Trading Interviews

Brent Penfold

By the time I exited the position it had cost the bank over a million dollars. Now although I wasn’t solely responsible for the position, I still felt sick in the stomach for the whole weekend!

Background Info / Introduction

Q. Can you please start by making a few comments about yourself to include your trading style and what products you trade, your experience in years, and what other things of a trading nature take your time on a regular basis (e.g. writing trading books/contributing to forums/coaching/speaking engagements)?

I’m a short-term mechanical trader and I only trade index futures – the SPI, Nikkei, Taiwan, Hang Seng, Dax, Ftse, Mini Nasdaq and E-Mini SP500 contracts.

I’ve been involved with the markets since December 1983 when I joined Bank America as a trainee dealer.

To supplement my trading income I run a web site where I publish a daily newsletter IndexALERT™ and I make available a mechanical model called IndexTrader™. Because I’m a mechanical trader I find I’m usually finished each day by 9:30 am, even after placing all my own orders, publishing IndexALERT™ and supporting my IndexTrader™ clients. As a result I still have plenty of time during the day to fill in, which I usually do researching. In addition I’ve written a book ‘Trading the SPI’ which has become a best seller for Wrightbooks (John Wiley) and I present at the Traders and Investors Expo around Australia, and recently I presented at the Malaysian and Singapore Trading Expos as well.

Q. It is fair to say that most people are initially attracted to trading by money. Is this what initially attracted you or was it something else?

Of course. I was 21 when I joined Bank America on a 3-month work experience job before my final year of university. During December 1983 I witness first hand on the money market desk the speculation going on the Paul Keating, the then Federal Treasurer, would float the Australian dollar. In those days the RBA had to sell Australian dollars to anyone who put their hand up and of course those new owners of Australian Dollars had to invest their new money in the short-term money market, which naturally drove down interest trades and present profits all round. During that week the money market desk made over a million dollars, when a million dollars was worth something. Well as a 21 year old you can imagine how impressionable the whole experience was. Well from that first week I was hooked on the markets.

Q. What are some of your good and bad memories of your early trading days?

Well the good times were due to the people I worked with. I was one of the youngest in Treasury and to me the whole area was like going to work each day in a three ring circus with each desk, Cash, Securities and FX, sledging each other and everyone else who walked in. It was a lot of fun and I met some really nice and professional people who have become super successful in the markets today.

The bad memories was holding a huge bank bill futures position over a weekend following Paul Keating’s infamous Banana Republic comment. By the time I exited the position it had cost the bank over a million dollars. Now although I wasn’t solely responsible for the position, I still felt sick in the stomach for the whole weekend!

Q. How would you describe a couple of your biggest mistakes in your early trading days?

Well there are many mistakes I made but the biggest, which I repeated a number of times as I blew up twice and almost a third time, was poor money management. Taking too large a risk resulted over trading my account and giving me a statistical risk-of-ruin over zero percent which meant I had a gold plate guarantee of going bust (as it was only a matter of time) but I didn’t know it! Of course I had no idea of risk-of-ruin back then.

Q. Looking back to the beginning, in the face of the usual challenges, what motivated or inspired you to learn to trade well?

Enjoyment of the markets and making money.

Q. On reflection, was there a single moment in time or situation that ultimately had the greatest influence on your trading?

Yes. Two.

The first moment occurred when I was a discretionary trader following Elliot Wave and I had just incurred another loss. I rang up to chat with my broker and got his partner Geoff Morgan on the phone. As a passing comment before requesting I speak with my broker I asked Geoff whether he knew when the SPI was heading because obviously I didn’t! Well Geoff calmly remarked that the SPI had recorded three higher closes and since it had reached its median move to the upside he’d be reluctant to buy it but rather look for opportunities to sell it. Well that turned a bright light bulb on for me and introduced me to the world of statistical probabilities based on short term patterns. Since then I have been a mechanical pattern trader.

Secondly was attending Russell Sand’s Turtle seminar, and it was not because I learnt the legendary Turtle System. It was at the seminar that I really learnt the significant of money management. Before then I was aware of it, but had not really comprehend its importance. Attending that seminar was another light bulb moment! Now having said that I would not recommend the seminar to small private traders as the Turtle System is only applicable to people trading large accounts over $500,000. Trending trading is all about throw the widest net over as many markets as possible and experiencing drawdowns for the majority of time until you snag one or two run away markets like oil and gold in 2005/6. And believe me, you need a large account to suffer the pain of drawdowns. In addition there are far more books available today on money management then when I did the course.

Read more from Brent in the Trading Plan section …

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