I had been a successful tertiary student, and run a successful legal practice, so I reasoned trading would be a snap. Of course, my success in other areas would not ensure success in trading.
A veteran fund manager, author and educator, Ray Barros has been conducting investment seminars since 1990 in Singapore, Sydney, Shanghai, Tokyo, Taiwan, London, New York and Bombay for Financial majors from the Singapore Stock Exchange to the Sydney Futures Exchange and individuals.
He has also been sponsored by exchanges to host web seminars with organizations like CME and the CBOT in the U.S. After coming up with his own winning Barrometrics trading strategy and penning his 2 books, The Nature of Trends and the Ray Wave, his market analyses are regularly sought after by leading media from the Singapore Business Times to CNBC and CNA.
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 have a discretionary trading style using Barros Swings, the Ray Wave, and Market Profile. In a sense the tools are an evolution of Richard Wyckoff’s ideas – they provide structure by which to assess present tense information to assess whether the market is likely to continue or change its current line of least resistance.
I graduated from the Law Faculty, Uni of Sydney 1960 and practiced as a sole practitioner to 1982. I placed my first trade in the mid-1970 but began trading on a regular basis in 1977. Consistent success on an annual basis did not come until 1986.
I trade stocks, FX and Futures (E-minis, Gold, T-Bonds and Soybeans).
Other activities: I write articles, have written a couple of books (The Nature of Trends and the Ray Wave) and run trading seminars (personal and webinars) in mainly S-E Asia.
I have 4 seminars:
- Basic – BarroMetrics
- Barros Swings
- The Ray Wave and
- Market Profile
I also run a mentor program for a maximum of 5 students at any one time.
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?
I was attracted by the freedom that trading provides and the fact that with trading, success or failure lies squarely on our own shoulders.
Q What are some of your good and bad memories of your early trading days?
Good – an unfortunate start where I made enough money in 2 weeks of day-trading to buy my wife a fur coat.
I say 'unfortunate' because I learnt in that period that success was based on ‘holding on to losing trades’, ‘that win rate was the most important factor in successful trading’ and many other limiting beliefs. In short I confused luck for skill.
All other 'bad memories' were a result of the limiting beliefs. Some time after my initial experience. I had a week trading Gold where everything I touched was gold: not a single losing trade! Day-trading one contract, I made US$25k.
The following week, I gave it all back and more!
Q How would you describe a couple of your biggest mistakes in your early trading days?
Hubris would top the list. I had been a successful tertiary student, and run a successful legal practice, so I reasoned trading would be a snap. Of course, my success in other areas would not ensure success in trading.
Q Looking back to the beginning, in the face of the usual challenges, what motivated or inspired you to learn to trade well?
Self-belief. I had always been able to achieve my goals once I had set them – I had always been prepared to pay the necessary cost.
But trading needed the support of my wife who not only provided emotional support but the necessary financial support to see me through the tough years.
Q On reflection, was there a single moment in time or situation that ultimately had the greatest influence on your trading?
The day I said to Chris (my wife), "I want to Chicago. There’s a new theory taught by Peter Steidlmayer. I think it may help me".
She said, "yes" – at a time that it meant we’d be living on A$100 a month after the trip had been for.
Pete formed the other part of my success story. He taught me that trading is a probability game – the aim is to make money over a series of trades; the aim is not have a high rate, to hit a home run on each trade, or to take all the market has to offer for any one trade.
In essence he taught me that:
- The single most important equation must be positive over a large samples size and he taught me that the equation is
- (Average $ Win x Win Rate) – (Average $ Loss x Loss Rate) = Net positive
This equation is important because it emphasizes a number of important truths:
Speaking about averages underlies the importance of results over time.
The equation places the emphasis on what we can control: the relationship between our entries and exits. Given that the market is a probability game, the Win Rate is far less under our control than the difference between the Avg$Win and Avg$Loss.
Q We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both? Briefly, why?
My conscious decision making process is technical: because it suits my visual-kinesthetic nature.
But because I read an immense of material, I form subconscious long-range scenarios that result in 'feelings' about the technical picture. When the technical picture and my feelings are in harmony, I will take my trades. If my feelings clash with the technical picture, I tend to skip a trade.
Q Do you have written trading plan detailing your approach? How would you describe it (e.g. long/short, detailed/broad, complete/work in progress)?
Yes – complete and relatively detailed.
Q On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)? Do you have any comments on the simplicity or otherwise of them?
This is a difficult question because 'simple' and 'complex' are so subjective. Let’s put this way, apart from my long-range scenarios, I consider the impact of two higher timeframes on the trend of my timeframe, the trend of my timeframe to decide my strategy. Once I have that, I then determine if I have low risk entry and the necessary risk reward. Finally I determine the risk management parameters.
Q Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation?
First commit to writing a plan. Then decide if you are writing a mechanical plan or a discretionary plan. Learn the differences between the two. Then find a mentor to guide you in the writing of the plan.
Q Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them?
I have tools to ensure I maintain my equilibrium: meditation, bio-feedback, journaling and ‘taking a break’ after consecutive wins or losses.
Q Isabelle, 36 is a mother of two children and stays at home with them during the day. Her husband works full time and his salary meets all their financial obligations comfortably. Isabelle arranges an appointment with you to discuss trading – she has never traded before but knows you can help her get started with some initial guidance. What will be the 3 most important things you tell her in the appointment?
- Determine her outcomes – why does she want to trade to determine if trading will meet her outcomes.
- Determine if she understands the commitment she needs to make to succeed; for example is she aware that 80% to 90% loss money?
- Determine if she has the time to commit to her success.
Q Jack, 58 is a very successful business owner who wants to start trading as he slowly moves into retirement and away from work. He has arranged a similar appointment to Isabelle – would your advice to him be identical to Isabelle’s or different?
Q Is trading as difficult as many people appear to make it seem?
Well trading is easy in that the steps to success are well laid out; it’s difficult in that the steps we need to take our contrary to human nature. For example, to succeed we need to accept that trading is a probability game; but human nature is uncomfortable with ambiguity and yearns for certainty.
Q What are the 5 most important character traits of successful traders? Please feel free to briefly explain them.
- Independence (of our decisions): we succeed based on our own judgments.
Q Trading can be a very solitary existence – especially in the early days when you are learning, and often feel as though you have no idea what you are doing. Do you find trading a lonely experience? Does this sit well with you? If not, how do you deal with the loneliness?
Yes trading is lonely. I manage it by teaching and increasing the range of my social contacts that way
Q What would be or has been your most significant weakness in trading? Have you learned to overcome it or do you continue to work on it?
My greatest strength is my greatest weakness: I have a natural feel for market direction. But when I take a trade without defining the exit conditions, I inevitably lose more money than I should.
I manage it – but that is not to say I have mastered it. You could liken it to a reformed alcoholic: he is always a 'recovering alcoholic'.
Q Assuming you are now consistently profitable, do you still have times when you experience self doubt over your ability to trade? If yes, how does this make you feel and how do you overcome it?
Whenever I have self-doubts, I take time off trading.
Q Ideally, we would like to be emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions? Do you get very emotional at times?
I don’t believe being emotionless is desirable even if possible. Modern neurologists like Antonio D’Amasio, show that humans make the best decisions with their emotions; the trick is to manage them and not let them hijack our reason.
I manage my emotions because I have almost total self-trust to make the best decision possible in the circumstance. This allows me to focus on the information the market is providing. If the market does something other than my preferred scenario, I usually have contingent plans. In this regard, I find the ideas of Scenario Planning very useful.
Q If you experience a large profitable trade, do you reward yourself in any way?
I reward my self based on monthly and quarterly benchmarks. A windfall trade usually means I take a break from trading – to ensure my now grossly inflated ego does not lead to dollar damage (grin).
Q In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them?
All my lessons were big – I leant them by losing money and slowly learning from my mistakes.
Q To finish off, if you were to start trading all over again now, what would you do differently to what you did originally?
I’d start with a mentor and take a lead from him.