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 let’s get into it…
- Where did it all begin? How did you get into trading? Can you remember when you placed your first trade?
Actually I started with algorithmic systems on an internship at Bloomberg in their R&D department. From there, when I moved to London to work in a bank a year later, I had already started playing with systems but the first system I built with a friend actually worked on horse racing. Essentially it was a HFT system built to scalp liquidity off of the open exchanges. When I realised the limited upside to this I moved into trading. The weird thing was with trading I suspected the technology would be much more advanced, but it wasn’t. The first algo I ever wrote though was actually on a train back from an event for the bank, when I saw an advert for backing and laying bets. That’s where I had the idea and wrote code on my note book for the algo.
- What was it about Forex that caught your eye; did you ever delve into stocks at all?
Liquidity and low barriers to entry. The problem with stocks is the inherent costs of placing the trades. Forex is low cost and there is enough to play with so you don’t get bored. That said I have played a lot with futures and indexes. I think the key here is with stocks you need to understand the underlying company a bit more if you are going to add real value, technicals are ok but only if you are placing trades on hundreds of stocks at a time or you are using them as a filter to then delve deeper. My passion in the first place was focused on systems that could be consistent and sustainable.
- In the beginning, did you focus more on technical or fundamental analysis? Or a mix of the two?
Technical. I actually love fundamentals but I never found them that useful for making money. I can argue all day about economic and monetary policy and, like most people out there, my knowledge will be left somewhat wanting. If I was brutally honest, like 95% of the traders out there, a fundamental call that I got right would probably be more luck around timing than judgement. I also have a very strong view on the efficient market hypothesis (more on this later) and that is that it is nonsense. The market isn’t remotely efficient, this leads me to the view that you can generate alpha through technicals. That said, it’s worth clarifying I also include the old poker adage that you are playing the person opposite you as well and that means market psychology and behaviours also comes into technicals.
- How important do you think it is to be able to understand a market technically, but also have some grip on what it is doing from a fundamental perspective?
The problem for most retails traders is after they have read a few pieces of material online they become super arrogant thinking that they know everything. This is often just after they have a good month or two; this is typically the phase they are actually the most foolish and when basic fundamental and technical knowledge can be killer. I think if you can keep your arrogance, ego and most importantly expectations in check (another major bugbear for me) then technicals are great. I could list off a bunch of systems that are consistently profitable in the long run, but the majority of retail traders out there wouldn’t listen to me and wouldn’t follow the rules. Fundamentals are dangerous unless you honestly have a strong understanding, there are so many nuances and factors that it can be difficult to really work out the possible outcomes and hence what the trade actually is. If you play fundamentals with less knowledge they really need to be really long term bets.
- Now you are clearly a successful trader, but did you ever blow up any accounts, were there any times where you thought about sacking it in, or was failure/defeat something that spurred you to continue to tangle with the markets?
Every good trader I know has blown up accounts and I’ve blown up three:
- The first came when I was an egotistical idiot retail trader and deserved it, but the pot was small.
- The second time came after I had learnt a lot and made a lot of money, but 18 months in I imploded.
- Third (and hopefully final time) was an algo system I built that I forgot to cap the amount of trades on and it killed me extremely quickly. Although this was a small test account I managed to knock out a broker’s trade server at the same time as I flooded it…oops.
The hardest thing in trading is not trading. The hardest thing is protecting your capital and managing the business of trading and your emotions. I never saw me blowing up accounts as failure, more as part of the learning process and I continue to learn. The risk of failure is more in the company than the trading. I have systems now I could leave on for the rest of my life and never have to do anything with them.
- Do you remember the point where you thought ‘right, I can do this, I can consistently pull profit from the market’?
Yeah just before I blew up my first and second account. I then learnt never to think I can beat the market or do anything consistently. A healthy dose of reality that I will never be good enough means I am always pushing to do better. Be more accurate, find more issues with our systems, find more ways to hedge our exposure find better ways to place and manage trades. The day I think I can do it is the day I lose it all.
- Did you ever have a mentor who helped you along your trading journey?
Yes but not a trading mentor. I’ve never needed a person to give me feedback on trades, I am a relatively quick learner and after listening to a few people talk about trading I quickly learnt most of them didn’t have a clue what they were on about, in fact I used to enjoy going on webinars and asking maths questions as a lot of the people presenting couldn’t answer. Admittedly that’s not a very nice approach and I regret that now. What I’ve always been keen to do is surround myself with people who I look up to. In all parts of my life I’ve done this, it humbles you and makes you want to achieve; probably the best skill I have is to place myself amongst incredible people.
- Before setting up Littlefish FX, you said you worked at a bank. Can you tell us a little bit about how you ended up there and what your role was?
I decided during my internship at Bloomberg that I didn’t want to be a programmer, but I loved finance. I actually wanted to be a pilot in the RAF and when that wasn’t possible my view was I was going to earn enough money so I could fly. So after Uni I went to work for a bank. It was a typical grad scheme and I ended up meeting some incredible people and doing a lot of different jobs, I got to travel a bit and managed some pretty big projects given my age. It was fantastic experience for me and I had incredible bosses who had a habit of throwing me in at the deep end. They were the ones that encouraged me to set-up on my own.
- Do you think working for a bank, gave you a unique insight into the workings of the market and how the ‘big boys’ trade?
No more than one could read about. Possibly I had a little more access to go talk to people but the reality is it isn’t that hard and there are about 1,000 books and websites out there that tell you how they do it. The problem is I guess that there are a lot of people selling utter nonsense as well.
- What would be the one thing you took away from working in a bank you would say has really helped whilst setting up LFX? If any.
With regards to setting up a financial company, actually very little. But with regards to the people I worked with and the roles that I did, it helped an awful lot. But almost all of it was on the management side of things; both people and strategy, as opposed to trading.
- You set up Littlefish FX in 2011. Can you expand a little bit on why you decided to create the company?
Interesting question. I suspect two main reasons. 1) I was pretty fed up with the educational stuff for traders online as a lot of it is just lies. These people telling nonsense stories of making millions from nothing is garbage and that wound me up enough to want to change it (my nature when I get annoyed is to fix it). 2) I guess the other reason is why not see what we could do. I knew I could pull together an amazing team and so there was a very good chance we could make a pretty decent company out of it.
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.