110: George, @RollyTrader – Learning to Trade, Momentum Setups, and Becoming a Venture Capitalist

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What's up? How are you doing team? First up I hope you've all had a chance by now to listen to the previous episode, which was my interview with Edward Thorpe. I mean, the man is a real life superhuman. He has such an incredible story. If you haven't heard it yet, Please make sure to check it out. Now anyway, on this episode, I'm joined by George, who also goes by at Rollytrader on Twitter. George is an Australian equities trader with a momentum slash swing trading type of approach.

In the past, George has held a few finance-related positions, but since late 2009, he's mostly been trading independently. During the interview, George and I got speaking about lessons he learned early on, the effect that coaching and mentoring has had on his trading. Specifics about the setups that George trades and also his involvement with venture capital, which was pretty cool to hear about.

And as we do get quite specific on trading setups during the interview, I just want to give a friendly reminder, and that is you are entirely responsible for your own trading decisions. Please remember this guys. And that's it from me. Please welcome George for episode one hundred and ten. Just shutting down now for a public holiday tomorrow. So just running th through uh a few charts for for Friday. Excellent, excellent. Yeah, we've got Australia Day tomorrow. Uh any plans?

I am having a couple of people over here, so just with the with the family, with the children. Nothing too exciting. Good stuff, man. Good stuff. Well, I'm also pleased to say that you're my first guest after however many episodes, a hundred and something episodes. uh that's from New Zealand originally, although you're also living in Australia now like I am. But um yeah, very cool to have uh someone else who's from New Zealand on the podcast. Finally, I knew it would happen one day.

So tell us a little bit about yourself. How did you get interested in trading? Uh when did this sort of start for you? I guess I was introduced as at a pretty young age with uh just with the family at home. We used to have a a sort of a trading competition when we were about four or five years old. I have a a brother eleven months older than me, so we're pretty competitive and

Dad gave us uh uh uh a thousand dollars in the account and we'd we'd sort of go through the newspaper every morning and which was a day delayed the data obviously and and pick a stock, which normally would be one that sells ice cream or or something you'd know and we'd we'd track the prices and Um I think that probably at a young age installed an interest

And then after university, well, during university really really got into it. So that was two thousand and nine. So it was an interesting time for the markets there to to start sort of uh learning and and going through everything and and then I've really been sort of full time at it since then. Excellent. So was your dad bit of an investor himself then? He was. He's he's certainly not a trader or uh uh uh he dabbles in the stock market, but um

No, not not as a trader, which I guess is sort of what I do today. He uh just has an interest in in business and probably sort of wanted us to have an interest in And understanding value or or perceived value. Okay. And so I've got to ask, who won out of you and your brother? How'd the competition play out? Well well I I believe I won, but um

Yeah. We'll we'll let that be a a debate for the Christmas table. But he uh he got a little bit bored of cutting out the numbers and and sticking them on on the wall. So I don't actually know w what happened to his account. It might have uh Might have had a good compounded return by now if he held held uh Telstra, the New Zealand Teleco stock. That's funny.

So you said you got really serious about trading, you know, a little later in life at university. What sort of things did you start doing? You know, when you say you started to get serious about it, um, what did that sort of look like? I had a friend who was he was a few years older and he was trading and he he just he was a very He was a good rugby player and a very competitive person and he just sort of I guess sold me on the idea that it was the ultimate game.

And I'd always always been interested and I guess was learning about it probably more from the economic standpoint rather than a um a fluid uh market standpoint. And So I went and spoke to to my father and and one of his friends and he said he he knew someone who was a asset manager in New Zealand. He said, Look, why don't you go and have a chat with him, he'll be able to tell you, you know, how it really worked.

Uh so I did that and and he put me on to a few books which started at the Market Wizards, the the first edition they did and and I read all them and I guess from then on in. I I knew it was for me and and uh the journey started, just read everything I could and you know, had I had an account open but it hadn't, you know, really been doing anything and you're kind of throwing darts and I guess with the progression of of technology you you're able to

for someone who wasn't a hundred percent committed able to start studying with with real data rather than just reading. So th that That got me going, and then when I had the ability to put a bit of money into the account, did that, and then, yeah. Went from there. Right. So how did that conversation go with uh the asset manager you spoke with in New Zealand? Well he basically said, you know, this this'll will beat you up if you try and do this and this is what you need to focus on and it's

He said e everyone thinks they're gonna get rich quickly but it's just not how it works and if you if you have that mentality, you know, you'll be refunding your account very often. Um and they were certainly more of a conservative, you know, big fund manager. Um and so he he said you need to firstly pick your style of what sort of trader you wanna be. Do you wanna be a you know, a a conservative investor, do you wanna be fundamentals, do you wanna be momentum based, a day trader?

currency stocks. So I and I think a lot of people actually, um, certainly ones that I've I've helped or have seen over the years, they take too long to pick exactly who they are in the stock market and and it causes style drift, which I think is is a really a big issue for for, you know, traders in their first few years. They'll be day trading that index and then calling themselves a stock investor or, you know, trading the Aussie dollar and

It just doesn't work. You've got to dedicate your life to really to one asset class as far as I'm concerned and and maybe, you know, you'll be able to master that after a while.

So why do you think that that style drift actually occurs in the first place? I don't think it does with professionals. Um certainly the people that have trained me don't. They they trade one style or one asset class. Um I mean obviously it can happen in in bigger organisations, but you'll normally have a specialist for each um each individual class.

But I I think it's people staring at a screen with lots of flashing lights coming at them all day long who read a tweet or uh listening to C N B C and hear, you know, the Aussie dollar's gonna do something tomorrow or it's doing it now and and there's just that temptation to gamble.

because you know, you if you've got a trading plan, you you won't be you won't be trading currency and stocks and commodities. Well ninety nine percent of people won't be, you know, the exception to the rule who can do it. you know, that's fine for them, but the market works on probability rather than exceptions. So I mean in my opinion it's it's better to choose at least narrow it down to a currency trader, a stock trader, and then you can hone in on your style.

So that would be sort of your advice for preventing or reducing the the temptation of style drift is to just pick one asset class and really sort of zoom in on that. Absolutely. I mean I Just the mental and emotional costs. I mean, I I've you know, I've made every mistake there is as a trader, so I can speak from my own experience.

you'd be trading y you know, your the stock market and you'd have your five minute chart maybe of the the X J O or um the E Mini or whatever it was up there and you might see a trade which potentially makes sense and all of a sudden you're day trading the index and you just you can't be focused on so many things at one time and I'd notice that I would really just be making the broker money, um, you know, losing a bit here, making a bit there, but

All of a sudden I'd miss that one or two trades, which you know would be the good trades in in the stock account. So y it's yeah, it's It's not what a newcomer to the stock market should be doing.

um and the temptation will be there. So uh one of my mentors always said to me, he doesn't even look at the index. He said if you can't tell what the stock market's doing by how the leading names are acting, you shouldn't really be a stock trader and I think that that's very true and Um I had to go through a period where I actually just shut off the index and and didn't look at it because

there was just the opportunity to trade it was too great and and once I stopped doing that, um my results really started to turn because all of a sudden I just I could narrow my focus down to one or two particular setup and and just try to master them.

Yeah, yeah. Okay. And I think the the key word uh in your response there being uh focus for sure. Yeah. Now the asset manager you spoke to in New Zealand, uh, you said that he uh recommended a few books that you read, uh those of course being uh some of the Market Wizards books. Do you remember what any of the other books were that he recommended to you?

Uh the Livermore, um the reminiscent sort of stock operator and then the other the shorter book I I forget its name. And then I actually went from there and sort of found who these market wizards were and and if they had then gone on to to write books. Um and a few of them had so so started reading them and I guess got my my style sort of based off the William O'Neill.

um can slum model and then that slowly progressed on to to people like Mark Minavinny and Gil Morales, um, who I guess have a slightly more refined and updated version. Um a and that's really m my exact style of I copied them, have um have added a few of my own little intricacies and and ad adopted it for the Australian market.

Now, at some point, I presume we're probably jumping forward a couple of years, you actually picked up a job working at an investment bank. Um can you tell us a bit about the sort of things you were doing uh inside of the investment bank?

Well I was I was on the M and A side there and and we we had a trading division so I sort of found myself hanging around the tr trading division the whole of the day. Uh we were in the the corporate finance side so when I moved uh back over to Australia, got on to an institutional desk. Um at a firm here. uh uh advising a a a couple of institutions and and writing reports for them. So I guess that's when it

it started to get serious and and that gave me a really good insight into how the big money moves, where they're buying, how they're buying and why they're buying. Right. And you said um when we were speaking prior to now You said that a lot of the people who were on the desk with you and who you worked with laughed at the idea or almost laughed at the idea of using charts. Can you tell us a little bit about the mindset there?

Yep. The I I think there was there was over a hundred brokers or yeah, well brokers would be the right word and I think we had one technical analyst uh and there was probably fifteen fundamental analysts and there just wasn't much attention paid to uh to any of the work done there and Uh the the firm wasn't it was sort of a tradition traditionally old Australian brokerage where it was blah blue chip.

Um there was a couple of small cap operators there who did this, but Uh yeah, it just it wasn't I I I never went to a morning meeting and heard anyone say, you know, the sector's setting up, there's a whole bunch of names about to move. um, you know, this charts breaking down. It it just wasn't wasn't discussed. And I by the that time I I felt reasonably comfortable trading with charts and and I just couldn't get over it. And especially through the GFC.

when you could you know, it was pretty obvious um looking at the charts that the market had topped, even if you're even if you're three months late on it, that you're in a bear market. And I just saw, you know, so many people, not necessarily at that firm, but just wherever, just buying those first dips, buying the second dip and and they just got they got their head torn off.

And it it's just something that you can avoid, I think. I mean, you might, you know, you might get sucked in and trade a couple of the the rallies back in, but you know, the the the good traders wouldn't Uh the good traders made money in in that year rather than lost sixty or seventy percent, which sadly happened to a lot of people.

So when did you decide to go out on your own and and when did you actually feel comfortable to make that that leap, if you will? Um I went out uh in 2000 late 2009 and traded for myself for a while and then started trading for um a private equity firm. And we w I was probably more lucky than smart but was able to to piggyback on the back of the the gold

equities run and and uh the rare earths were very strong sectors in in that sort of twelve to eighteen months. So we were lucky that we had a a good couple of years and and then that allowed me to completely go out on my own. Uh after after I'd done that.

Now at some point during all of this you had a mentor which you've already kind of mentioned, Mark uh how do I pronounce his last name? Minervini? Mark Minervini. Yep. He was featured in uh one of the Market Wizards books, I believe. How did he kind of help you out? How did you come across him? How did you get to know him? Tell us a little bit about how that came about. Well, first we my wife and I, uh she was my partner at the time.

Um we moved over to to Argentina. There was a a a guy who I knew who had managed a a fund for Soros for a while and he was over there and I thought it was a good chance to go and pick his brain and Um, we were starting to trade the US market, so the time zone worked and while I was there had made a list of the the best traders that were alive and sort of broke them

you know, letters or emails or read their books, however I could get in communication with them. And the first uh one actually to respond was a guy, Mark Cook, who was also a market wizard. He was a day trader.

Um and he responded and so I went over to Ohio to see him um and he trained me up in in I guess day trading he was I mean just the most amazing day trader that it didn't fit my trading style, but um certainly learning the the discipline and his daily ritual and and how he he views the market and almost the simplicity in what he does, you know, I I was

still twenty six, twenty-seven at the time, you you know, you kind of think there's this edge that potentially these big guys have that you just, you know, you might not ever get or you might you might not be able to get. And after that was a big turning point in my trading when I saw how he traded, it was just so simple, yet he will probably go down as you know, one of the greatest.

day traders of all time with an audited performance. And and so that that was a huge turning point for me. And then with uh with Mark Minavinny it was the same same sort of thing, read his book. um, got in contact and he said, Look, we do, you know, some programs once a year or they just started doing them. So went over and did that and

I went back last year actually um to see him and he they do services and stuff like that that you can subscribe to um online. But I I think as a as a new trader getting that early mentorship or direction from someone is is just so important because you can spend so long making so many easy mistakes. And you're always going to make them, but at least if you have someone guiding you or giving you a blueprint, you should be able to identify when you're making them earlier.

and hopefully stop them. Um and so yeah, so I I mean I've just I learned so much of those two guys. Um Over over the time I subscribe to to um Mark's website now. He he puts a few of his trades up and does a great webinar every every week. Um, you know, it is quite expensive for newcomers, so that might not suit suit everyone, but there's certainly a lot of decent people out there and

I think it's important just to to find someone with an audited um performance and and if it suits you, you know, you can you can start to sort of mimic their style and then you of course you'll adapt that as you go on. But I mean there's no need to

to, you know, reinvent the wheel here. There's since Livermore to Davos to Wykoff to Morales to Minavini to O'Neill, there's not that many deviations in their trading style. I mean Of course there is, but they're looking at the same things, good stories, good charts, pivotal points to buy them, um, you know, controlling the risk.

That's really incredible. I had no idea that uh you knew Mark Cook and had traded with him. That's uh that's really cool. Um and I'd like to go back to that point because you said that you you know, were there, you were on site with him and you you saw him actually trading and how he does things.

At what point did you know that day trading wasn't for you? You you know, Mark Cook is a day trader. He was showing you sort of how he goes about things. And and even though you said it was v a very simple, uh what he does is so simple. Um, you still said that it it's something that just still wasn't for you. How'd you know it wasn't something for you?

Well, I I had day traded before then and I I sat there live trading with Mark and so I could mimic his trades and he gave us his you know, his five or six set ups. Um so you knew exactly what he's doing. Uh I well, the time zone was a bit of an issue when I came back to Australia because he really was the bonds and the e mini um and didn't move outside of them, that was it. And he was the master of those. I it didn't work with my my personality. I

I don't like riding the ticks. I like to be able to to buy something, put my stop in or my alert in, whatever I might have and go and have a cup of tea or um you know go and go and do something which isn't just staring at the screen. So day trading was was never gonna work work for me despite the fact that, you know, I'd

I'd trained with one of the the best guys there is. It just I I don't think I would have been able to make money out of it. My personality would have lent to me not following the system well enough because if you're day trading you really you can't have any deviations from from your rules. I think the stock market's a little more forgiving. um and a little more flexible. So for someone uh of of my m my makeup, um that was where I wanted to be.

And when you were trading with Mark in on his on site, in his office, wherever that might have been. Uh, is that something that y you actually paid for or did you just somehow be able to form a relationship with him and sort of get your foot in the door that way? How'd that

opportunity come about because, you know, people listening to this, they're like, you know, you made a list of the best traders in the world and then you sort of tried to reach out to some of them and, you know, spend time with them. You know, it's um It's quite incredible that you were able to, you know, get that time with Mark. So I'm just curious how that actually panned out.

Well I I've done both with Mark. He's uh a friend now. I actually nearly got him over here to Australia to come into a conference and we he he was ready to come but we we the demand just didn't seem there which Surprise me. I mean, you know, it's just such an opportunity to sit with them. But um Mark, when I went over, uh, it was for a pay programme. Um, I don't recall the exact cost, but it was it was between five and and ten thousand dollars or something like that.

Um and then obviously, you know, you you can establish whatever relationship you want going going forward from there. And there was There was a couple of us who did that and it was four for a week over there and yeah, it it it's I think it's really worth doing and you might not have to go to America to go and do it. Um I'm sure there's some good people here in Australia but It is just a

formulating what his daily ritual was and and seeing how he prepared every morning. Um and and and the same goes for for Mark Minavini. Um he does he does a paid service uh And you can y this or last year went and traded with him. And you know, just the calmness that you see these guys in, um, it's just it's a second nature to them. It either the alert either goes off or it doesn't.

There's there's no stress. It's just that that trade works. You're you're either right or you're wrong on it. And then you just repeat, repeat, repeat. But I mean that you know, these guys are masters of what they've been doing. They've probably taken that trade tens of thousands of times. So it's it's just a a repeat model. So with Mark Minaveni, what were some of the really big

things that he taught you or things that you picked up from him. Um, I know it's kind of a bit of a cliche question, but was there anything that really sort of stands out as being sort of that's the reason why he's a good trader? Oh Mark's I mean he's he's he's just a great trader. He he's very mathematical, so he has his his couple of set ups which he uses, the V C P is a big one and He'll take that and and

Over and over again, just the same repetitive pattern and then just how he scales in, scales out of positions, how he's always looking, you know, to be a two to one trader. So that means he's You know, he's got to be right half the time and his average gain has to be twice his average loss. Um and I think once as a trader, once you work out that.

Uh you you keep your scorecard as he used to put it, where you record every trade, how long you're in the trade, you what the results were and you analyze that just religiously, weekly, monthly, quarterly, y you very quickly pick up where your your faults are. So he four or five years ago when I first went over to see him, just really drilled that in and it helped

uh as I mentioned, it helps see your own weaknesses. So it the deviations between making zero percent return and twenty percent return. uh are not that significant if you if your average loss moves from ten to to seven percent. that can have just such a compounding effect. So I think that was a big one. And again, just the discipline. There's just you know, I I can't I don't want to speak for Mark at all. Um

But I just can't imagine him taking a trade outside his system. Like it just would not happen. So a and same with with um with Mark Cook.

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Something you said to me, again referring to a conversation we had uh prior to this this call we're on right now. Um you said that probably around about eighty percent of mistakes that particularly newer traders make are avoidable. Why do you say this and how are they avoidable? Well, I I guess the big mistakes for for a momentum based trader such as such as myself is

You should be able to buy at the at the danger lines, so at the the point where the trade becomes active. So I mean if you if you limit your your buy above that point to three percent. So let's say your alert goes off and immediately it's it's gone three or four percent. If you just don't take any over that bracket there, that'll reduce your chase. And one of the big the big things which affected my trading, which really improved my numbers, was was violations. So if you do buy it right.

uh and the stock pulls in on you straight away, you'll you'll have your stop loss in play, but um what what are the only times to get out before your stop loss is triggered? And I still see um some guys I I talked to a bit about trading, like you you'll still see them buy perfectly, the stock pulls in three or four percent, they go, bugger it, it's not working, close the position out and two weeks later it's up thirty percent.

So I mean that that's just two ways of just right there of you you've bought the thing right, but you're not A chasing and you're not B choking the trade off too early. So you're giving it a chance to work. Um, and so I think I think most people as we've discussed already, who go into trading, they've styled drift so they'll instead of focusing on on say that particular setup, they'll be intraday trading the

the S and P or or the Aussie dollar. Um so, you know, if you don't chase, you stick to your setup, you trade one asset class, um, don't add to losing trades and and don't trade against trend. Um You know, right right there. uh you you've got a pretty good chance of surviving and and it just comes down to risk management. Um and and I think, you know, most people who have tried to go out or or trade on their own who haven't been mentored have been told, you know, this is a stock to buy and

They just keep buying it on the way down and the the effect of a stock that falls fifty percent has to go up a hundred percent. Everyone sort of knows that old adage. So if you if you get yourself into trouble early it It's quite a a big hole to dig yourself out of.

So another thing I've found as well, moving back from cash, uh, when you when you are forced to cash by the market is is just to come back incrementally. So y you know, you I talk to people and they'll say, Oh everything looks good again, we'll quickly go a hundred percent long and And that's how you can have big drawdowns happen. Big drawdowns happen. So if I'm if I'm coming back in from cash and I'm seeing a couple of leading names set up and the index is still going sideways.

Uh and then I see a few more leading names hit up. I'll I'll try one or two out. And if they're not working, I'm not going to be adding any more positions. So I'll let the market tell me to to be adding rather than just having a view that things are things are fine now and I quickly need to to get back into the market.

Okay. I actually really like that point. So you're talking about in periods where you might not have any trades on and you're entirely in cash and you start to see some names setting up, you don't just, you know, put trades on every name that you see. You're just sort of slowly building your positions back up. Is that did I understand that correctly?

Th that's right. I mean my my system works very much on following leadership. So what are the leading sectors, what are the leading names in the sectors, what's driving the market internally? I I couldn't care what the index is doing if it's under high distribution on I'm not gonna be in and there's pretty high chance that there's very few names setting up constructively. So it doesn't happen. But if I if say, uh I remember the index last year looked like it was gonna break out through

uh through five six or five seven I I forget and all of a sudden we had a bunch of distribution set up in the pivot and the leading name started failing. So I I went back to cash um and it was another sort of six weeks until we got a a turn and the leading name set up while the index was still finding a bottom, tried one or two out.

quickly in them or or they go sideways or they go down. If I get stopped out on those one or two names, well the market's telling me that it's not ready to go or that my uh criteria is faulty and Um, you know, now uh I don't think that's the case. So it's it's the market telling me that it's it's not ready to move yet. And so you can keep if you're taking a ten percent position size and let's say you've got a ten percent stop

you know, you you lose on both those two trades, you you drop two percent. It's it's not the end of the world. You can recover from that. But what you don't wanna do is go a hundred percent long get stopped out of, you know, everything pretty quickly and and drop ten or fifteen percent. Okay. So you're obviously talking about risking one percent of your capital on each trade. That that was just an example. Um but yes. Yeah. Okay.

So now's probably a good point to actually talk uh some specifics about your actual strategy. So, you know, just from a high level, how would you describe your style of trading? I'm not actually sure. I guess it's a momentum momentum based trading approach where I look for strong sectors, strong company stories, strong earnings, strong revenue growth.

and then I will always, always use a chart to get in. And I I only have a couple of entry points. I have the volatility contraction pattern, which is from um from Martin Avinny. So if anyone's interested in that you can buy his book and and read about it, he goes in depth about that and that's effectively a a breakout trade. Um and then I use a a pocket pivot which comes from um from Gil Morales and and Chris Catcher. Uh and then and then sort of a pullback by method where

the stock is already trending. I've already initiated a position from a breakout and I'm buying off the first pullback to the moving average when it's obeyed on the uptick. So I wait for the the higher close of the previous bar. And uh and really I mean well, on the long side anyway that uh that's about it um that I have and and there's just no shortage of of trades defined so it's never a problem that am I not getting enough stuff setting up.

uh there's there's always stuff setting up when the market when I should be in the market. If there's nothing setting up well that's the market telling me something. So by, you know, sticking to this process you you automatically eliminate those times when you shouldn't be in the market, when you should just be sitting on your hands or

um short of if you like to short uh stocks and can do it properly. Okay. And we've already established that you're not a day trader. So you probably fit more into the category of what we'd call a swing trader. Yes. Yeah. Okay. And what markets are you trading? Just the Australian markets? Um I trade the US as well. Uh I I did trade the US primarily for a few few years, but um

you kinda get a bit worn out doing that now, uh, just because of the time zone difference. So so I trade the Australian markets and I'll I'll run through my US stocks tonight and and as I said I I chat with um with Mark Manavinny and um with Gil and stuff over there. So, you know, if if they're looking at something decent or posting something decent on on one of their sites.

you know, I'll have a look and and if I need to put an order on I will, but uh probably ninety percent of my stuff will be in Australia these days. Okay. And tell us a little bit about how you

how you scan, how you actually go about finding uh potential trading opportunities like stocks that are setting up uh in accordance with your uh criteria. Well you can write you can write code in in basically any charting package these days. So I I um have probably uh fifteen different scans and I use four religiously and I'll just be looking for basically inflection points. So um for a pocket pivot there's there is just set criteria, it's

Um, you're looking at a ten day back period for volume, you've got to have higher volume than any down day and the stock needs to come from below the ten day moving average to close above it on that volume. So you can write code to find that. the VCP um a little bit harder to write code but you're basically looking for a pivot so you're looking for tightness and price and contraction and volume as well as a contraction in the pattern.

So I I try to write my code relatively loosely and then I uh I go through four or five thousand charts a day and um a lot of them are the same chart. So I'll I'll do my at the end of the day I'll I'll run all my scans, build watch lists based on um how they're setting up, um the duration of the base.

Uh so I might have four active lists which would move from, you know, potentially viable in the next two weeks to this list will probably go today. And then I'm just adding and subtracting names from those lists. Uh and and it's so uh You know, it there's no easy way in the stock market that I've found. The scans certainly have have helped improve. I mean those those old guys that had to go that through them by hand or draw the charts, you know, that that's real work.

But it's just repetition going through, you build your chart eye up, all of a sudden you just see that pattern that you know, you know based on your scorecard is a good pattern to take. And and so that's what I do. So I do that every night. Then I'll go through them in the morning with a fresh eye again. Um, see if I've missed something and then put my alerts on. Um and then, you know, sit down at the desk and

And watch the documentary and wait for the alerts. Okay, so just so I understood that correctly, you uh

You're not manually looking through four to five thousand charts. That's how many sort of tickers you're feeding into your your scans. Is that right? I I'm manually going through them. So I I you you can scroll Uh I I've talked to people about this and they they didn't actually know this existed, which I just I find crazy, but um just the scroll button on your mouse, you know, I can scroll through fifty charts in probably a minute, minute and a half.

So I'll just have them set up on the the daily time frame and the weekly. I'll have fifty on each list'cause that's the max the list can provide from the software and I'll just scroll down those fifty and it only takes one, two seconds to look at a chart to know if it it interests me. Um a and so most don't. So and then it's just going through maybe them again in a day a couple of times.

But yeah, so so it is still a manual process and then with the fundamental filter, um, there's better software in the US, the Australian market doesn't quite have the Market Smith platform or the H uh HGSI platform where you can sort of scan for certain certain earnings and um earnings increases and return on equity and and cash levels and all that. So we just wrote something in Excel which pulls data uh from a provider there and and that'll help.

identify to us what what sectors may be having the highest revenue lift or what companies are having the biggest quarterly increases in earnings or or revenue and as I said then run them over

Um, put them through the charts and if if they're not ready, they're not ready. If they are they they go to one of the watch lists. Okay. So are you using Excel only or are you using an actual software uh charting package too? Uh Excel's just to pull the the fundamental numbers, the charting packages.

Um I I know Trade Station are uh a sponsor with users we have Trade Station, I've got C Q G got Pro Real Time, I've got a fuse. So you can write uh it it doesn't matter what system you write it in, they're sort of you know, they're all the same. and then you just scan for them and it'll pop up a list.

Then you just gotta click through them. So if we were to look at your chart, if we were sitting in your computer chair right now, looking at your screens, what sort of technical and indicators and technical analysis would we see on your chart? I'm uh just really a price and volume person and so I I don't really look at R S I um or MA C D. I I do have an MA C D just for my intraday when I'm moving into a position but Uh for me, really, all I need is is price and volume and moving averages.

And I use the moving averages as reference points uh where a stock should be accumulated from. where if where it the base is or where the price in the base is sitting, is it sitting on top of a moving average? Is is the price chopping down through the moving average?

because when a stock's trending, institutions will be buying it so they'll normally be holding a certain price point um whether that be the twenty day EMA or if it's trending hard, you know, the the ten day and that also gives you a reference point to to trail a stop or or if you think that that immediate term trend has has shifted or changed. Uh so yeah, there's it's pretty simple what I do. It's it's it's volume analysis and price analysis and and base analysis.

Okay, so once you've identified a name which you you see as a trading opportunity, what actually serves as your confirmation signal to get into a position? So I'm normally using a pivot point so most set ups that I'll buy will have a contraction through the range. So if you think about it like a c a cup shape, like what you'd see on a cup and handle, I really want to see at least two cups, if not three or four.

with each cup getting smaller as it moves to the right of the chart. Um and through there um I wanna see the range of price also contract. So it it should just look like three little mini cups coming into each other because that's telling me that the supply is is diminishing. So there's not so many people willing to sell their stock at that. So the weak hands are being weeded out. I've I'm only buying uptrending stock.

So you're gonna have less of you know, likelihood of that really bad news result, not buying stocks that have ever had a gap down in the price, I just stay away from then. And then finally when the stock is setting up

for me it should have a big dry up in volume and the price ideally just goes super tight for a couple of days. And that might only be one day, it could be three or four days. And then I'll just set my alert above above that little pivot point and when that goes through there I I'm buying. So you set an alert and then you put an order in once you obviously check it out and see if that's something you want to be in. You don't actually have orders waiting in the market to catch that.

It it depends on the stock. A a lot of the smaller stuff in Australia i it is too risky with the spread. and a bigger stock obviously no problem. But no, I I generally manually put it in. I still have that discretionary um uh uh opinion where I'll look and go, right. Yep, that's ready to go. That's not. And so it y you know, the the negative of that I guess is if you get multiple signals at a time, but I mean that very, very rarely happens.

So my my computer will just start beeping at me and and that's time for me to um you know, just start pressing a few buttons. Right. Now I might just mention um it might be helpful for those who are listening and actually want to visualize some of these things that uh we're discussing here. Um so you post a lot of

these setups and a lot of charts on Twitter. So I was gonna suggest if um you want to actually see what this looks like, sort of struggling a little bit to visualize it in your head, check out uh your Twitter feed. What's your Twitter handle? Uh it's at Roley, R O L L Y Trader. Okay, excellent. At Rolly Trader. Now just still on the point about entries. What happens if you miss your ideal entry point? As we discussed before, that's that's something that'll be in my trading plan.

Which is another thing I think you have to have. So it's basically a rule book for your trades. Um and it was something that that Mark Cook just drummed into your head, if you don't have one, you won't survive and I I think it's very true. So for me if it goes four percent past that that's it's off the table.

I just won't take it. So it it's it's as simple as that. And o often you'll get a pullback, what I would call a pullback buy, where the stock breaks out and then it'll pull back and to retest that. um that breakout level. And so y I'll keep it on the watch list and you know, be ready to to buy it potentially off. Off another setup that happens during during its run, but um yeah I'm not gonna chase anything.

Okay. So if price has moved more than four percent beyond your actual ideal entry point, yeah. You leave it. If it comes back into that zone and retests the breakout point, um then you may consider Taking an entry then. Yeah. If what I wanna see is I don't wanna ever buy on weakness. So if it comes back in and tests that breakout point, I'm waiting for the next day for the the close or for the intraday to be above that previous day's high.

Got it. Okay. Now how do you determine your risk and your position size for each trade that you put on? Well there's there's a formula called optimal if and if you put on your trading stat uh that'll tell you the optimal position size you should be taking based off your your um your performance. But for me, generally Broadly speaking, I I don't like to trade more than eight percent in a position. Um and that that's on the initial position. If

I'm in a name that goes up quickly. Obviously that will increase your your exposure just through its return. Um but I I will go up to twenty percent into one stock. um if if I get multiple setups in there. But just how the market's been the last couple of years. I it it's been very choppy. It hasn't paid to pyramid your positions. It it has been more of a swing traders market. So th that's pushed me back when there was uh some stuff trending

uh in twenty ten and eleven, twelve, um, my approach was slightly different and and you've just got to adapt with the market. I mean y you know, you you have your trading rules but they they have to be adapted because the market's dynamic. Um and it it's not the same. It it changes all the time but you know, yet the character remains the same. So you can operate with with similar setups and similar criteria, but there's

There's right and wrong times to to implement implement those criteria. Okay. And I just want to clarify something. When you said that, when you mentioned twenty percent, that doesn't actually mean that you're risking twenty percent of your capital, does it? Oh no, God no. Well, I I guess effectively you are if it announced something and and went to zero, but um no, my my average stock will be what is about six and a half percent. So

Um you know, if I'm let's just call it ten percent to make it easy. So if you're taking a ten percent position size, your risk um with a ten percent stop is is one percent of your total capital. And I I think that's that's a good place to start. You probably want to be between half a percent and and two percent depending on your experience and and your trading style. But if you go too much smaller, you you know, it's hard to to make those big gains.

And if you go bigger, you know, you're asking for trouble because you're gonna have that occasional stock that gaps down on you and you're of course gonna have a lot of losing stocks. So um yeah, controlling risk is

is the number one factor I think in a in a successful trader. Anyone can work out how to buy a a V C P or a pocket pivot or anything like that. But if you don't control the risk and and don't know how to incrementally scale in and scale out of the market, um, you know, you're gonna you're gonna deal with big drawdowns.

Yeah, yeah. Um now you you mentioned or you brought up optimal F uh as a formula for having sort of optimal position sizing. Yeah. Where can we find out more info about that? What is optimal F? I've I've never heard of that. I'd just say Google. I use one through um actually through Mark Minovini's site. He has a calculator on there. And so yeah, so if you put in that your average gain is fifteen percent, your average loss is is seven percent and your win loss ratio is fifty percent.

Um and you your target is to make a you know, a fifty percent return this year, it'll say, Well, you'll probably need to do eighty trades at

eleven percent position size or or whatever it is. Um so that's disappointing. But I mean it y you probably don't need to get as complicated as as that. Um I think, you know, the the general rule of thumb is is probably five to ten percent for most people that you see on on what position size as a percentage of their portfolio they should take and and then uh yeah your risk obviously depends on what

what nature of stock you're trading. A lot of people in Australia trade the the really micro cap names and you know, they're they award good returns but you know, the spread on them can be ten percent alone. So it's hard to to be a a real risk manager when the bid and ask can stop you out. And I think that's another. pitfall of of new traders is to go into those penny stocks.

Uh you you're better to trade the leading names and develop your skills, you know, trading them, trading the the Domino's pizzas or the um you know the the mid cap leading names, the aristocrats, uh and and you're not gonna get the big the big moves, well, Domino's probably proves me wrong there, but um you're not gonna get them so quickly. And y I think a lot of people like that gambling feel where they go into a one cent stock and it goes up to two cents and

You know, they they think they've done something right. Yeah. Uh so just going to the other end of the trade now, how do you determine your exit point?

Selling's very, very hard and something I'm I'm certainly uh work in progress, but for me, again, your average gain will dictate a lot, what you know that you know, you your scorecard says that you make and also a multiple a risk. So if I'm if I'm risking um, you know, call it one N and which might be five percent and all of a sudden I make twenty percent I'll I'll definitely be be selling partial into that. And then

It depends on how quickly it moves. If it if it moves up twenty percent and then in two or three days I'll I'll probably sell a big portion of that into it. If it's a nice orderly chart and slowly drifting up, I'm probably adding to it. uh and then finally to get out I'll use a moving average so that will depend on on the trend of of the name I've bought. If it's if it's holding the twenty day um

on the first test, you know, and then it breaks down through it on its second test. That's that's when I'll get out. Okay. So it's fair to say that your exits involve quite a bit of discretion. Yeah, they do. It it depends it depends on the nature of the market. I mean, uh a name, for example, that we've been Well I've been tweeting a bit lately that I I L and and CIA um that was a a power play setup which is a Um a particular setup with a stock.

moves a hundred percent in in less than eight weeks and then has a a base less than twenty five percent and then resets up a base and most people think it's way too extended but It's actually quite a good good probability trades where buying that CIA at at fifty cents and

it just ran straight to a dollar um in probably the last week. Uh so I was actually selling a bit today and I sold a bit uh two days ago and You know, there's sort of no rules here at It had three gap ups in a row and and and it's just moved so hard and it so I I'm just gonna bag some and and let the rest ride. Ideally I'd I want to move my stop to break even as soon as I as soon as possible. So if I'm up ten percent in a trade Um

just try to reduce my risk immediately. So bring the stop up. If it if it moves up fifteen, twenty, I might sell twenty five percent of. If it forms a new base, I'll just add back. I'll buy more. So again it's just incremental, incremental selling, incremental buying, reducing risk where I can. Well, sounds like a good trade to be in. Well done. Now you said

A little earlier where you hinted that most of your trades are on the long side. I'm interested to hear the reason for this. Why do you prefer th trading the long side and rarely trade the short side? There's been a few occasions I've been on the short side in the last the last sort of three or four years. But I mean we're in a bull market. Well certainly in the US. Um the Australian market there was a great trade short resources um until probably a year ago, uh year and a half ago maybe.

I'm not as good as at shorting stocks, so purely my scorecard tells me that. So I'm not gonna focus on it. If the market comes under distribution and I'm forced back to cash again by keeping a leading names watch list, the best names to short are the former leaders. Um, they're the ones that'll break down the hardest because they're the ones that have the most froth in them. So if I'm looking through uh the list there and they're all looking like they're gonna, you know, continue falling.

I'll move in on the short side, but it it's not something I wanna be doing. I don't have any short positions on at the moment. It's not something when the market's uh giving on the long side that I wanna be doing. Um, just purely for a a state of mind thing and uh and purely because the reward for me is is not there. Um and and I don't I'm I'm not one who hitches out my portfolio. I mean very rarely

Will I do that? Maybe if there's a a big event coming I might, you know, use a few options or or take an index position, but um you know, that would be once a year, once or twice a year. Okay. So really what you're trying to do here is just focus on your strengths, ignore your weaknesses. Well I'm I I'm working on the weaknesses, but I'm working more on what makes me money. Um, you know, there's no point trading something that's not gonna make me as much money even if I'm better at trading it.

the the the market, you know, especially the US, it's it's it's a strong uptrend. So I just I don't think you need to be on the short side unless you're probably a shorter term trader than I am. Um and absolutely, you know, nothing wrong with with trading short and and those people were good at it.

Um that's great, but it's yeah, it's just not one of one of my strengths. Um so it's something it's not something I avoid, but it's something that just doesn't happen as a large percentage of my trades. Yeah, makes sense.

Now, stepping aside from trading, something which you have done, which I'd like to ask you a few questions about, is you've actually taken some of your trading profits and you've put them into uh venture capital. What attracted you to venture capital? I've always liked

I guess how business operates and and being involved in small businesses. I've got a few friends that have, you know, been pretty successful uh as entrepreneurs and I guess when I was a analyst and working on um in the different side of the market you'd meet so many uh company management spokesmen for the company and you'd hear their stories and

And some of them, you know, were great stories. Some of them you could quickly identify probably weren't gonna amount to too much. But it always intrigued me to see how the business actually works under the hood. and um just I guess by chance Um we got into well, I got into the first one and brought a couple of other people in and it was a friend developing a business. Um

and he was asking for for some advice and I said, Do you need, you know, some capital and and he did and and that business is is ticking along. We're sort of up to eighty staff now. Um and two of them I've I've started myself. Um and and the others again are just opportunities which I've seen which All of the ones we look at have an idea to to IPO or well, ideally to IPO, but they're they're products which potentially have that appeal and have that exponential growth. Um so like any startup

they will require capital and and you know, some will fail, some will succeed. So similar to the market it It's um, you know, just trying to identify the good ones and and and stick with them because you're gonna get your bad ones. There's no doubt about that. So we've we've got five uh businesses now under there and And they're all alive at the moment. Maybe next year I can report in and and tell you how they're going.

Yeah, yeah. Well, are there certain types of businesses which you prefer to invest in? Well certainly the what we have invested in has been they're all very different. One's property, one's um one's equipment hire, one's a stock market, one uh one's fashion and one's an agriculture and So all pretty different industries, but they're all connecting people. So I guess they're all this this new world um technology, either one's AI, one's um

just aggregating all the all the suppliers uh and tenderer options. So it's just I guess they're just all trying to make it easier for company management to operate. So we're trying to find them a solution at uh either no cost to them or very little cost to them and then something they can roll out through their businesses.

And it certainly seems to be the the new the new way forward is Um especially with AI and how it's starting to now come in is you know, ten years ago people I thought Webjet was an out there. or five years ago, whatever it was, was an out there process and having one website which shows you all the flights and and where they can go and

I mean in a few years time, you know, it's just gonna be a a chat bot or a personal assistant on your phone, which you tell and and they go and source that data for you. So maybe we're just uh building products for the lazy man, but we'll see. So is that intentional that each one of these businesses is in a totally separate industry? Or is it just kind of worked out that way? No, it's probably more just worked out that way, I think. But I th I think probably in sm the small business world.

you're either very specialised and, you know, have have a big company or especially in the more venture capital uh model you're you're probably a little bit more diversified.

Right. And have you noticed any big similarities between trading and venture capital? Well, I mean it's all it's all just risk reward. So I guess I guess that's, you know, a a a very obvious one. Um the you know the liquidity of the stock market is is just it's it's a it's a gift.

people probably don't appreciate it enough, um, the ease, especially if you're a small account, you know, if you're under three or five million dollars, just your ability to come into a position and out of a position in minutes. Um, it is just huge. You can, as we've discussed, just move back to cash, take some time off, you can regather your thoughts and

in the private business world, you know, you're you're stuck there and and um most of businesses require multiple capital injections. So, you know, you've really got to make it work and and there's more often than not, never a liquidity event. So there's certainly different mindsets that you need and we've got good. um managers who r who run all the businesses. So that's um you know, they they take on that burden more than I do.

Yeah. And that's a very good point. I mean, I recently sold a property and I remember saying to uh my girlfriend, I was just like the process you've got to go through to sell real estate is ridiculous. You know, like if I wanted to sell, you know, a few hundred thousand dollars worth of stock, I could literally do it.

within a minute. Exactly. You know, in real estate that whole process drags out like three months pretty easily. So I think that liquidity o of trading is is of huge appeal. Now you said earlier that you have plans Or it's kind of um in the Uh in the future to

IPO some of these companies, that would be the ideal situation. Um, what's the what's the process involved in actually getting to an IPO and what's the incentive of doing so, of going from a private company to a public company? The process we've got one now, I guess. You would call it in the process, um So you you meet a few brokers or or corporate advisors and and they either like and believe in the story or they don't. And assuming they do, um you might do a pre IPO, which

for a a a small the transition from a private to public business involves quite a lot in terms of compliance. So you might need X amount of new heads come in, so you might do a pre IPO to to be able to fund that. um and get get all your you know, everything audited and get everything looking correctly and then uh and then you you move through it takes about a year if you're doing the pre IPO or or nine months. And the benefit, I guess,

is is access to capital. Um, especially with with companies that have a lot of potential but require a lot of a lot of money to get there. There's only so much help that the founding shareholders can do and we've we've had a few external capital raisings. Um for the different companies and you know, th it's a very hard long process. Um we we were probably a year doing a raise for one of the businesses and it it really took

the MDs a lot of their time. And great we got it away. I mean, you know, it's it's fantastic and the company's company's growing growing quickly. Uh so I guess a liquidity event for shareholders. the chance for new shareholders to come in who believe in the story and and the access to to capital to grow the business. So I I guess that that those are the defining features.

Yeah, no that's good. And and so how does a pre IPO work? Well, you you might just go to whatever broker it is and you might say we we want to raise four or five million on the IPO and we might need half a million or a million, um you know, six months before in order to employ, you know, maybe a professional chairman or a new a a director who's got a name in the industry, um, do you compliance?

tidy up a few things. So it's really just a little bit of teething money uh so you're ready to hit the market properly. Because there are those additional regulations and the cost of actually IPOing and and doing all that. So

You know, if if your if your business is flush with cash, um you might you might not do a pre IPO. Um but if if you need a bit of tidy up money or expansion capital, um that's something you'd do and And normally that might be sort of an a a six month window until the IPO and those people who come in at that level are normally um

given the shares or they purchase the shares at a discount to to what the IPO will be and that that might be ten to twenty, twenty five percent for taking on that additional risk. Right, right, okay.

Cool man. Well let's leave it at that. Um where can listeners go to find out a bit more about you? Um is there anything you want to share? Is there anything you're working on? Um yeah, give us a lowdown. Well we one of the the new companies I've been building, uh it's called Subi, S U U B E E, and what we're trying to make is a new uh a new way to access financial information for stock traders in Australia. So

I'll be providing every trade I do through there. There'll be uh lots of lots of traders that I'm sure some of your listeners follow on Twitter, um, who'll be doing that. We'll be having trader meetups, discussions. really just trying to build a new platform to help educate and train people uh and and for for traders to watch someone trade and and learn their style and and eventually be able to to mimic it. So We've been building that for the last two years and we're in uh beta at the moment.

So we're we're hopefully we'll be launching later on in in the year. Um, but we've there's a web page up just for expressions of interest. So if anyone wants to really see what I'm doing, I mean I'll be doing everything through there. by the time we open. Otherwise, um I'm just on on Twitter. Okay. And do you just want to share your Twitter handle one more time? So it was at Rolly Trader. Okay, and that's R O double L Y trader. That's right.

Excellent. Well thank you very much for coming on. It's been really great speaking with you and um yeah, thanks a lot for agreeing to do this. Thank you very much, Aaron, for including me and uh look forward to having a chat soon. You've reached the end of this episode of Chat with Traders, but rest assured there are more out of the Market insight and zero.