Jeff Mills
Submitted by truckman:
What’s your typical monthly or yearly return? How much capital do you think it would take to have a good chance to trade stocks (not necessarily day trade) full-time, assuming you have a solid trading approach?
Jeff Mills:
Naturally, typical monthly or yearly returns depends on the year. My best year (which was extremely unusual) was around 150% My worst year was a loss of about 15% On average, I get about 40-50% I know it’s not stellar like some traders I hear about, but hey, it keeps me off the streets during the day. I believe a good starting amount of capital to trade stocks is around $10,000. I know this may seem like a lot to some people, but remember that you should only risk a limited amount of the money you have on each trade. Trying to start at $1000 and taking huge risks will wipe you out.
Submitted by 2kTrader:
Jeff, I’ve been trading equities exclusively. I would like to dip my toe in the futures pool. Is there one I can focus my learning on that will be a good gateway into other futures trading. Thanks.
Jeff Mills:
I’d advise caution. Futures trading is far different from equities trading. I know that sounds stupid, but make sure you know what you’ve doing before you enter the futures arena. With that said, I tend to like currencies. Being a technical trader, they just seem to “act more proper” than other futures. I would definitely paper trade the first year, meaning pretending to take the trades you would have traded and see how you do. Be sure to add slippage, as you will never get in and out at the price you want.
Submitted by Trial User:
How do economic indicators and or psycological events affect trading systems? For example, I follow a system that has worked well for a year and now for the first time it’s giving whipsaw results and I think it has to do with that every one is on high alert watching intrest rates.
Jeff Mills:
Here’s going to be a controversial answer. I don’t care what the market is doing, as long as the stock is technically acting perfect. Remember, I’m a systems trader, so an individual stock will be flagged if it matches the entry conditions of a system. If the system is a short system, and we’re in the middle of a ragin bull market, I’ll go short. This happened some time ago on IBM. The market was raging up and I successfully puts and made a profit. I’m not saying it’s always wise to constantly go against the S&P, but if the system indicator a contrary position, go with it.
Submitted by erich:
How do you determine when to exit a trade?
Jeff Mills:
I exit trades based on several indicators. The Revised Gann Trend indicator is a great one, since it allows the market to move without immediately taking out your profits. I also find simple trailing stop losses to work well. Typically, I want the financial instrument to move 1% before it triggers a trailing stop of about 7-8%. Also, if a high relative strength of delta relative strength stock starts to fall, it’s time to bail. Finally, I always have a hard stop of at least 7%, most ofter 5%
Submitted by bobglt:
Why do you think most traders fail?
Jeff Mills:
I donÃt know about most traders, but most system traders fail because the donÃt follow the rules of their systems. They suddenly feel as if they know the market better than their system. I must admit, itÃs very tempting. I was recently in a trade that triggered a stop at 60.5 after I had a modest profit. I knew the trade was going to go higher (I was long), but I exited the trade anyway. Sure enough, the trade went higher. Today it closed at 64.75, and it looks as if itÃs going higher. It happens. Life is bad, until you later have the same circumstances, you exit the trade, and then the trade tanks. Then life is good. (And no, I’m not a manic depressive)
Submitted by dano:
Can The RS Scan on the Stocks page be used for Futures, and if not, is there any plan to add this feature to the futures page?
Jeff Mills:
The RS and Delta RS scans can be used on both. On trade-hard, Investigator uses a 250 day (roughly 1 year) RS. Most of the futures traders (and short term stock traders) who use Investigator use a 25 day RS to catch quicker moves. As an aside, one tricky thing about Futures is when you are back testing them or creating the RS and DRS values you need to be aware of the minimum tick value for each future tested so you get accurate testing results. Investigator handles this by having a Futures lookup table for each future. Currently, there are no plans to add this feature to the future page, but who knows?
Submitted by carl12:
In your interview, you say you’re 100% systematic. Have you ever traded on a discretionary basis (or combined discretion with your systems)?
Jeff Mills:
No.
Submitted by aston7:
Jeff–What time frame do you like to operate on? How many trades does one of your (typical) systems trigger per week?
Jeff Mills:
I personally like trades that occur within two to three months at the most, simply because that’s what I feel comfortable with, but this brings up an interesting point. There are all types of systems with all types of characteristics. The systems you trade must be based on your own personality. For example, I know one trader who trades a system that is only profitable about 20% of the time; however, his average profit is 50% and his average loss is 7%. Is this a good system? Yes. Would I trade it? No, I donÃt like losing 4 out of 5 times. In answer to your second question, typically I get at most 10 systems to trade a week. Successful systems are rare, but they are better than trading often with heavy losses.
Submitted by Moderator:
Welcome to the tradingmarkets.COM Live Forum, featuring Jeff Mills.
Jeff Mills, 36, is a professional trader active in stock, stock options, and futures. He began trading in 1987 and made it a full-time career in 1992. After graduating from college in 1985, Jeff applied his economics and computer science background to researching existing trading literature and writing his own programs to test the ideas he came across (a long-time friend of hedge fund manager Mark Boucher, Mills helped test some of Boucher’s ideas). “I would read books by so-called experts and test their ideas and see whether these things worked or not,” he says. “I found about 90% of the time their ideas didn’t work; during certain market conditions they totally break down. What you can do with about 10% of their work, though, is add some kind of longer-term or more intermediate term indicator to bolster their approaches, and you might actually get something that could make you money.” Mills has developed well over 100 trading systems (he currently monitors 120 to 130 of them every day), and he constantly researches and tests new ideas. Many of his ideas about trading are reflected in the software he developed, Investigator, the relative strength search function of which is included in tradingmarkets.COM. He trades his own account exclusively. Jeff will start out the forum answering questions about the characteristics of the best trading ideas he has come across in his career. To ask a question, simply type it in and hit the “Submit Question” bar–that’s all there is to it. You also can create a short subject heading for your question in the title space (it helps if you do). Past questions appear in the left-hand portion of your screen for easy browsing. This is a moderated forum, so we ask that you respect the other guests and our featured speaker. We try to get as many questions as we can, so please be patient. Shortly after the forum is completed, it will be archived and available for review. If you haven’t already, read Jeff’s interview in the Trader Interview section.
Submitted by petpieve:
I am selling puts and doing very well. I think I am doing well because I keep them a short time and take the profit of a bird in the hand.
If The stock is 5 to 10 points above my strike price, should I be holding out longer and waiting for expiration? If I should, I know a stock can get put to you at any time, but when is the most likly time it will happen? I usually sell between 2 and 10 contracts.
Jeff Mills:
First off, if you’re doing very well, don’t change, no matter what anyone tells you. Your question is a difficult one for me to answer because you are asking for subjective answer. I will exit my option positions when the stop on the underlying security is triggered. So I can’t really help you much, but try keeping your current strategy and trading your new one on paper, once again making sure you put in slippage.
Submitted by billo:
When you talk about futures trading being “different,” are you mostly talking about leverage? For technical traders, aren’t patterns just patterns–no matter what market you’re watching?
Jeff Mills:
I’m referring to risk. As you’ve said, bar patterns are bar patterns no matter what market you are watching. With futures, those limit days can kill you. Granted equities can drop overnight by over 30%, but that’s rare. P.S. The thing I love about options is you know up front how much you are going to lose, if you lose.
Submitted by Moderator:
Submitted by jeffd:
What trading or market books do you think would be helpful for someone interested in technical systems>
Jeff Mills:
Edwards and Magee is the Bible. Granted, it’s old and outdated since the patterns are subjective, but it is a great start to get you thinking technically. Other books include any books on Bar, Candlestick, and Point-And-figure patterns. Unfortunately, i don’t have any of them in front of me, but look for them at places like Trader’s Press. Also, I would recommend any course offered by Mark Boucher. (No, I’m not getting paid anything from Mark) Besides the course offered by his Investment Research Associates, I’ve noticed he has a course on the site this summer. I’d definitely check it out.
Submitted by billo:
As far as risk/reward goes, do you consciously combine different trading systems to “smooth” out your performance…like combining systems that typically have drawdowns at different times?
Thanks
Jeff Mills:
No. Each system is independent of each other and works over all market conditions. Trying to combine different systems to eliminate downdraws sound a lot to me like adding more money to a bad trade in order to break even.
Submitted by Moderator:
Jeff, what are the basic trading ideas you see repeated in successful trading systems?
Jeff Mills:
A successful system is one that keeps in mind the market action and the forces of supply and demand. If youÃre long, make sure there is some demand for the financial instrument by making sure there is an upward trend. You can determine this by using longer term trend defining indicators, such as (Delta) Relative Strength or the Gann Trend indicator. A typical system will also try to enter during a slight pullback against the trend as supply for the instrument becomes available for short periods of time. This can be measured by intermediate indicators, such as volume, on-balance volume, or stochastics. Finally, specific entry points are determined by some bar, candlestick, or Point-And-Figure pattern.
Submitted by chasm:
Jeff–
Do you ever get out of the markets in extreme volatility (maybe like last October?) or if there’s big news coming out?
Jeff Mills:
No. I do whatever the system says to do. Volatility in a system can be measured using historical volatility as an indicator. Sometimes you want the system to be volatile. I do exit the market for about three month every two or three years just to keep sane.
Submitted by Moderator:
This concludes our Live Forum. Thanks for taking part, and thanks to Jeff for his insights. Come back next Thursday, June 17, for our next forum.
This forum will be archived shortly for easy review.
Submitted by philrock:
Where does money management/risk control fit into your trading strategies?
Jeff Mills:
They are integral parts. First, on the money management part, only risk an amount of money that you will feel comfortable losing. This helps keep emotions out of your trading decisions. I never bet more than 5% of my trading capital on one trade, and even then, itÃs on a system with a high probability of success. Also, every system must have some stop loss technique associated with it. These techniques should always tell you when to exit a losing or winning trade. This also limits risk (unless your caught in limit day move in futures). Finally, I believe you should always have what I call a hard stop, one that you will use to exit a losing trade, regardless of what other stop techniques you use.
Submitted by johna:
Jeff–
I’ve used the RS scan on the site and it works great. What are the Delta relative strength and Gann indicators you talk about in question #1? Thanks.
Jeff Mills:
I’m glad you like the Relative Strength scan. Delta Relative Strengh is a scan that allows you to find out which stocks are moving up or down the Reltive Strength lists. For example, a stock (or future), with a high Delta RS would have gone up the RS lists the past four weeks with values such as 30, 40, 50, 60. A low DRS stock would have gone from, say 90 to 80 to 70 to 60. By seeing the high DRS stocks, you can see the future RS 90’s. I’m sorry, but the Gann Trend indicator is too long to explain. Basically, it allows you on entry conditions to identify the trend of a stock, and on exits, it it a great stop loss technique
Submitted by ken:
What kinds of bar patterns are you looking at? Are they traditional things like key reversals or spkies or are they unique patterns you’ve identified?
Jeff Mills:
Both. I look for short term patterns that consist of typically three or four bars, or I look at longer term patterns, such as double tops and triple bottoms. The key to both types of pattrns is to make sure they are mechanically defined. If you give ten traders a chart and ask them to find double bottoms, you’re going to get ten different answers. Edwards and Magee drove me nuts until I programmed their patterns in Investigator.
Submitted by traderx21:
How do you control risk on individual trades?
Jeff Mills:
Each system has an initial stop loss associated with it based on the exit condition you use when youÃve back tested the system. For example, if you like a system that uses an exit technique such as a simple trailing stop loss which moves your stop 5% off whatever the highest high is after youÃve entered a trade, the initial value of the stop loss in this case would be the high of todayÃs bar minus 5%. You’ve just controlled your risk