10 Minute Stock Trader Interview – watch now
I was recently interviewed by Christopher Uhl for the 10 Minute Stock Trader podcast. You can watch the video recording here.
In the video we discuss how I got into trading, what I learnt from the Turtle Traders (and still do to this day), the difference between amateur and professional traders and how I trade a portfolio of strategies.
In the podcast we also discuss how Trish and I trade right alongside members of The Chartist. If you’d like to learn more about The Chartist strategies that I trade then you can take a free trial membership.
Transcript
Christopher Uhl:
I love on your bio here, trend following since 1985. And I talk to so many traders, and at the end of the day we boil it down to the, in my opinion, the best way to trade is to just go from A to B following a trend. And everyone that I talked to on the show, we are at 500 episodes, basically is saying the same thing, right? You’re just getting on one part of the train and getting off at the other. So tell me some of your background in trading. I’m sure at this point, it’s not just the red line crossing the blue line, but what are we looking at these days whenever… You’re known as The Chartist, so I assume that you go through a lot of charts.
Nick Radge:
Well, I am known as The Chartist, and the history to that is I used to work at a bank that had 44 fundamental analysts and no technical analysts. And I’d actually built quite a large business using technical analysis, specifically a systematic trend following model. And a lot of people took notice of the size of the business and the ease at which I could build that business using that particular model. And we were going to implement that as a separate business within the bank. One thing led to another, and eventually what I wanted was some kind of a professional technical analysis service that could sit alongside a fundamental service, because a lot of people do use technicals, even a lot of investors use technicals more for a timing tool. So that’s really where it started, but my own personal trading is all systematic. And for the large majorities trend following has certainly been trend following.
Nick Radge:
So, back in the late nineties, I actually ran a trend following commodity fund at CTA. And we rolled that into this particular bank back in 2001, and that’s when the next episode of my journey started. So from 1985 through to about 2001, 2002, I’d predominantly only traded futures, all trend following, but from 2001 onwards, I was able to get more into the stock side of things on a professional level. And so really since 2001, my whole business has been trend following and stocks. So that’s where we are, but personally, all my trading is systematic in nature, literally all computer stuff, put my account balance into the computer, push the button. It tells me what to buy, where to buy, how many shares to buy, where to sell, the whole thing, it’s only done systematically.
Nick Radge:
So in terms of actually looking at charts, flicking through charts, me personally, for my own trading, no, I don’t do that anymore. It’s all systematic in nature. The very vast majority of my trading is trend following, or momentum. However, I have incorporated some shorter-term mean reversion style systems, and even day trade systems, but in the scheme of things, they’re still trading in the direction of the bigger term trend. So that’s pretty well the eight strategies I trade, are a combination of momentum, trend following and main reversion.
Christopher Uhl:
Got you. So would you consider yourself a Turtle?
Nick Radge:
I wouldn’t consider myself a Turtle, that was a very elite group of people. I had a lot to do with those guys back in the day.
Christopher Uhl:
Oh, yeah?
Nick Radge:
I worked on the trading floor of the Sydney Futures Exchange, and I used to be able to see these big orders come in and hit the market. And I am quite an inquisitive guy. And rather than just execute these orders on behalf of these people in the pit, I wanted to find out what and why they were these huge orders coming into the market? And a lot of them would come from the same place, the same price points. And I was trying to figure out, why are they here? Why are they doing that? And then I had an understanding back then about what it was. In fact, I was given the original Schwager Market Wizards book, or my boss was given it, and she gave it to me to have a read, and that peaked my interest a little bit more. And she knew some of these people.
Nick Radge:
And then it really all came together when I was in Singapore or, again, I was on the trading floor in Singapore for a couple of years just after Nick Leeson was there, and the same thing. But because I was English speaking, I was then introduced to a lot of these guys over there and started executing their business down on that trading floor. So it culminated in meeting, Russell Sands, not probably one of the most popular Turtles out there, but he piqued my interest even more, woke me up to some of the things. And then from there I studied them quite extensively. So very interesting bunch of people that’s for sure. And I still follow some of those guys today, and I still get a lot of inspiration, especially when your strategies are going through drawdowns and that kind of stuff.
Nick Radge:
You can go back and have a look at their long-term performance. Some of these guys got track records running back to the eighties. People like Jerry Parker, you’ve got David Drews, quite a few of them there, and I find it actually quite comforting to go and look at their long-term track records if I’m going through a tough period of time saying, well, these guys are the best of the best. And they’ve had some pretty poor performances and extended drawdowns, and it happens to them. Well, it’s going to happen to me. I know what my system is doing. I know why it makes money. Therefore, I’ve just got to keep plodding along and just keep pushing the button if you like. And yeah. So that’s my history with the Turtles that’s for sure.
Christopher Uhl:
Well, that was unexpected. I’m really fascinated by the Turtle story actually, because one of my goals this year is to read a hundred books over the year. And earlier on in the year I was reading Covel’s Trend Following. And then I didn’t realize that was the 2014 version and that he was on his fifth version, so I re-read it, the fifth version, a few weeks after that. And then I picked up his Turtle Trader book, and learned more about Jerry Parker, Alicia Voll, all of them there. And then I read Market Wizards not long after that. And Richard Dennis was prominently featured inside of Market Wizards, and I’m just fascinated by the story. Couple of reasons. Number one, Jerry Parker is actually on a podcast very frequently about once a month. He’s on a different podcast called the Systematic Investors Podcast.
Nick Radge:
Yep.
Christopher Uhl:
Do you listen to that one?
Nick Radge:
Yep, absolutely.
Christopher Uhl:
It’s one of my favorites. I love listening to that one. And then, what was I going to say? So, gee, so he’s on that podcast and… I’ve totally lost my train of thought. Either way, I think it’s amazing that it’s not like they were a myth, but they were actual people, and at least one of them is still out there enough that you can go and talk to him and learn from him. And based on what you were saying, your systematic CTA investing and everything, that’s what made me think of, if you would consider yourself a Turtle, or not.
Nick Radge:
Yeah, well, those guys, I do things slightly differently. Obviously now I’m really just long-only equities. So there are diversified commodity trend-following bunch, but bringing up the likes of Jerry Parker and the fact that he’s out there, I think an interesting thing here that people overlook is if you listen between the lines of what he’s saying, and even read between the lines of some of these books, especially the Market Wizards books, the answers from these guys, you’ll get a much deeper understanding of what they’re actually talking about. I used to have a doctor friend and he would read, he would have a little huge bookshelf if you like of little tiny trophies, all these books, he’s read hundreds and hundreds and hundreds of trading books. And he was the worst trader I’ve ever come across. He was absolutely shocking because he didn’t really understand the key concepts of making money, specifically positive expectancy and how that’s generated and that kind of stuff.
Nick Radge:
He had read hundreds of books, and they sat on his bookshelf like little prizes. And he gave himself a big pat on the back for being very knowledgeable in trading, but at the end of the day he wasn’t able to make much money from it simply because he didn’t understand those concepts. So reading between lines of a lot of these books is a good way to really dig deep and understand what they’re talking about.
Christopher Uhl:
Speaking of reading between the lines, that’s where my head was going out a couple of minutes ago, is when they wrote Market Wizards, and I don’t know if Jack Schwager meant to come off this way, but getting through that, I read all the Jack Schwager books this year, there’s almost this arrogance, in my opinion, hear me out, that originally traders were born. You could look at a chart, you could look at the price and be like, it’s going to go up, and then it goes up and you’re amazing. But then the thing with the Turtles and with Richard Dennis, having saying a rules-based approach could do just as well, makes complete and total sense to me, going back to your positive expectancy, you can back test any system in the world now at any point in time, whereas it’s not like Ed Seykota where you and I would have to go to MIT and hideaway in their computer lab to figure that out. But a systematic trend based approach totally works. And anyone who can follow the rules of that can be successful. Do you agree?
Nick Radge:
Well, absolutely. I agree. A few things on that, it’s all good and well to be able to access the technology, which we can very easily, and very cheaply these days. That’s one thing for sure. However, you still need to understand these core concepts. You still need to do that coding and programming correctly. You still need to be able to build a portfolio. And at the end of the day, you still need to be able to pull the trigger on a consistent basis. You’ve got to have the psychological fortitude to do this stuff. And I think that’s the big tripping block for most people. I’m a firm believer of the difference between an amateur trader and a professional trader is the ability to keep pulling the trigger, making the next trade regardless of what’s going on. Drawdowns are inevitable, and everybody has drawdowns, but it’s the ability to see through that drawdown, see it out, move through that difficult period that’s uncomfortable, and then see that positive expectancy come back out again.
Nick Radge:
Positive expectancy ebbs and flows. You can go on great streaks, last year, record year for me, five of the eight systems that I trade last year made in excess of 50%, the biggest one returned 97%. The one that returned 97% last year just went straight into a 25% drawdown at the start of this year, and it’s trying to dig itself out. Now for the average punter, if you were up 97% last year, you could probably stick with that drawdown. But if you started the strategy just before that drawdown, well, you’re asking the question, what the hell is this guy doing? And that’s the difficult thing, but I have a hundred percent confidence in the strategy. It’s been tested over years and decades of data, different market situations. And we’ve seen all these situations before, they’re all slightly, but it’s a matter of sticking with it over the longer term. That’s the key.
Nick Radge:
And for amateurs, they come into a little bit of a drawdown, or they go for two or three months without making new equity highs, and it’s more like, must be something better out there. And they flick the switch and go somewhere else. And that’s their endeavor, I think, they chase their tails, they chase performance. And as a result, they never actually see, they never allow that long-term expectancy, positive expectancy, to actually be seen. And I think that’s a big difference.
Christopher Uhl:
Yes. So let’s talk about TheChartist.com.au. I was looking at it here and it says you trade the Growth Portfolio, US power setups and US momentum strategies. What does that mean?
Nick Radge:
So one of the things that we’ve evolved over the years with The Charter, so we launched this business really back in 1998, but in its current format since 2005. So we’ve been around for a long time. And one of our mantras is that we’ll trade right alongside you. So a number of the portfolios that we offer inside of The Charter, it’s the systematic portfolios. My wife and I personally trade right alongside and disclose our own positions to our clients. And the whole idea is that that gives them some confidence. I don’t have people ringing me up saying, oh, I’ve had a losing trade, or the last month I’ve lost money. That doesn’t happen because people know that we’re going through the same thing, and we heavily educate our clients on what’s to be expected. If clients do fully understand that these losing periods and the size of the drawdowns and whatever are going to come along, then they should accept that before they commit to the journey.
Nick Radge:
And if that is the case, then there’s no point bringing me up halfway through a drawdown and saying, what’s going on? So there’s a number of different portfolios. So the growth portfolio is my original trend following strategy that I started trading back in the late nineties, continue to trade at almost in its exact same format today. So there’s probably people listening to this that think trading systems break. This is much the same trading system that I’ve been trading since the late nineties. So that’s 20 plus years, and it ebbs and flows as well. It’s a long-only equity strategy that trades the Australian market, it’s detailed in one of my books called Unholy Grails, and it’s more or less straight out of that book. So pretty simple strategy, and creates positive expectancy. It’s just a matter of pushing the buttons. The other ones there, we’ve got the ASX Momentum and the US Momentum.
Nick Radge:
So the US Momentum, it’s having a good year this year. Last year it made 57%, this year we’re up about 28% or so, so far year to date. It’s a momentum strategy that trades once a month on the broad Russell 1000 Index, and it uses volatility position sizing. So your portfolio would vary depending on the volatility of the market. Sometimes there’ll be 12 positions. Sometimes there could be 18, or 20 positions, and all of these portfolios go to cash during a sustained bear market. So we were very lucky last year with March, we were actually out of the market sitting in 100% cash when that selloff came along. And then we went fully invested again in June, on June the first and got the end of year strength that came powering back. So last year was a classic example of why systematic trading is just so valuable. As I said earlier, five of my eight portfolios made in excess of 50%.
Nick Radge:
Now, when March occurred, I dead set thought we were going to go through some 1970s situation, a multi-year bear market that was going to be deep and dark. Yep. This pump then we had by the central banks created that V-shape bottom, and we ripped right out of that. I had absolutely no expectations something like that was going to occur. And if I had been a discretionary trader, I would not have been involved in any way, shape or form, but being systematic. And I remember vividly it was on my Twitter feed that I said, I was going a hundred percent long on June the first. Now June the first last year was when all those riots were occurring in the US. And I remember a lot of push-back on Twitter going, you’re a fool, we’re in the midst of this pandemic, it’s going to be tens of thousands of deaths, economic carnage. We’ve got violence in the US, the whole world’s falling apart. Why the heck would you want to go long? But that’s what pushing the button is all about.
Nick Radge:
And the thing here with doing that, there’s a simple explanation as you touched on right at the very beginning, if the decision to go long was the wrong decision, then I know my strategies would have got me out again. It’s as simple as that. I’ve got nothing to worry about if I make the wrong decision, because the strategy will actually then get me out. I’m not committed to any decision I make. It’s a fluid event. The fact that I go a hundred percent long doesn’t mean that’s a commitment for the next 10 years, it may be a commitment just for the next two weeks, the next month, whatever it may be. So I can rely on my strategy getting me out if the decision is actually wrong. So that’s where you get a lot of confidence from.
Christopher Uhl:
I think that most novice, or long time traders and investors, who don’t grasp the idea of being flexible to market conditions, wouldn’t understand. Covel made a great example in the Trend Following book. He was like, if the stock is going from 10 to a hundred, you can get in at, or 20, or 30, or 40, or 50, you just know when you’re going to get out. And you can ride the elevator, or the escalator all the way out, Oh, but when the elevator door start to open and you see signs of things going wrong, be the weakest hands and get out first before everybody else.
Nick Radge:
Yeah. Yeah. And again, last year, a big trait for me last year was in Tesla. I think my average entry price, well, the original entry price is about $41. Now last year, a lot of our strategies just piled into Tesla, and we just wrote it all the way up. I remember on the pre-split price, I think it got to about $600, or so, $650, and our strategies were still getting long, and a lot of people saying this is just crazy, just crazy. And it just kept on going, and going, and going. And look, those trades don’t come along all the time, but they do come along if you’ve got the patience to hang around, and I’m talking not necessarily months, but years, those big life-changing trades, like those Teslas, will come along. I’ve had them before. I remember vividly in the late nineties riding timber. We had a lumber trade going on in the Futures Market and it just went limit up, limit up, limit up day after day. I think I remember 12 limit up days in a row, and you just sat there and you didn’t have to do anything.
Nick Radge:
And it’s just ching-ching, ching-ching, ching-ching. So it doesn’t happen all the time. And as I said, you got to take the good with the bad. I don’t call myself lucky for being on Tesla, I was just following the strategy, and that’s what the strategy is designed to do. Find the strongest stock, stay on it while it remains strong, and away you go. But as I said, if it turns the corner you’re off, I guess the analogy I like to use for trend following that I’ve used quite a lot before is it’s like a hitchhiker. If we want to hitchhike from Dallas across to Fort Lauderdale, for example, the first thing we’re going to do is go out to the motorway and stand on the right side, on the right lane that’s where we’re going to stand, because on tipping a car going to Fort Lauderdale is going to be in the right lane, not the left lane.
Nick Radge:
The other thing we know is, we don’t know which car is going to stop, but we know if we stand there long enough for that farm out, we’re going to get a ride. And the same with the stock market, we don’t know which stock is going to go up, but we know some stock somewhere will eventually go up, and we just jump on it. And when the car stops, we hop in, when we hop in, we don’t know how far that ride is going to take us. It may take us to the border. It may take us all the way to Fort Lauderdale. I don’t know. And you don’t know that. And the same with the stocks, we don’t know. I didn’t know Tesla was going to what Tesla did last year, I had no idea, but whilst it kept doing what it was doing, we stayed on it for the ride. And only when it turned, did we hop off. And that’s the whole idea of trend following, just hitchhiking, that’s basically all we’re doing.
Christopher Uhl:
It’s so great to hear that from you, because I consider myself a trend follower as well in the same regard that I’m not predicting anything, but if the stock is going up, I might play along too. And then when the stock stops going up, I might just jump off and try a different one instead.
Nick Radge:
Yeah.
Christopher Uhl:
So what would you give, if you were to give one piece of trading advice, or trading wisdom over the last, you said nearly 36 years, what would that be? Could you boil it down to something just basic and simple?
Nick Radge:
I guess the mantra that I use all the time is next thousand trades, that’s my mantra. One trade should not make, or break you. You’ve got to be there. It’s a long-term game. It’s not a short term thing. We see this stuff going on with cryptos, there’s probably some people there thinking they’re pretty smart, I’d say they’re pretty lucky, that’s really all it comes down to. Do that for the next 36 years and we’ll see how smart you are, but if you’ve done it once I’d call you probably lucky. And it’s same with these guys on the GameStop, those kinds of things that happen, you’re just lucky, nothing more than that. Do this over thousands of trades, over years, and then we’ll talk about having straight smarts.
Nick Radge:
So my little mantra that you’ll see on my Twitter handle quite a lot, is next thousand trades. And that means one trade is not going to make or break you. It’s a longterm game. If you do have a loss, Hey, if you’ve got positive expectancy that will come to light in due course, you just have to be there to allow it to happen. And that’s where it really comes down to. So patience, long-term application of a simple strategy, things like that would be my advice.
Christopher Uhl:
Nice. That makes a lot of sense, and it sounds like money management is key to the methods of tradings that you preach. Is that correct?
Nick Radge:
Absolutely. It comes down to cutting the losses, letting the profits run, that’s it, I think my average loss for some of my portfolio is about 0.4 of a percent, very, very small. And that’s really what it comes down to, keeping those losses small. I trade a variety of different portfolios, more conservative ones, that’s where that applies, but I do trade some aggressive ones that are specifically designed to be aggressive. My tradelongterm.com website, which is my US website, that’s an aggressive tech based momentum strategy, that’s the one that made 97%. Now that’s going to give you a bit more of a ride, but it’s designed to be aggressive. It’s designed to have outsize returns.
Nick Radge:
So with that comes a little bit more volatility and a bit more of a ride. So it’s a matter of the individual saying, okay, what’s my risk appetite? Am I going to be able to deal with that? There’s no point having a strategy that makes 97% return if you can’t wear the drawdown that goes with it, it doesn’t matter how good the strategy is. If you can’t handle the pain, then you’re not going to be able to see the gain at the end of the day. So keeping your risk in check is very, very important to be able to travel the journey.
Christopher Uhl:
That makes a ton of sense. Nick, where could we send people to learn more about you?
Nick Radge:
Sure. The easiest place is just through our website, TheCharters.com.au. There’s a contact page there, you’re more than welcome to drop me an email, happy to ask any questions, or you can get me on Twitter @thechartist. So yeah, plenty of words of wisdom. We do a free weekly newsletter on all things systematic trading, if people are interested in that. And as I said, happy to answer any questions should any of your listeners have any.
Christopher Uhl:
Nick, I got to tell you, I love how you boil it down to the simplicity of this, a trader who, well, I’ll say personally, the longer that I’ve traded, the simpler I’ve made things. And so I feel that, that’s not unusual. You start out with every indicator in the world and by the end of the day you’ve just thrown most of them away.
Nick Radge:
Absolutely. We run a high-end mentoring course for systematic trading. And so the clients in that program, they have to design, and build, and implement their own systematic trading system. And we recently had an example of one guy that came in there and his strategy that he designed had about eight entry criteria. And I said, look, that’s all good and well and fine, but now what we’re going to do is we’re going to take each one of those out independently and see what it’s actually adding to the bottom line. And he eventually took six out of those eight out of the strategy. And we came back to the bare bones of what a trend following strategy really is. And look, the reason being is that the more complex your strategy is, the answer to the question what’s wrong with my strategy is more difficult to answer.
Nick Radge:
If you have a basic trend following strategy that goes into drawdown, you should be able to look at the market and see why, okay. If the market’s going sideways and you’re getting chopped, then you can explain the drawdown. It’s when you can’t explain the drawdown, that’s where you’ve got to be worried. So if you’ve got a rampaging bull market, and you’ve got a long equities trend following strategy that’s losing money, then that’s hard to explain why, what’s going on there. So if you can explain why your strategy is in a drawdown, that’s perfectly fine. That’s perfectly normal. There’s nothing wrong with that. So yeah, if the more complex your strategy is, then you’re probably less likely to really understand why it’s working in the first place, or why it’s not working, why it’s in drawdown, what’s going on?
Christopher Uhl:
Yeah, that makes a ton of sense.
