Tim Mulholland: Passion For The Markets

Tim Mulholland:
I got into the business probably like thousands of
others. I studied finance in college (in an industrial town in Ohio) and made a
field trip to the Chicago Board of Trade with the finance club. It was my first trip to Chicago
and I fell in love with the city. When I saw the exchange floor with all of the
colored jackets and the energy that I felt, it magnetized
me, I guess. I made up my mind at that point, when I was 22 years old, that this was what I
wanted to do. When I graduated from college,
I moved up here (to Chicago) and took a job — any one
that I could get in the industry. Actually, I took a lesser-paying job because I had a
job offer from a bank that was higher paying — but I took a job at the Chicago Board of Trade for lower
money. My father
wondered if I had rocks in my head. I started from the back office. That was 22 years ago.

Wightman:
OK. What all do
you trade these days?

Mulholland:
Primarily the financials. I concentrate
primarily on the interest rate products, the eurodollars, bonds… that’s
actually where my real background came from. I didn’t start
trading S&Ps until six or seven years ago. At one point I traded as a local on
the bond pit. That wasn’t real successful but out of that failure…maybe we
should come back to that. Failure in the bond pit was really what launched me
into what I ended up doing. So I think that’s one message in this
business. Failure is not the end all. In fact, it should be viewed
as a learning experience and the more you can do that, the more success you’ll
have.

Wightman:
Let’s talk about that experience in the bond pit and
what happened.

Mulholland:
Basically, it was 1986 and I remember
saving up all the money that I could to realize my dream of being a local on the
bond pit. You know, I was going to be the next Charlie D. That was just when Tom Baldwin
became the big figure in bonds, but the late Charlie D. was probably the real perennial bond
trader at the time. So I was going to be like that.

I went into the
bond pit and I remember that I would try to guess where the market was going. That’s
not the way the guys in the
pit trade. It may sound counterintuitive but basically what the guys in the pit
do is they provide the function of liquidity and they facilitate trade. What you want is the
edge. So the more opinion you have, the more it hurts you in a pit
mentality. My problem in the pit is I was trying to speculate. I remember one of
my sponsors was looking at my cards one day and he said, “You bought 5 and you
mean you couldn’t get out until even?” (Which means I lost 5 ticks.) He said, “You don’t need a
membership to speculate.” (Laughs) Those were true words.

Anyway, what
happened in the pits is that I was on limited
means and I lost money. In fact, I was in debt more money than I had ever made in a single
year. That actually told me I had to do something different — still in the
business, no matter how bad things
got, I never doubted that this business was really my calling, so to
speak. Nonetheless, I ended up getting with an institutional
brokerage firm, and became an institutional broker. I learned hedging
techniques, learned a lot about options and the basic inner workings
of the futures and cash markets, which was very valuable. I started
building a book of institutional customers. And that’s really where I think I
made my mark thus far in my career, as an institutional broker. Which
actually ended up bringing me to Leo Melamed when his firm
Dellsher Investment Corp. had a joint venture with the
Sakura Bank. He recruited me in 1994 and brought me over to
Sakura to start his institutional
third party desk.

I will say this,
though: From the ashes of that bond market — defeat, if you will — I actually
ended up building a career that lasted and brings me to where I am today. I remember
my sponsor telling me that
it was the best thing that ever happened to me. It didn’t make sense then, but actually
it was, because (laughs) then I just had to learn and do something
different and in the meantime, enhance my skills and overall knowledge of the
business. Also, I ended up paying him back in
about a year and a half. I remember he wasn’t even going to take it from
me, but he said I was
one of the few guys who ever did pay him back.

Wightman:
Let’s talk about trading the S&Ps. I think that’s
probably an area many of our members would be interested in hearing about.
What I’d like to do is go through your day in terms of what you do to prepare
for the day, what you look at, the levels, etc., and really how you get into a
trade, how you exit a trade. Let’s take it from the beginning: You wake up in the
morning and to go work. What are you looking at before you put on the first
trade?

Mulholland:
First it starts on the weekend. I write a
market commentary. Up until now, I just distribute this to customers and
ex-customers of mine. It’s a way
I do my game plan. I look at that data that’s going to be coming out and
evaluate what’s expected. So I’m prepared as far as what news is going to come
out. Then I do a technical overview to give me a weekly view, technically. What trend is the market in?
I try to find if it’s in a ranging trend. Is it breaking out? You know, just
important levels that I want to keep in mind.

Then I do a macro analysis,
just what thoughts I have. I usually finish that on Sunday after having read the
papers. I actually start when the markets open on Sunday night because, given
the fact that we’re pretty much a 24-hour markets, it’s usually not worth
waiting until the next day. I trade more during the day but at night time,
I’m still involved with the market. I think news is important to watch. I try to
get a read as to overbought, oversoldness… That’s probably the hardest part: when a
scalp turns into a position trade, or a position trade turns into a scalp. I
think that’s the dangerous part of trading, because when a position becomes a
scalp, you never get the position back on and then when a scalp becomes a position, it’s
usually a losing position. (Laughs) So it’s the discipline factor that’s
probably most important. So there’s numerous ways to prepare. I have to get the
fundamental data and the technical data and kind of like the general tone of the
market and then try and stay disciplined and following a plan.

Wightman:
You mention Sunday…what’s different
about trading Globex on Sunday night vs. when the market’s open? Obviously you
have less data to work with, right?

Mulholland:
This is something I have discussions
with colleagues about. I find it better to trade at night and the reason is
because there are fewer programs at night. Also, if you think about it, all
these basket traders and all these guys who are doing various ECNs and the
different type of players that encompass the market, to me it seems like a
better trade. It’s not as liquid, arguably, but liquid enough for what I
trade. I always find myself waking up when Europe opens up every morning, as
well. In the middle of the night — strange patterns — but I find it’s a better trade, for me at least.

Wightman:
So what would get you into a trade? Explain your entry
setups.

Mulholland:
I look at some moving averages. First, I
have a view of the market which is good or bad, but let’s say if I’m bearish,
through some averages I look at and technicals, I happen to have a short
position. And I might have a scale-in level where I say OK, my strategy
is I want to start here but then I want to scale up to a certain level.
And then of course define where your stop loss level is as well. But sometimes
it doesn’t work like that… the market goes before you scale. In
which case I try to get a reaction back to add on to the unit size that I like
to have. It’s really just determined by where the market is in relation to the
averages and levels that I’m looking at.

Wightman:
What time frame charts do you use?

Mulholland:
I actually use 5-minute to weekly charts.
Today I used 5-minute and 30-minute charts.

Wightman:
OK, describe the moving averages you are using to get in.

Mulholland: A good friend of mine that I’ve
actually worked with for a number of
years,
Richard Suttmeier, has a service
– Level Market Consultants – and I’ve been looking
at his work. He’s very good at bond treasuries and he’s done some work now with
stocks as well. So he has modified five-day, five-week and five-month moving
averages and then pivots which he has daily and weekly, which
I don’t look at too much, but quarterly, annual, semi-annual, those type of
things… big levels that I’ll watch. But pretty much I take my cue from if the
market is short-term negative, short-term neutral, intermediate and long term.
So I assess the market from those areas.

Wightman:
Do you use floor traders’ pivots, Fib levels, things
like that, also?

Mulholland:
Fibs, I think, are great. I don’t know
if you can say they are floor trader levels any more because of the way
electronic markets have supplanted that to a certain degree. For some
reason, Fib levels work well. They are good reference points. At least
to me, they are better points to take profits or a point where you are waiting
for a reaction to get back in the market. So I think they work out very well.
Percentage movements are also something to watch because of all the money
managers now. I think everything is measured in percent, oftentimes.

Wightman:
The percentage move that you just mentioned, how does
that work? In other words, from a base level, has it moved, say, X%?

Mulholland:
Yes, let’s say for the day or for the
month we are up 4%. Sometimes there are some magic numbers that people use, such
as, what is it, the 4% take-profit level? But when you have all the hedge funds
in the market now — and everyone is operating on, “OK, what percent am I up
this month or this day?” — that’s where it plays much more of an important role
in the market.

Let me give you an example of that
because it’s something I’ve been looking at. For the
first quarter, for instance, we were up 6% and we were down 10%, so a 16%
range… I think we ended up down 2%. So quarter over quarter, or week over
week, month over month, you might see the market settlement price doesn’t change
a lot but in between, there’s a lot of noise. I think that’s indicative of the
number of participants, the different strategies, the back-and-forth noise.
People look at the
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) and
say, “Gee, the VIX at 31 or 35 is kind of expensive.” I don’t think it is, given
the daily ranges are huge but settlement to settlement isn’t. But there’s a lot
in between that happens. Does that make sense?

Wightman:
Yeah. Let me ask you this: When
you get to a level that you’re interested in, whether it be Fib or another
level, how do you exactly time your entry — what are you looking at?

Mulholland:
Usually what you have to do, like I
said, when you’re insistent on a price, and sometimes it doesn’t go there and
you miss it, I think it’s just kind of a feel type thing, a general area that
you want to be at. In the Minis, I could put a bid in in front of the number I’m
looking at. Sometimes this is where the 5-minute chart comes in because if I can
see a formation where it looks like it’s bottoming, well, so I have to pay a
point more or whatever, to get just in the general vicinity. But I find that’s
probably very key — I think it’s your
inaction — what you don’t do, or if you wait. One of the rules in the pit used
to be: “You’re never ask when you’re getting out of a trade.” You never demand.
You get out when you want out. When you get in,
you can be a little more patient. But getting out of a trade, you don’t usually negotiate.

Wightman:
What’s your average holding period on a trade?

Mulholland:
In these markets, right now, probably,
it depends… I have short-term, intermediate-term, average indicators pointing
negative, I could have a trade on for as long as a week. But typically, like
even today the holding period is probably half hour to an hour, depending on
what kind of movement you get. Right now, when you get
2 or 3 points, you have to take them. This is an environment where you have to take your profits or they’ll disappear.

Wightman:
Well, that’s an interesting point. A lot of guys,
I think, who trade the S&Ps, I mean half an hour to them would be an
eternity. These guys are in a trade for a couple minutes, maybe. What advice would you give to
someone like that?

Mulholland:
Well, in a couple minutes, you’re taking
a point. When your time frame’s small, you can’t
expect big rewards. Your reward is commensurate with the time frame. In a couple
of minutes you’re not going to get the spike, but generally, that’s a pit scalp
there, for sure. For the guys in the pit, it’s maybe a “passing the hot potato” type
of game. That’s where your transaction costs have to be low to do that type of
trading. That’s where the guys in the pit, or the members, have the edge because
their transaction costs are lower. But when your
holding period is reduced, then your profit expectations have to be commensurate with
that time frame. But a half hour, to me, is a long-term trade here, in this
market. (Laughs)

Wightman:
Let’s talk about your risk management. What kind of
stop placement do you use on your trades?

Mulholland:
If I’m in a scalping mode and the market
trades 2 points — definitely 3 points — I’m in it too long. And if I’m in more
of a position-type, I’m looking for a bigger move… It depends where your entry
point is. If you miss your ideal point to get in and you have to kind of chase
it, then I think the trick there is you have to do a very small position first.
That’s when you work on your scale back, you know? Because what happens
sometimes — and what’s very costly to traders — is when you take the plunge
either out of frustration, or you miss one, and you get too big of a position on
and then you kind of lose your rationale. Then your risk management overtakes
you. You lose sight of what your objective is. That’s why it seems like at
certain levels and in this market, and someone said this once: “The hardest
trade to make is usually the best trade.” (Laughs) And when you’re
trading countertrend or against some of the levels like the market’s forcing you
to right now, the easiest is the worst.

Wightman:
Coming down to a support level, is it going to break
through it or do you buy right there right after the stops are taken out…

Mulholland:
Or if it feels just awful and it’s like
“Oh my God, this is so bad,” or “This is so great. This market’s
going to the moon.” These types of emotional spikes you get in the market.
Sometimes you know you’re supposed to do something and I know every
trader’s had this happen. “I was going to sell ’em up here and why didn’t I?”
(Laughs) And then frustration takes over. You can’t get frustrated either.

Wightman:
Is it fair to say that you’re trading positions in
different time frames? That sometimes you’re scalping and at other times, by
design, you’re going to have a trade held longer term?

Mulholland:
Yes, just depending on what I’m looking
at. Right now, I’m definitely in scalp mode in this market. If you can take 2 or
3 points out, I think that’s wonderful. That’s great. When I try and stretch
it… right now I don’t really have much to lean on and take a big short
position, let’s say, and hold it. Because I might be hoping more. I don’t
have real... I’m not really leaning on anything right now. That’s
the problem. When you don’t have anything to lean on, and you’re just trading
the volatility in the market, I think you have to take what it gives you. The
other thing that happens to a lot of people in this market is that you’re up
money in the morning and you give all it back during the day.

Wightman:
Isn’t that the truth? (Laughs)
How many trades, on average, do you make per day?

Mulholland:
Oh, probably 10-15, I’d say, on average.

Wightman:
What’s your favorite type of trade?

Mulholland:
My favorite type of trade is the yield
curve trade.

Wightman:
Can you explain that one?

Mulholland:
Well, in fact, I’ll do the 5-year /
30-year, or the FOB spread. I’ll yield weight it, which is how I think you should do it. Right now, for one unit would be
like five 5-years to two bonds. Typically, it’s
been pretty much a directional trade, but if I think the Fed is done easing…
it can be a number of combinations. Right now, it’s more a negative expression
of the interest-rate market.

Wightman:
What about your favorite trade on the S&Ps?

Mulholland:
Oh, my favorite trade on the S&Ps is
when they do a 38.2% retracement of a big move.

Wightman:
On what time frame?

Mulholland:
Let’s say we get a big Fibbo, or a
halfway back or a 38.2 Fibbo after a big move — we’ve had a huge spike down and
the retracement back up. Usually you don’t get much more than a halfway back or
a 38.2 in these things. To put a small position on, and have it start
going your way and then start slicing through some of the averages that I like.
Then you can start building a more meaningful position but you’re building a position from strength.

So I guess my
favorite trade is when you can get into a position of strength to build a
position. That means you have to start out right. Usually, starting out right
means you have to be aware of levels and you can never say when they’re
going to hit ’em. But when they do, it’s got to be in your mind to react
and take action at those levels. I think that’s the key. My favorite trade is
when you can get a lead like that because then everything becomes much clearer
to you. I get in better
sync with the market. For myself, also, the worst days are the Monday down days.
(Laughs) Once you have a lot of conviction — or a ton of conviction —
that you’re right, it’s usually time to get out.

Wightman:
Do you play what some people call the 10 a.m. ET reversal?
How do you deal with that?

Mulholland:
I don’t usually pay much attention to
that. I know there’s a lot of people that do. Also, someone told me that 80% of Mondays are
up days. That’s probably why I hate Monday down days. (Laughs) Those
types of things — I consider them more random than mechanical.

Wightman:
Any other indicators that you are looking at? Again, this would be for scalps:
Are you looking at the TICK at all, or is that way too short term?

Mulholland:
The TICK… I know the guys on the floor
instilled that, but I think up volume/down volume is better.

Wightman:
Are you looking at the TRIN?

Mulholland:
Just shares up/shares down. I imagine
there are more refined ways of doing it. It’s not my specialty but I think
that’s kind of important because it reinforces — if you’re bearish and there’s
more up volume than down volume, well then you know what? You might be early. The other one I look at is stochastics.
Those are a favorite for a lot of traders. Sometimes they’re misleading but I think when stochastics work best,
is when you’re in a trend. You’re in a downtrend and then there’s a reaction and
then the stochastic gets to an overbought level but the price hasn’t come close
to where…Maybe you’re near
a Fib at this point. That to me is usually a very good time to put a trade on.

Wightman:
That’s a good one, yes.

Mulholland:
But it’s amazing. It’s like a science
how people use these indicators and how you interpret them. I guess there’s no
one way, no one size fits all type of thing. But I did have one of the smartest
customers, one of the most successful traders that I ever dealt with in years of
covering accounts, who told me, “It’s best to have a system — even if it’s a bad
system.” Because at least it’s a system that you have and it’s a discipline.
Sometimes that might make some sense. Then some other very good people that
I’ve talked to, who told me that having a system (‘m not saying have a bad
system) or some sort of method that you use that is good for you, gets you through drawdowns.
It gets you through… to know that if you stay the course, you’re going to come
out OK. So in other words, a lot of people trade — and I used to do this a lot
and sometimes I am still guilty of it — you try to trade off a feel for the
market. That sometimes is
good, sometimes it’s not so good. But the most consistent way to do it is to
have some sort of indicators that you use, some sort of systematic way that you know if you
stick to it, that you’re going to come out in the long run.

Wightman:
What’s the best advice you can give a newer E-mini trader?

Mulholland:
To trade very small, and to do homework;
to look at charts and indicators and find what you understand and makes sense to
you. Find what works for you and what you’re comfortable with. You know how they
say you can’t teach old dogs new tricks? Well, a lot of young traders get hired
these days by companies because they don’t have bad habits and they can be
trained. There’s something to be said for that. I say the best thing to have is
an open mind when you trade.
I’m no Market Wizard but I also
believe that a passion for the market is important. To have that real love for
why things are happening, too. Every day is a new day.

Wightman:
Indeed. Tim, this has been great. Thanks a lot.

Mulholland:
My pleasure Brice. Thank you.