I first met Greg Morris at a trading conference in Las Vegas, USA. I listened to his presentation at that conference and everything he said made so much sense. He spoke with such wisdom that obviously came with decades of experience in financial markets.
From 1971 to 1977, Greg was a Navy F-4 fighter pilot aboard USS Independence who was selected for, and graduated from, the Navy Fighter Weapons School known as Top Gun.
In his years in the market, Greg has done everything from appearing on numerous financial TV channels, written books, been published in a variety of magazines and journals, and been involved in businesses providing useful tools to traders.
Greg presently oversees the management of over $7 billion in assets in two mutual funds, separate accounts, and 401k plans.
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?
I use 100% technical because technical analysis provides many critical tools for successful trading and investing. One is discipline, without discipline any approach will fail. I think discipline is just part of good technical analysis. Technical analysis also closes the gap between analysis and action. This is a giant gap that many never close.
Removal of emotional decision making is also a benefit of the technical side. Following a technical model with rules will help one from making foolish emotional decisions. Narrowing down technical analysis, I am just a trend follower. In other words, not a market timer, but one who lets the market show me what it is doing and then I react to it.
Q. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)?
Somewhere in the middle, say 5 – 6. I use a weight of the evidence approach. This is a multi-indicator basket approach using price, breadth, and relative strength in an attempt to measure the market’s trend. Simply said, is the market in an uptrend or not.
Then I have a simple set of rules designed to tell me how to trade that market measurement information. These rules provide buy requirements, stop loss levels, and equity exposure. Finally, I have the discipline to follow the process with confidence. These three components of the model are like a three-legged stool – remove one leg and it falls over.
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? How does someone begin to develop a trading strategy and setting up trading rules?
Each person will have a different approach based upon personality, goals, and experience. First they need to utilize an approach or methodology that they actually believe in. You cannot trade something that you have doubts about.
Second, they need to ensure it is not overly complicated. Complicated systems have a great tendency to fail and fail badly. Occam’s Razor is a good example. He stated hundreds of years ago that if given two systems, the simpler one is probably the better one. I strongly believe that.
Also, ALWAYS know what your stop loss levels are and NEVER violate them. If you have a sound system based upon reasonable principles and reasonable expectations, you must then have confidence to believe in it and not deviate from it at its first sign of weakness. All systems have periods of underperformance. Learn to live with it.
Q. Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them?
As a trend follower, a good low volatility up trend just cannot make life any better (if long only). Winning by not losing is our goal and how we believe is the best way to manage money over the long term. Most people can accept underperformance easier than they can accept losses. This is known as loss aversion, which makes them close out good trades too early because they want to lock in that profit.
The other thing I have noticed over the years is that many can accept losses in a bear market if all their friends and neighbors are also losing money. They think they are part of the herd and this gives them some consolation. How sad is that? On the other side of the coin, if their friends and neighbors are up for the year and they are not up as much, they get upset.
Remember, relative performance is a marketing concept, you cannot live on it and you cannot retire on it.
Trading in a Nutshell
It is easy to understand and everything you need to know about trading is logically set out. It is a book for everyone, from the newbie through to the more experienced trader who wants a revision and an annual ‘tune up’. Read full review
The book is an excellent resource, especially if you are a newbie trader. What I like most about this book is the easy to understand manner in which it is written. It covers all the essential material for a newbie to understand what he needs to succeed at trading.
No matter which stage of the learning curve a trader’s at, Trading in a Nutshell resonated some very meaningful principles that any trader should adhere to.
A concise, well-written read with smart tips. This is an essential book for every trader’s bookshelf. I recommend Trading in a Nutshell to all of my trader clients — from Wall Street and beyond