Welcome to BigFatPurse Interview show. Today’s guest is BL, he is the CEO of Tactical Trading Academy. He was an ex-banker, and now he has strike-out on his own to teach trading. Find out how he walk the talk.
BL, I understand that you worked in a bank, what made you join the banking industry in the first place?
This is a simple question because I have a business degree, so joining the banking industry is a natural career path. My first job was in asset management.
Is it because of interest or the perceived high pay in this industry?
I did not join because of money. When I started out in my first job, there was nobody to advise me. When I joined the industry 10 years ago, banking was not such a good job. I was actually retrenched. Is it good money? I have friends that told me bankers are overpaid. Honestly, I think the salary of a banker is fair. For every dollar you take back, there is a formula behind it.
You are saying that the remuneration commensurate with the performance you put up. Is there a difference between being a bank trader and a retail trader? Is there any edge that the bank trader has over the retail trader?
I would like to clarify that I am not a bank trader. I was an advisor. When we advised bank customers, we would usually take a longer position and looking at 200-300 pips profit. If I am trading for myself, I could be taking profits at 100 pips or less. This was the main difference. People have the perception that working in the bank would have access to more information, that is totally a myth. When the market do move and customers call us, we do not know what is happening too. We will check on CNBC or the internet to update the customers.
I do understand that banks do employ algorithm trading and with their muscle power, they could scalp better than a retail trader. Do you think this is the current trend?
I have not know of bankers employing algorithm trading. I think this is still not common in Asia. I do know of forex traders who work in the oil companies. These oil companies employ proprietary forex trading teams. How do these traders trade? They would monitor the order flow, and they would know if there is a large number of buyers or sellers at a certain level. They would trade according to the flow. This is how most Asian traders trade.
What time frame do you trade?
I am looking at daily charts and sometimes weekly charts. When started few years ago, I was using four hour charts but I found it was too stressful for me. I think trading must fit your character. I have friends who are very comfortable with 4 hourly charts, going in and out for 50 pips profits. But for me, it would be very stressful because I will be monitoring the market every minute and checking whether I have been stopped out. Now, I am taking longer term position. I feel less stressful and I can do things outside trading.
How long does your trade typically last? Days to a week?
Yes, usually I would hold a position for more than 2 days.
Do you trade other instruments other than forex?
Yes, I trade US stocks. In fact, I am more of an investor when it comes to stocks. Most of my positions are at least 3 months. The reason I chose US stocks is because they are more transparent. I can find a lot of free information in the websites. For US stocks, you can buy one share which is more affordable as compared to Singapore, where you need to buy in multiples of 1,000 shares.
Are you using CFD for trading stocks?
No, as I am using an investment approach for stocks, using CFD would mean I have to take leverage and run the risk of margin call. I may hold stocks for more than one year and hence, CFDs are not suitable in this instance.
Have you traded futures?
Yes. I have tried many instruments such as options and futures. I have to admit I am not successful in most of them. I find it difficult to determine the direction of the indices. I used to trade industrial metals in the London Metals Exchange. The problem is that every 4 pm on a trading day, the supply will be published. Even though you may have all the reasons for copper to go up, but if the published supply indicates there were 3,000 metric tons of copper oversupplied at warehouses all over the world, copper price will drop immediately. If you do not know the industry, you will not know the real supply and demand, and it becomes difficult to trade futures. I cannot take a long position in futures due to the leverage, I would be easily stopped out with a 5% drop in price. As for options, time expiration is my greatest enemy. The way that I think options trading can make money is by selling puts. That means if I think Citigroup is a buy at $20, I do a put on $20. It is still an investment style which means I do not mind buying Citigroup if it falls to $20. If it does not go to $20, I will be happy to collect the premium. I have heard Warren Buffett do this as well in a bull market. It will be difficult to buy stocks cheap and you can collect the premiums.
What made you choose to trade forex in the end?
I found that I could easily make money in forex more than other instruments. This is the frank reason. I am not saying forex is a better instrument. I do think it is more suited to retail investor because contract size for other instruments are huge. If you do not have $20-30k, you can forget about trading Hang Seng or copper futures. If you have $2,000, you can trade forex with mini or micro contract size. Forex has its advantage.
How do you allocate your capital? How much do you set aside for forex trading and how much for stocks investing?
I allocate 70% of my capital to stocks and 30% to forex.
Do you trade spot forex or currency futures?
I suppose you are using CFD to trade spot forex.
Would you disclose how you enter or exit the market for forex trading?
First, I will identify whether it is a trending market or a sideway market. For example, GBP/AUD and USD/SGD are on a long term downtrend. AUD/USD is on a long term uptrend. I will look for opportunities to trade in the direction of these trends. My job is to enter at a conservative level and ride the trend subsequently. Besides identifying trends, I also look at fundamentals. I want a currency that is healthy and there are a few criteria to determine that. The criteria are some of the economic indicators that are impactful to a currency. I do reveal those indicators to my students. I would look for pairings whereby I can buy the strong currency and sell the weak currency.
Do you need to confirm your view on the fundamentals with the direction of the trend?
You can say that but not necessary. A strong currency versus a weak currency, the trend will be very obvious. For example, GBP is weaker while AUD is stronger. Hence, GBP/AUD is a strong downtrend and I see no reason why this trend will change.
When you say it is a downtrend, what time frame are you referring to?
Daily and weekly charts.
Must the daily and weekly charts show the same direction?
Sometimes the daily chart will not show a downtrend which may be due to high volatility. One example will be USD/SGD now. You would not be able to identify USD/SGD as a downtrend on a daily chart. However, it is an obvious downtrend on the weekly chart. Likewise for AUD/USD. Of course, this is not just what I look at.
Which currency pair do you trade most of the time?
Like what I said earlier, I trade pairs that have contrasting strengths. I will not trade those currencies with equal strength like EUR/USD. Europe has a lot of problems and US has her own problems as well. At any time, I do not know if the pair is going up or down.
This is really just a relativity game. You cannot say AUD is a strong currency. It is stronger against what? But there is a currency pair that I always like to trade and I am waiting for opportunities. However, I am trading it not for fundamentals, I trade it simply because nobody can beat the market. The pair is USD/JPY. When Bank of Japan intervene in the market and USD/JPY spike up 300 pips, I will enter a short position. Time and again, it is proven no central bank can overcome the market forces. In fact, it is not only Bank of Japan. Recently we have the Swiss National Bank, controlling the EUR/CHF as well. My students and me have entered a short position on this pair as I know that this intervention will not be successful.
So you do look out for news for central bank intervention. Do you look for other news that may impact the forex market?
I do not look at a lot of news. If you worry about event risks, you might as well not trade since there are so many news every day. We just need to pay attention to the influential news such as the non-farm payroll and GDP data. These are the two important news and the rest are just noise. If the news is not able to move the market by 200 pips, I will consider it noise. In fact, non-farm payroll used to be able to do that but not now, as nobody seems interested in US employment market anymore.
You are looking at news that can influence a significant price change because you are trading a longer time frame (in terms of days), which as compared to a scalper or intra-day trader, any news would be important to him. Am I right to say that?
Yes. As I mentioned earlier, due to my character, scalping is out for me although I have friends who are good at scalping. To me, scalping is not a profitable strategy in the long term. A lot of people can disagree. Scalpers take very small profits and if they are not disciplined enough, one huge loss can wipe out last 10 or 20 trades profits. As such, the risk-reward ratio may not be favorable at all.
And a scalper would have to spend more time monitoring the market. You would prefer to set a stop loss and just walk away from the screen and do other things.
Can I say that you are using a trend following method as compared to those mean reversion strategies?
Yes, mainly trend following. If it is a sideway market, most of the time the price will revert to the mean.
So you do have different strategies for different conditions – each strategy for trending market and sideway market?
Which also mean that if you were to trade a sideway market, you are looking for a currency pair that is equal in strength? As opposed to a trending market whereby a pairing of a strong and weak currency is necessary. In this case, you are looking at EUR/GBP for an instance?
Yes, I would buy at the extreme low for EUR/GBP.
In terms of your investment strategy, how do you select stocks?
First, I will look for companies that have long term rising revenues, earnings and operating cashflow. The operating cashflow must also be higher than the capital expenditure to create a positive free cashflow. In finance, the intrinsic value of a stock is the present value of its free cashflow. This statement would summarize my strategy.
You are using traditional financial valuation models such as the Free Cash Flow model to identify good stocks.
Yes. If you look at it, it is quite close to Warren Buffett’s strategy. If he has done well, I think this is a proven strategy. Of course reading books on Warren Buffett can only offer a glimpse on what he is doing. But we do not know the details or the complete picture of how he picks stocks. I still had to form my own methodology. It did not work well initially and I have to refine my strategy through the years. I used my method and participated in the US stock-picking competition which I managed to rank in the top 1.5%. I have put it up on my website.
Tell me more about the competition.
It is an online competition that is organised by www.zacks.com. The period of assessment is a year and hence, you cannot say one is just lucky.
I understand you typically hold stocks for 3 months or so. Sometimes we know that the fundamentals of the company are good, but its stock price may not be reflective of the true value. How sure are you that the stock price will reach your calculated value in a span of months?
In the past, I would have look for a perfect scenario but most of the time, the stocks would have been priced very high and become expensive. If nothing happens, those stocks will continue to do well. But in today’s world, there are many market risks such as Asian Financial Crisis, credit crisis, and US getting downgraded. All these events can easily push the stocks down 20-30 percent even though there is nothing wrong with the stocks. I overcome this by investing in stocks that have temporary problems. These stocks are already cheap by 20-50 percent. We just need to identify if these problems are temporary or permanent. It would be a good opportunity if it is temporary and I will look for long term support level in the price action to enter a position.
What are some of these temporary problems?
For example, US is cutting budget on defence spending currently and some of the stocks in the defence industry have came down quite a bit. Initially I thought this is a long term problem. But I realised these defence companies do have business overseas and not solely dependent on US. Another sector would be education US government provides a lot of funding for their students and by cutting the budget, many stocks in the education sector have came down.
Basically you are looking at stocks that are undervalued in the short run. Do you still look for positive cashflow in this instance?
Yes, this is still important. I evaluate the fundamentals and at the same time, price must be good.
It is still like a bottom-up approach where you screen the stocks for positive free cash flow, after which you just wait for prices of these stocks to be depressed?
This is half correct. For the instance of the defence industry being affected, I just need to find the most fundamentally strong company in this sector.
In other words, you can go with a top-down approach which you identify the industry and you drill down to the fundamentals to look for free cash flow. Is this a more accurate description of your method?
Not really. It is still considered bottom-up approach. By discovering a group of stocks that tend to be cheap, I would know that this industry is in some trouble. Oil-related stocks are another group where money can be made easily.
Why are oil-related stocks relatively easier to make money?
Oil price is seasonal. Oil price tends to go up at the end of the year due to winter season. In the middle of the year, nobody is paying much attention to oil stocks and that is when you should enter. I still remember some time in July, my friend asked me what stocks I was buying. I told him I was buying US oil stocks. I bought Transocean, which is the world’s largest offshore drilling company. He disagreed with me as he felt that oil price was so low. I replied I bought because precisely oil price was low. Eventually I made a 50% profit.
This is the problem with most retail investors, who do not really understand the concept of buying low and selling high. When the price is low, they are not interested because they think that the stock is dead. When the stock price starts to move up, breaking 1-year high or 2-year high, they will get interested and begin to buy stocks. And when prices came down, they sold when they cannot take the pain anymore. They do not realise they are actually buying high and selling low.
Yes. You will need temporary impact to the stock price in order to buy low. Otherwise, good stocks are usually expensive.
Do you buy more stocks after a stock market crash?
Yes but you will have to wait for a long time for such opportunities. I prefer to look for problems in sector rather than the entire stock market.
Where are your sources of information?
There is no short cut in making money. You have to read constantly in the internet and subscribe to magazines like Fortune to keep yourself updated. Only when you know what is happening, you will then be able to make judgement and decisions. You cannot make a good decision when your information is not comprehensive. You need to be smarter than most people to make money.
How much time do you spend trading and researching for investment opportunities?
By looking at your blog, I think we have a common interest and that is having a passion for the financial markets. Constantly I am thinking how to make money. The moment I wake up, the first thing is wonder did Dow Jones went up the previous night. I do not spend a lot of time on forex. I just look at the daily and weekly charts to identify the support and resistance levels. I will know if the day is good for entry. If not, I will just pass and look at it the next day. I will use the time to research on US stocks. There are so many stocks out there and it is not possible I have gone through most of them. I would usually pick 1 stock out of 20 that I researched. If I have to pick 20 stocks for my portfolio, I would need to look at 400 stocks.
Do you make use of stock screeners to help you shorten the process?
I used stock screeners in the past but I found them not comprehensive enough. Moreover, the data that are provided may not be accurate.
Like what you said, there is no shortcut in making money. You have to put in the extra work to make sure your trading or investment is sound.
I understand you provide training for aspiring traders. How do you go about imparting your trading skills to a newbie?
I teach both forex trading and stocks investing courses. I do one-to-one coaching sessions. For forex, I will teach them how to find strong and weak currencies, how to identify trend, which indicators I use to find a good entry level. I also provide MT4 templates for their charts. These MT4 are for back-testing purposes. For example, you can test trading AUD/USD with MACD signals for the past two years, starting with $50,000 capital, how much would you end up with. I use this to quantify and prove to anyone that indicators cannot be used blindly. MACD cannot be used for all currency pairs, RSI is not a very useful indicator and stochastic is only good for some currency pairs.
For stocks, it would be largely about accounting knowledge. This knowledge is necessary to pick good stocks according to the criteria I need them to find. I do provide a spreadsheet as a tool to calculate the intrinsic value of a stock.
In addition, I provide trade signals for my forex students as well as my positions in US stocks. You can take a look at my website where I provide all the statements. I always tell my students that learning how to trade is equivalent to learning how to drive. Passing the theory exams do not suggest that you know how to drive a car. You need practical lessons and trade signals are to guide students to trade in the live market. I apply my own teaching in my trading and I will explain to them why I get into those positions. I coach them to drive on the ‘main road’. Even though I encouraged my students to trade after the coaching sessions, I found that many of them procrastinate and not update their trades to me. Likewise for stocks course, I wanted them to identify 1 stock based on my criteria and only a handful of students would get back to me, and these are the people that benefited the most. They are the ones that made full use of me as a coach.
Are you concerned that your students may just follow your trade signals and not apply the rules on their own?
Of course there are some students that are lazy. There is nothing I can change. I can only encourage them to enter trades on their own.
It is only those that are genuinely interested to learn the way to trade would benefit most from the course. It is not for those who are only interested in getting rich quick.
I will never promise people you will get rich quick using my method. If you want to make money fast, you would be taking very high leverage which translate to a higher chance of getting a margin call. You run the risk of losing your capital. My method cannot get you rich but can provide another source of income for you. Of course if you do well you can make more money.
How long is the duration of your course? You mentioned there is a phase 1 that is theory-based, and a phase 2 that is hands-on.
Speed of coaching depends on the student’s foundation. Those who have experience in trading forex or investing in stocks, I can teach them everything in one coaching session. For someone who has zero knowledge, I would typically need 3 to 4 sessions with 1.5 hours each. Subsequently, they would receive the updates of my trades for the next 6 months.
How do you charge your lessons? Do you charge by sessions or is it one price for the course regardless of the number of sessions?
I am charging by course. $300 for forex course and $450 for stocks course.
Do you eventually want to help your students discover their own trading strategies and your courses are just to help them get started and familiar with trading mechanics and psychology?
That is not my objective. I know my method works. This is the question I have been asking myself. I read many books and I find that 90% of what they teach are junk. If you want to find your own method, you have to spend time, effort and money to experiment. The learning curve will be longer. My profit and loss statements are there. You can take a look if you are not convinced. When people teach trading or write trading books, my question is where is the statement? How can you prove that your method works and I can follow? When they claimed they became millionaires through trading, can they show me the bank account? Do they make money through trading courses or do they make money through trading? These are the questions that I will ask. To reduce the doubts, I post my statements, I post my trade signals and I am very transparent. If I still cannot convince people with these, I do not know what else can be a better proof.
Many times I find that people are willing to pay $3,000 to $5,000 for courses with charismatic educators saying you can make $20,000 in one week. This is not realistic but somehow people believe them. Many of my students are actually graduates from these courses. They told me that sometimes the methods are not clear and they are not sure if they can make money. Their educators do not provide trade signals. After the 4-day course, you are out on your own. Just like learning to drive in theory and there is no one to hand-hold you. This is the problem in this education industry.
If you pay $5,000 for the course, you would need to make $5,000 just to break even. How many people can make $5,000 if you are a new trader? My course is just $300 and it is not difficult to make that back.
A student asked me yesterday if anyone taught me how to trade. I said no and if someone had taught me, I would have shorten my learning curve. I learned by paying school fees to the market. Only by learning about myself, through trial and error, and feeling the pain of losses that I eventually making money now. I think it took me 10 years to create my strategies.
If someone is interested in attending your course, how does he/she go about it?
First, they need to transfer the course fees to my paypal account: firstname.lastname@example.org. I will contact the person when I receive the payment alert from paypal.
Alternatively, they can always visit your website, Learn Forex Trading, for more details as well as the instructions to sign up for the courses.
Thank you BL for your time and valuable sharing.
You are welcome.
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