you should get to know Nigel Hawkes. Traders´ tried to find out the "secrets of his success" in a conversation.

Interview with Nigel Hawks

TRADERS´: Tell us briefly about your job - what did you do before you started trading?

HAWKES: I'm 54 now - my god, this is actually very old for a baby boomer like me. Originally from the publishing industry, I worked for the Sunday Times and The Times Newspaper in London. At the age of 29 I founded my own publishing house, sold it again in the 80s and then went sailing; By chance I got into the British team for the America’s Cup in Australia.

How did you first come into contact with the markets?

After I sold my company, I gave £ 300,000 to a broker to trade it in my absence - well, I came back to find out that he'd lost everything over lunch.

And then after such a gruesome experience, why did they finally start trading the markets themselves?

I gathered up my trading account records and started tracking my broker's trades to see what exactly he was doing - and that's how I got hooked. The attraction for me was that I was my own boss here, without the stress of a large company and without being responsible for many employees. I've been a trader ever since - and I survived! The bad news, however, is that just like the Holy Grail, there is no clearly defined path to becoming a successful trader.

Are you now a full-time trader?

Yes. I trade 20 stocks in England and 60 of the major US stocks using volume spread analysis (based on the Wycoff principle) and momentum indicators based on standard deviation. I also trade 15 futures - mainly currencies and bonds. However, I prefer stocks because they have a much better defined trend behavior, whereas futures have a greater volatility profile, which is limited to three- to five-day trends.

What do you find best about trading?

The ability to travel around. I spend about four months a year in Australia, two in Spain and the rest of the year in England - but I trade all the time.

Traders are often portrayed as clichéd sitting in a kind of NASA control station, surrounded by 20 monitors. How do you combine your globetrotter existence with full-time trading - what is your setup?

My systems are simple. I have a laptop and a TradeStation 2000. I use my own indicators that I programmed in the TradeStation programming language - Easy Language. These are based on the volume spread analysis and the momentum. I have CSI Unfair Advantage as a data provider. I trade CFDs with my online broker E * Trade, which are my preferred instruments for implementing my equity trading strategies.

How did you acquire your knowledge? With books, seminars or a mentor?

In the beginning I attended a lot of seminars. The only two that brought me anything were from Charles Drummonds Geometry of the Market (P&L) and recently one from a gentleman named Murrey Maths. Drummond is the author who I believe wrote one of the best books on trading; it's called How to Make Money in Futures and Lots of it. If you don't buy anything else, at least buy this - you won't regret it. I use Murrey Maths ’approaches to decide whether to close or keep existing trades. Brad Mathney's The Candlestick Forecaster should also be mentioned. A good program that includes candlestick patterns and lots of explanations. I mostly use this software for longer-term stories. You can also find useful comments on stocks on a daily basis at

Would you please describe your method?

The most important thing is to look out on a chart for situations where the buying and selling volumes coincide with a certain type of price movement. I determine the extent of this price movement via the standard deviation. Once I've found price momentum and positive volume in this way, I move to the next higher timeframe, say daily - weekly, or if I trade intraday, 30 to 60 minutes, to see if I can identify any weakness in that overarching timeframe. If I don't see any signs of weakness in the higher timeframe, I don't enter a new trade, but wait until I can see signs of weakness. However, this must be done within five time periods of the subordinate time period, otherwise I consider the trade to be done - and wait for the next opportunity. So what is important in my type of trading is that my signals are confirmed in a timeframe by an overarching timeframe. This greatly increases the likelihood of success.

Have you been successful with your trading style from the start?

I've had many of those Depri days when I thought I'd never make it; I was afraid of wasting thousands of dollars on some charlatans who promise to sell great systems. I spent hundreds of hours unraveling the secrets of a Gann, an Elliott, and others - all pointless. In retrospect, they all seemed great to me, but didn't work for me when it came to using them in actual market events. My market analysis was so flawed that I even considered doing completely opposite trades - I was certainly far more consistently wrong than right.

It seems like every trader has their own personal horror story. What was your worst experience, aside from the story with the broker who had more zeal than talent?

A mistake by a broker (who has since passed away), who saw my sell order as a buy order and thus invested a considerable amount in an already ailing position. Although the tape recordings proved I was right, the broker was able to get out of it by referring to the company's terms and conditions in the fine print.

Was there anything (apart from the desire to get your money back) that kept you going, despite hard times and setbacks?

No, like many others, I'm just a little bastard who just wants to break even - just like Mr. Partridge in the book Reminiscenses of a Stock Operator.

And when did business start to get better?

It was only after I had dealt with the volume spread analysis that I was slowly able to make profits. Do you remember that for a long time, volume was the only information that the stock exchanges took a long time to publish. This allowed them to maintain the trader's advantage on the floor for a while. But now with the electronic displays, the volume is instantly available. Still, the only problem with any stand-alone analysis that is based on a single parameter is that you unfortunately get a lot of false breakouts and are relatively helpless when moving sideways.

Then how do you avoid that?

When you combine momentum indicators with volume spread analysis, trading suddenly becomes extremely profitable.

They claim that most traders lose money only because they use the same number of contracts to take profits and close a losing position. Can you explain your money management strategy in more detail?

It was in the early 1990s when I was sitting at a card game table in Las Vegas - that was when I finally found the last piece of the puzzle. For some time I had played at a table where the stakes were relatively high; after about 45 minutes the player on my right leaned over and said, “You are a really good player, but you will never win a lot of money because the money management strategy you are using is not right I ended up spending most of the evening talking to my new friend, who taught me the importance of increasing your stake when everything is going in your favor, that is, you are on a winning streak. I took this philosophy, tested it and made it an integral part of my trading system. Since losses are part of the business, I have developed a money management system that limits losses and optimizes profits when the system is in a series of wins. Once you have identified a trade, and then run into a really good trend, then - if you increase your positions accordingly with increasing profits - you can enormously improve a system that only has a hit rate of 50%. After many hours of hard work, I think a pyramid scheme can really serve you well: 1,2,3,4 - until you are finally loaded with seven contracts (or however many contracts you want to pack into this trend). The position will be closed if you would close the original situation. You can already see that the initial risk with just one contract is low, but the chance increases with the developing trend and the increasing number of contracts. If your entry was wrong, then with just one contract you won't run out of money. I always zoom in when I see an increase in the standard deviation. If this went sideways for three days and then suddenly rose, I would add more contracts to my position.

Do you have some wisdom about the five letters “stop”?

Stops are the most challenging part of every trader's life. We were all told again and again in the early stages of action that we have to stop to protect ourselves. At the same time, stops can also become our greatest enemies. Again, I use the standard deviation as a basis: whatever its value over the last ten days, I take double that as a stop. If, however, based on my volume spread analysis, I see weaknesses in the market, I follow up on my stops. Then I decrease the stop value to a standard deviation of the last ten days. If I see that the weakness is permanent, I stop at 75% of a standard deviation over ten days. The best tip I can give you is to use the biggest stop you can afford within the confines of your overall system. You have to give the market room for its natural vibrations.

What advice can you give our readers who would like to become full-time traders?

I have already indicated that I have invested a lot of time and money in seminars, software and newsletters. I'm sorry, but there is no shortcut to this route! Everyone has to develop the trading style for himself with which he can be happy and when that is achieved, then he has to stick to it consistently and never have an opinion - because as surely as day follows night, this assessment will be wrong . Just go by what you see on your charts and treat that information the way a pianist treats his sheet music. Few of us will have the opportunity to become a concert pianist. But most should be able to play a good melody. If I may add one more wise sentence: it is persistence that brings success; once you start to just want to pick the raisins, you are doomed!

Most successful traders claim that consistency and strict adherence to the rules are the keys to success. Then, in turn, they admit that there are times or market conditions when you have to defy your system - in other words - discretionary action. What makes you deviate from your system?

I only deviate from my concept when, for example, the release of fundamentals is announced or, as recently, a war breaks out. If I'm in a position, however, then I ignore these reports.

Apart from that, how is a trader supposed to know when the deviation from his system is justified and when it is not? How can he know or find out if his feeling is just not legitimate?

It takes about eight years before a doctor is allowed to practice. I think it takes at least as long, if not longer, for a trader to have the intuition to properly assess the market. Many analysts therefore try to take human nature out of the learning process and reduce trading to a program that conforms to current market developments. This may be bad news for your readers, but they need to learn your business - and again, there is no shortcut along the way.

They also give trading seminars. Why did you choose to teach too?

A few years ago, after acting for 18 years, I felt terribly isolated. So from then on I decided not just to trade, but to allow myself the pleasure of helping others through my seminars and preparing my approach in the TradeStation format. But that in no way demands me as much as when you train traders but don't act yourself. I now have an enviable lifestyle giving seminars in Europe, the United States and Australia (more information at

You have paid your tuition and you are now living a life many traders dream of. How do you use your time when you're not trading or sitting on a plane?

Eat, sleep, sail, fish and - if I'm fine ...

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