In May 2018 Nick Radge was interviewed Vox Markets CEO Martin Luke for the Moving Averages podcast.
In this new series of podcasts Vox Markets will feature expert market analysis, interviews with top traders & commentators to bring you fresh insights into the world of finance.
In this podcast Nick discusses the way he trades, advice he gives to people who want to start trading and the difference between trading the Australian and US stock markets.
Link Nick Radge mentions in the podcast: Trade Long Term
Nick Radge: Australian Trading Expert, Educator & Author
Intro: Welcome to Moving Averages, a new financial podcast from Vox Markets. This series will feature expert market analysis, interviews with top traders and commentators and much more to bring you fresh insights into the world of finance.
Martin Luke: On the podcast today we have Nick Radge. He's been trading and investing since 1985 and has worked for global investment banks in Sydney, London and Singapore. He was an Associate Director at Macquarie Bank, ran his own hedge fund and now has a global client base where he consults on trading and investing plans. Had a fascinating conversation with him and I hope you enjoy listening to his podcast as much as I enjoyed interviewing him. Nick, welcome.
Nick Radge: Thank you. Thanks for having me, Martin. Great to be here
Martin: Absolute pleasure. So Nick for those who don't know you, do you want to give us a quick sort of CV breakdown?
Nick: Sure, yep. So, I've now been trading for about 33 years. I started literally straight out of school into the financial markets. I fell into it by accident, not something that I wanted to do. I don't have a university degree or anything like that. I basically got fell into a job pushing paper at a stockbroking firm and then kind of started looking at charts and that kind of stuff and following trends and that's really where I started, that was back in 1985. Did the usual, got wiped out in 1987 like every 19 year old fool with no risk management would do but learned my lesson and I’ve been trading ever since and for the first 17 years, I was a futures trader. And I actually finished up running a commodity trading fund and switched that off in 2001 and have been trading equities in Australia and the US ever since then. So, predominantly, a trend following sole trader.
Martin: So did you work as a prop trader at the banks then? Or…
Nick: No, never prop trader. Always trading my own account. I did work for the banks. So I was down on the trading floor of the Sydney Futures Exchange for about four or five years in the – it’d be the same as your short Sterling period, I guess, so the short dated interest rate market down there. But I've always traded equities and futures on my own account. I actually had a stint over in London then, back in the late 90s for HSBC, then went across to Singapore for a couple of years and pretty well full time trading. From Singapore, I opened my own commodity fund; we rolled that into a bank in 2001. So that's kind of my corporate stance but never proprietary trading for either banks or prop companies.
Martin: So, what's your trading style then? And I take it that it’s purely chart trending or…?
Nick: Yeah, that's right. So we're 100 percent technical in nature. We don't look at any fundamentals whatsoever. And 80 percent of my own assets are in trend following style strategies both in Australia and the US. So, around about 4 different styles of trends and we tend to be longer term in nature. We'd hold positions for six to eight months and we don't trade on the short side either, we simply go to cash and all our trading is 100 percent systematic. So, we've developed our own computer algorithms and they tell us exactly what to buy, when to sell, how many shares to buy, when to go to cash, absolutely everything. So it's fully automated and there's not much we actually have to do on a day to day basis. We hold positions, as I've said, for six to eight months and if need be, we'll take a defensive stance just by sitting in cash.
Martin: That’s interesting you say that because you know, in my previous life when I worked on a prop desk, I mean we were sort of 70 percent long, 30 percent short and that was part of our hedging. Our risk management profile was to keep us short. Why did you decide not to have shorts? Especially with charting, I mean most or 99 percent the shorts we used to take on the desk were straight through technicals.
Nick: Right, yeah. Well there’s a couple of reasons. The main reason is personally, I've never found – the way I would look at a mountain is I would need to see the short side trades stand on their own two feet, if you like. Okay so I wouldn't put a short trade on just for a hedge purpose, if you like. I would put a short trade on if I knew I had some kind of a decent edge over the longer term and yes, that would make complete sense. However, personally I have been unable to come up with anything that I’d really be comfortable with trading, you know. Equity markets on the downside are very, very different to equity markets on the upside. You tend to get very swift downward moves. You know, just like we saw in February, very, very quick and also quite a very, very quick recovery. So, if we were to remove the sustained bear market of say, you know the 2008 financial crisis, then, you know stock prices act very, very differently than that most of the time. So, I’ve never really been comfortable with any metrics that I’ve been able to produce on the short side. So it's just easy to go to cash. If I want to put a hedge on, I would do any in the money collar or a break-even Kotler or something like that. And that would kind of hedge me but my systems are reasonably dynamic, especially my Australian system, you know. At the moment, for example where 50 percent in cash and in the U.S, we’re still 100 percent invested over there. But you know if need be, we’ll be out pretty quick smart and that allows us to avoid those situations, you know such as the 2008 financial crisis. We were 100 percent cash by that in June 2008 and we actually sat that way through ‘til February/March 2009, so we missed a significant amount of that downside. And it's just a comfortable thing to do. You know, trading on the short side, when all that volatility is there, it's quite stressful. And I also take the opinion that, look you don't have to be involved all the time you know. I understand the want that people do want to be involved all the time. But at the end of the day when it's absolutely hitting the fan like it was back then, feeding them fire line in cash is actually a pretty comfortable thing to be doing.
Martin: Oh yeah, absolutely. I mean that was one of the issues I had with, sort of, when you’re working for the bank and you know trading their money, you know you have to trade you know. If you’re not trading, you may as well go home. Yes. You know the bank likes to see that business going through cause, you know the bank’s making money. You know, and a lot you know, the leverage and funding and everything else is going through this, so I mean that’s one of the difficulties. I mean our model, a big percentage of our portfolio was Piers Trading anyway, which I can imagine you wouldn't agree with that at all, would you? Wouldn’t be your style.
Nick: Well look, I certainly have investigated Piers Trading, you know. I spent a lot of my time researching and that kind of stuff. But look again I've never really – well I won't say I've never really made a serious attempt at doing it. I'm sure there's definitely something there. But you know I'm just happy with what I'm doing. I'm not trying to be everything to everybody and you know it's like the old question, “Why don't I try crypto currencies?” Well I trade equity so I don't trade cryptocurrency. It's simple as that. You know and it's funny you were saying with where you were working with a prop shop, I used to know a guy that was a prop trader at Society Generale and he was a very successful trader and made a lot of his money in the first 19 months of the year, made most of his budget and the bank wouldn't let him sit out for the last two months and invariably in those last two months, he lost a heck of a lot of it. You know sometimes, it pays to just say, “Right, I’ve made my budget. I’m out.”
Martin: Yeah, I’ve been there. I know that feeling – seeing your bonus disappear. It’s not a great feeling. Great. So listen, let's get back into charting itself. So you know a few years ago, you know I've always been involved with charts. A little bit like your story, I first started off trading Footsie futures at twenty five pounds a point back in the sort of late 90s. That was certainly hair raising enough. And then, you know obviously I think with any futures or FX trading or anything –certainly indices trading – is just too big a market to be able to look at it from a fundamental’s perspective. So obviously technical analysis is the thing you’re going to go for and which of the technicals, I suppose I'm asking you – what do you look for? I mean, do you use Moving Averages? Is it MACD’s? Stochastics? You know, what's your thing? Please don't say Elliott Wave cause I might put the phone down on you.
Nick: So the models that I run currently, we’re basically using momentum. So momentum is just – and we're using relative momentum as well. So what we're doing, example; we'll take the S&P 500, we’ll measure the momentum of all the constituents of the S&P 500 over the last X days. So let's take the last 200 days as an example, we'll measure the rate of change, just simple rate of change over that period of time and then we'll rank them from the strongest to the weakest and then we'll volatility adjust those positions and then we'll buy as many as we can, so at any given time in one of our portfolios, for example we'll have sort of sixteen positions on and then we'll just do that and ride those positions for one month and then we'll repeat that on the first business day of the next month. And that's how we do it basically. We're always in the strongest of the strong stocks. If one of those stocks falls out, we sell it and it gets replaced by another one. If the market itself goes under a certain moving average, let's say, you know a 150 day moving average will deem the market as being bearish and that's not a favorable time to be involved. So we will just go 100 percent to cash straight away. So it's a very robust strategy. We trade several models of that across several different markets and it's very simple you know, very simple, it's very robust. Momentum is now academically, significantly more accepted than what it was even 10 years ago. And it's a true market anomaly. So it works very well. But in terms of actual technicals, there's not much to it. We don't really use RSI or any of those traditional kind of things. It's just simply measuring the momentum over a period of time. We do run some mean reversion style systems. They would only take up about 20 percent of my assets that we put into the market and they can and do use more traditional technical indicators. So for example, one of those models uses Bollinger Band, basically reversion to the main on breakdowns for the lower Bollinger Band as an example. And one of the other ones also uses narrow sides, just looking for an oversold condition in either side. And they would be the two specific kind of technical indicators that we would use on a more common basis with our systems. Discretionary portfolios, which personally I don't trade, but some of our clients do trade, the only indicator that we use is a slow stochastic. And we use that as actually a divergence indicator. You know that would be one of the most potent setups that I would be looking for. If there was one technical setup that I was allowed to trade, that would be a divergence, a type A bullish or bearish divergence and that operates on any kind of timeframe, very powerful setup. It is also very adaptable because you can trade it with the outright instruments or you can also trade options in and around it. So for example, let's say you have a bullish divergence on a stock. So that basically means it's in a downtrend and we're looking for the bounce on the divergence. You can sell a put-spread below that level because the chances of the absolute low breaking are very, very low and trading a put-spread for a new term expiry; you know you've got a lot working for you with that. And conversely, the opposite can be applied as well. So if you find a type A bearish divergence, you can sell a call spread above it and you can build a portfolio of various put-spreads and call-spreads because on a reasonably sized universe, you find quite a few type A bearish and type A bullish divergences going on at the same time. So you know that can be quite a good thing to do.
Martin: Do you look at the VIX index at all?
Nick: I don't really. A lot of my trading mates do but personally I don't. I'm always kind of urged to kind of do that. I've recently been doing a bit of research into other hedging techniques with my [??] portfolio. So that's something that we briefly looked at but to answer your question, no.
Martin: Okay. And your style to me it sounds a bit like sort of Richard Dennis, kind of turtle trading. Would you say it's more along those lines, sort of trend following with sort of parameters around that?
Nick: Yeah absolutely. Absolutely. That's certainly the way we started all the way back in – I mean I started trading the Australian share price index futures which is the same as your Footsie using that last year. This is scary but back in, you know when I started in 1985, 1986, I was trading that using a five and ten day moving average crossover – l
Mark: The Golden Cross
Nick: That’s where I started. It was just the glory days before the 1987 crash. I mean, “Don't confuse brilliance with the bull market” was what I should’ve been told back then. It wasn't hard to be making money on the long side back then, doesn't matter what you were doing.
Martin: So look, I probably read more technical analysis books than I can shake a stick at and I sort of studied, went to the technical alanysts societyand did their exam a few years ago, more years than I can remember now. And it's all very good, you know. In my mind, the technical analysis is a crucial part of trading, although there's a lot of it, there’s a lot of techniques that have – Gann and well, Elliot Waves as I mentioned before, which I think is just complete nonsense and I don’t add any weight. The moral of this, certain people have made huge amounts of money out of it so, good luck to them. What would, you know, if you were talking to a beginner now and you'd be, you know, apart from sort of, you know, I would say it's go and get a copy of the set of Murphy's book you know, “Technical Analysis of Financial Markets” and read that from cover to cover several times. But is there anything that you would advise somebody to do?
Nick: I would advise them to learn how to trade because that's very different to technical analysis, you know. Technical analysis is simply a tool. It's like you and I discussing what kind of a car we drive. You know at the end of the day it doesn't matter what kind of car you drive. It's designed to get you from A to B. That's the goal. And the goal with trading is to make money. Now how you do that is what vehicle or tools you use to do that. It’s completely up to you and will probably be dictated by your personality and as you quite rightly said, you know, you think that Elliot Wave is fairy dust and there's plenty of other people that would disagree with that. Same with Gann, I mean, you know I don't have too much time for Gann but I'm not going to stand on a pedestal and say momentum is the only way to make money because I know and I understand that everybody's personality is different and dictates the way they go to trade. The most important thing is that you have to be comfortable with what you're doing because if you're not comfortable with what you're doing then you're not going to be able to pull the trigger and you’re especially not going to be able to pull a trigger when things get tough and things will get tough, regardless of how you try. So the first thing I'd say is you've actually got to learn to trade. You actually have to learn about positive expectancy and how to create that because that is not created by using a Bollinger Band or using an RSI or using a slow stochastic. That does not create a positive expectancy. So I would suggest the first thing to do is understand and learn how to trade and you know, you say you got a lot of books, well that's a very common theme. I used to have a client who was a doctor I think, you know he had 250 plus trading books. They were like little trophies that sat on his shelf and he'd ring me, “I bought this new book. Have you read it?” I’m just like, “Well, I don’t think I need to ready anymore books. I kind of know what I need to know and that's the important thing.” So when someone comes to me and says, “Look Nick, you know I've done six courses and I've done this $25,000 course and I've got 200 trading books and I still can't make money.” My answer is, “Well, you're missing the important point here. You need to learn how to trade, you need to learn how to create a positive expectancy.” And once you've got that well, you know it's a bit of an aha moment and a light comes on and away you go. But that does not revolve around trading books and learning different methods. That's, I think, where everyone falls over. They think there's some secret. They think there's some secret indicator. Look I'm going through that. I’m a mad [??] fishermen and I haven't been doing it for that long and I'm still of the opinion and I'm sure there's a lure, or there's a piece of bait or there's a certain hook or a reel or something that's going to make a big difference. But it's not, you know. It's learning how to fish properly and learning the tides and when the fish bite and where the fish hold and where the fish die and it's just like trading. So you've got to learn about positive expectancy, first and foremost, and how to create that and I personally believe the easiest way to create a positive expectancy is through trend writing. You know, markets have to trend. They can't not trend. They trend on all sorts of different timeframes as well. From, you know five minute charge ups to dailies and weeklies and even monthlies, they trend. And the whole basis of creating a positive expectancy with trend following is to simply cut your losses and let your profits run. And if you do it for long enough, you will make money. And it doesn't have to be any more difficult than that but unfortunately people think that's too simple. You know, all that sounds too simple. These hedge funds and whatever have gotta be doing something dramatically more, you know, different than that and something more scientific than that but that's really what it comes down to.
Martin: Absolutely. Would you say there's a big difference then between - obviously you said earlier trading in Australia and New York or America – is it a big difference when it’s two markets?
Nick: Yeah, definitely big difference, especially since 2008. The Australian market has become significantly more illiquid. I think a lot of people have left the market. The Australian market was so different and that's because we have very high dividends over here. So share prices tend to be a lot lower and a lot more diluted than what they are in the US. The other major difference is opportunity. You know the US has a massive market. There's a heap of opportunities out there. You know, what is it? 5000, 6000 different stocks? You know in Australia, if you are trading any size, you're going to be struggling to go really be on to the first top 200 stocks. You know it starts to become a little bit more illiquid and once you go past the top 500, you know it starts to become very, very difficult especially if you're trading, you know, a decent amount of money. So the US opportunity, liquidity are two major important facets that I really like over there, that's for sure.
Martin: Okay great. You've recently launched a new business as well. Do you want to tell us a little bit about that?
Nick: Sure. We just launched a new business which is called “Trade Long Term.” You can find it at tradelongterm.com and it is – well, it’s free registration and free access to my momentum watch list. So using our proprietary algorithms, we actually list the top 50 highest momentum S&P 500 stocks and that becomes a working list, if you like, of looking for opportunities and there's a couple of simple rules with that. Any of those stocks for example, within a couple of ST2 the 52 week highs, they tend to be the stocks that will continue if the broader market trades higher and those that are reasonably close to their 52 week low, as an example, that appear on that list, well they tend to be breaking at a nice basing formation so they may be starting a new trend higher. Now that's not a magic list of stocks, you don’t just go buy them from the 5000 stocks in the US, well unless you want to flip through 5000 charts every second day, this gives you a very good targeted list of stocks that you can watch. I know for example, certain hedge funds – we have a hedge fund client here in Australia. There are about 15 traders working for them and they just want to know where the action is happening, where the momentum is and they’ll just screen the whole market once a week, looking for the stocks that are on the move. And also in that service is access to my aggressive U.S. strategy. Again, that's a momentum strategy, trades just once a month and it's a very concentrated strategy. We only have five positions. And that's my aggressive strategy which I trade. So people can watch what goes on there. So yeah that's pretty well just in the U.S. market and that's predominantly trading, you know, U.S. stocks to those U.S. investors and European investors. A lot of our Australian clients will try the US market as well. Diversification is a great tool. And even though that's an aggressive portfolio, it's worthwhile having a small percentage of your total portfolio allocated to something that's a little more aggressive.
Martin: That’s interesting. OK so can people follow you on Twitter or Instagram as well?
Nick: Yeah, you can follow me on Twitter, that's probably the best place and that's @thechartist, T-H-E-C-H-A-R-T-I-S-T, thechartist.
Martin: Great stuff. And have you got – what’s your - don't go into specific stocks because this isn't about sort of tipping anything but what's your viewpoint on the markets at the moment?
Nick: Equity markets are in very neat. We're going to continue to see some sideways chop. I believe that there's some very good buying demand coming into the U.S. markets that around that 25/50 basis, the S&P 500, just a little bit lower than where we are now and it's supporting the market. We might take down to those February lows again. But over the next decade, I'm super bullish. I think we are in a secular bull market in the US. I know there's a lot of people saying this bull market has run its course and it's getting very tired but I disagree. I think we've got another 10 year’s upside in this market. I think we have a long way to run. And you know, that's why I’m specifically positioned aggressively into the U.S. market myself and I’m very positive. Don't get me wrong, there's going to be some setbacks along the way but I certainly believe we’re seeing another period of time like we saw between 1982 and kind of 1998, that period there. And there were certainly some negative periods during that obviously ‘87 and then you had the ’91, ’92, ‘93 bear market in there as well. But, bigger picture, very, very bullish, the U.S. market, that's for sure and that will most likely drag global markets up as well with it.
Martin: Yeah, I tend to agree with you. I mean the markets had so many excuses to go down and it just hasn't. It’s just kept on sort of motoring up. So, yeah I think certainly for the next 12 to 24 months, we're looking at sort of an upward momentum.
Nick: Yeah. Yeah, absolutely. Yeah
Martin: Well it's been great speaking to you. Thank you very much for coming on the Vox Markets Podcast and hopefully I’ll catch up with you again soon.
Nick: All right then, Martin. Thank you very much for having me on.
Nothing in this podcast is intended as investment advice and the people in this podcast may hold positions in the stocks they talk about. Do not buy anything based solely on a tip or recommendation. Please do your own research.