Introduction from Chris
Having spotted the post about Guest Forex Bloggers, I immediately thought back a few months where I had written some questions I wanted to present to Mr LFX himself. Being an amateur trader, I figured that getting to ask my own questions would draw out some interesting answers (I was not wrong), and be a great insight to someone else’s journey to becoming a successful trader, one that I could potentially learn from and be motivated by.
I hope others who are at my stage or those who are further along in the process will find Sam’s answers just as interesting, helpful and insightful as I did. From writing his first algo on a train, flooding a broker’s server and causing it to shut down, to explaining where the name Littlefish FX originated from, Sam takes us along his own trading journey. So here’s part 2…
- You provide a lot excellent services, whether it be market analysis, trade set ups, course, indicators etc. for the retail side of things. However I understand you provide services for professional financial firms and hedge funds, could you expand on this a little?
Not really, due to NDAs 🙂 But I can say that we do a lot of white label products, in fact the Littlefish FX website has always been the smallest part of what we do. Hopefully over the next year or two that might change, but we have really exciting plans on the other side of the business.
- I know you are a big fan of Order Flow and Volume analysis. Why have you gravitated towards these two indicators/theories to apply to your strategies?
I like these as they are consistent systematically. No other reason. If I am honest I equally like a lot of the other pieces we use, but I think order flow and volume are quite nice for traders to learn, especially if you are manually trading. They typically make a bit more sense intuitively and they are trend following in nature so support some good practices.
- I know you’re also a big fan of clean data. What do you mean by clean data and how can you tell data is clean and useable?
One of the biggest issues I found in developing systems is data. It is amazing the difference the correct spreads, slippage and costs can make to a system. A lot of issues occur when your data isn’t incredibly accurate. Drawdowns in the wrong place, incorrect behaviour that you assume is normal, the list is massive. Even getting spreads wrong. You know if you are placing trades towards the close of the day, changing the time you place your trade by only 5 minutes can make the difference of an extra pip per trade. When you think most good systems have a trade expectancy on the long run maybe of 10 to 20 pips. That’s 1/10th of your profit for a 5 minute difference. When you are building systems all these tiny details make a large amount of variation. If you don’t understand all of these in detail and understand their impacts your system will perform very differently in live to back test.
- You see a lot of traders on social media say they are Risk Managers first, Traders second. Would you agree with this approach?
Most of them are saying this as they have heard someone else say it not because they understand it. If I am honest my role is to make as much money as possible for a given level of risk. That to me is a trader. Risk management is a fundamental part of that and it is critical especially if you ever want to manage other people’s money but so is making a return.
- Is there more to managing risk on a trade than a simple 2:1 RR, stop loss and only allocating X% of capital per trade etc.? This seems to be what all retail traders get taught. How do you control risk?
Risk management is a mathematical equation. % capital per trade is nonsense and it angers me, a lazy way of people managing risk who don’t understand the maths behind it. Risk management is simple. If you win 50% of the time then your average win needs to be greater than your average loss to make money. If your win rate is 25% of the time then your average win needs to be greater than 3 times your average loss. I.e. if I place 4 trades and win one, then that needs to cover my 3 losing trades. If you don’t do this then you won’t make money in the long run. 2:1 only makes sense for a specific win rate, if you aren’t hitting that then it makes no sense. For us it is a mathematical equation to hit specific targets and if we can’t achieve them then we don’t operate the system. I think it is great practice for people to place stop losses and you need a point where you will exit the trade, but I am not one for saying that a stop loss needs to be X pips every time as that suggests the market is far more uniform than it is and you are curve fitting a system (although note in the odd rare occasion this does work better). Instead you need to ensure you don’t lose more than your model can cope with otherwise you need to earn more as per equation above.
- I know you love the mathematical side to trading, so would this mean you believe that the market is an efficient mathematical world that can be predicted or do you think the ‘random walk’ hypothesis is more appropriate for the market?
Neither. I love mathematics though. Market is not statistical in nature as humans mess it up by playing with it every day. I like the poker analogies for this. If you put 6 simply programmed efficient computers playing poker then the outcome is simply the computer with the best hand as it will base the entire programme on probabilities. Stick 6 people round a table and typically it is the person who can lie the best. The market has way too many people messing it up to be efficient but that doesn’t mean there aren’t statistical anomalies, they are very rare and not quite what I suspect you are thinking. The market is however not random, you can show this by looking at order books.
- Last year you started up a prop trading side of the company. What were the key drivers for you to do this?
I was getting annoyed that a lot of these prop firms are setting stupid expectations and ripping people off. Charging £200 per month, expecting 70% win ratio and stupid targets is not how most prop firms work, all they are doing is ripping people off. It costs a lot to run a prop set-up but we will see how it goes, if it can work then we can take retail traders and mould them a bit and give them low leverage cash to see what they can do with it. I’m not sure what we can do yet but it will be fun to find out. Read more about our Prop Trading Programme here.
- I know you wanted to do your take on the Turtle Trading approach, does this mean you believe that anyone can trade successfully if they put in the hard work and dedicate themselves or do you find you have to have that natural ability?
I 100% believe you can teach people to trade. Like I said I could give anyone 5 to 10 profitable strategies that they could operate easily if they followed the rules. I think the key is finding the right people though. I’m not interested in helping any arrogant people who think they know better, nor do I think we can help anyone who thinks this is a get rich quick scheme. But for the people with the right attitude and motivations we are more than happy to see what we can do to support. If I found someone I could get on with well I could easily teach them to trade and trade large sums of money.
- Has the prop firm met / exceeded expectations?
So far it’s meeting expectations, people are progressing quicker than I thought but we could do with a lot more clients and teachers to help. (Read the story so far here).
- Do you still trade day to day or are you more involved in managing the business? I guess most of your systems are automated?
I tinker in my own accounts but its rare most days now, I am still heavily involved in all of the systematic trading and so know all of our positions across every system with everyone we work with at all times, so I’m still heavily involved in the markets but I am not pulling the trigger any more.
- What are your working hours like? How do you manage work/life balance, as I know you guys sometimes pull late nights and work the occasional weekend?
My work life balance is rubbish, but I love what I do. Hopefully it should change as we get more people on board this year.
- What do you like to do outside work to relax and take your mind off the market?
Gym, sports, socialise. I read quite a lot, I watch a fair few films as well.
- If someone wanted to work their way to becoming a full time trader, what advice would you give them?
Read as much as you can and surround yourself with good traders, learn from them, be humble and set your expectations low. Stop thinking 10% per month is possible and instead aim for 2%.
- Finally what can we expect to see from LFX in 2016?
We want to expand the content and get a lot more people involved and it will be fun to see where the Prop Programme goes.
Quick Fire Questions:
I’m not a massive one for words of wisdom but more the general sentiment. A lot of great leaders are often quoted on two different topics. 1) is that failure breads opportunities and should be something to be learned from and 2) that you should take risks and try new things as that’s the only way of progressing.
Which can all be pretty much summed up as:
- Don’t quit
- Learn from your mistakes
- And take calculated risks, don’t play it safe
Of course they are 3 of the hardest things to do though, unfortunately no-one can teach you much on how to do these things as they are all against our nature; they’re scary, upsetting, tough and difficult, but you just have to do it.
Having said all that, I do have two key quotes that I remember from my time at the bank:
- “No-one wants to be a Littlefish” (that’ll give you a clue to where the name for my company came from). This was from a very inspiring boss, who was the first person I worked for in Barclays, he taught me a lot about other people’s mentalities and how they change their behaviour based on this fact and how you can change yours to support this point
- “Just f*****g do it”. A quote that came from Richard Branson and someone who worked close to him reiterating this point. Probably the most inspirational person I’ve worked with (not Branson but the person who worked for him at the time). I don’t necessarily agree with Branson’s almost uncalculated approach as I am too analytical, but I do agree with the sentiment which is pretty much, stop finding excuses or being scared, just get on with it.
Favourite Financial Themed Movie
The recently release The Big Short was fantastic, we took a few of the team to go see it. I quite like Margin Call as well.
One book that everyone must read (trading or non-trading related)
Probably ought to say something like Sun Tzu’s Art of War but I have too many books I think people ought to read, so I think the more important thing is that people read, whether it is online or books, it broadens your understanding.
One financial / trading themed book that everyone must read
The Market Wizards series is good, or go read Michael Lewis’ stuff as they are entertaining.
Favourite currency pair at the moment
Always EURUSD for profit.
Favourite holiday destination
South of France or Cape Town.
Probably London, then New York.
Lager or Ale man
Ale, though that could change depending on what day you ask me!
Conclusion from Chris
I’d like to thank Sam for letting me ask so many questions and for giving me some fantastic answers; it was a great insight into how he got to where he is and his views on trading. It has certainly given me a lot to think about and what I’m expecting from my own trading in the future. I hope others have also found it equally interesting and helpful.
Christoper Johnston is a Littlefish FX course-user and long-time reader. You can keep up to date with his weekly blogs at http://enigmaforex.co.uk or contact him on Twitter at @enigma_fx. If you’re interested in seeing your Forex blogs and content published on LittlefishFX.com, read more here.