TraderTalk: David Floyd
Brice Wightman: Good
afternoon and welcome to TraderTalk. Today we are pleased to have some gentlemen who are very experienced at
short-term trading. The first, David Floyd, has put together an impressive
record trading a style he terms “High Velocity Trading.” Along with
Dave today are two folks from Aspen Trading who trade with Dave, Todd Gordon,
and Bo Harvey.
David Floyd: Hey Brice, good afternoon
everyone.
Todd Gordon: Hi everyone
Bo Harvey: Hi everyone.
Floyd: Given the nature of the markets
lately, especially the last couple of weeks, I wanted to revisit some general
concepts and basics of how we approach the market on a day-to-day basis. Most
of you assume, perhaps, that we trade every single move of the day…and while
there are times that we trade a lot, upwards of 50-75 trades in a any given day,
the norm is more like 20-30. What we have currently is a market that is very
seductive, there is a lot of noise, and many of the one-minute charts, at first
glance, look like they are ripe with opportunity. However, upon closer
inspection, there is really nothing going on, it is merely noise, and the ideal
environment for you to chop yourselves up…
Harvey: The main thing we focus on for
HVT is the one-minute trend.
Gordon: If I may, our foundation of
trading is based off the one-minute chart, a trending one-minute chart that is
in decisive direction — pullbacks to higher lows on the one minute coinciding with a pullback to the 20-period MA.
Floyd: It does not matter what the net change
on the day is, how much the Dow is up, nothing like that. It is simply
the slope of the MA. If you are clear on that, you can quickly identify whether
you want to be a buyer of pullbacks in an uptrending market, or a seller or
rallies in a downtrending market. Naturally, you want the trend of the futures
and the trend of the stock you are trading to be identical. That being said,
the most common question is how do you know the most opportune time to enter
the trade once you identify whether or not you want to be a buyer or seller?
Gordon: From that we break it down into
two components. First, we watch the price action of our trader, our listed
trader, meaning watching where the prints are going off, where bid/asks are and
so on. This is why it’s important to not go chart surfing while scalping. Know
your one or two traders like the back of your hand so when the moment of truth
comes, you’ll know what to expect.
Harvey: The second component would be
paying very close attention to a tick chart of the S&P futures, and when
they start to move decisively in the direction we are anticipating, we use that
as the signal to pull the trigger. (Note: By tick chart, we do not mean the NYSE
TICK, but rather a chart that shows every single tick up/down in the futures.)
Gordon: A combination of these two
techniques will ensure high-probability shots.
Floyd: Regardless of what those
indicators are telling us, the overall market needs to be exhibiting some true
volatility, meaning the futures must be moving with enough range so that you may
get in and out of trades with minimal slippage.
Wightman: Guys, we have a few questions
already…
Question: What
percentage of your trades are successful, and what is the ratio of average profit
to average loss?
Floyd: For me, at least over the last
four years, I have about a 74% winning trade ratio, meaning 74% of my days are
profitable, I would say on a trade-by-trade basis, it is a bit under that, maybe
70%. The average winning trade, 15-25 cents, average losing, .05 cents
Gordon: Today for example I traded C,
took five shots and made money on four of them. That’s all the trades I could find
today…and having that kind of discipline comes from hours of “screen
time.”
Harvey: For me, today I traded IBM,
took about eight trades and six were profitable.
Floyd: HVT is mechanical on some level,
but like most things, you need to do it over and over again in order to pick up
the nuances that are associated with any task, that is what will allow you to
become more consistent.
Question: Why a
one-minute chart? Why not five-, 10-, etc.? Could your techniques be applied to a longer
time frame?
Harvey: If I might, consistency is
something that definitely comes over sitting, day-in, day-out, in front of the
screens, watching your stocks, becoming familiar with them and how they trade.
Gordon: We play a momentum game, and
these days the momentum as we define it doesn’t last more than a few minutes.
Floyd: A one-minute chart is simply the
time frame chart that works best with our style, a five-minute chart is more suited to
a slightly longer-term trade, which we do not focus on. We do use five-minute charts,
but more for observation, not to try and time entry points. In fact, entries are
actually determined by watching price action and the S&P futures on a tick-by-tick basis. It boils down to more of an
art than a process, and yes, the
techniques can be applied to longer time frames. Most of my longer-term trades
use the same principles.
Gordon: With one exception…without
stops
Question: Do you
use TRIN, TICK, etc.? And if so, explain how.
Gordon: I’ve actually started to really incorporate the TICK into my
daily trading. So you have the two factors that will dictate trade entry or
not…tape reading and SP price action…but how about another indicator that
will let you know if you should be in the market or not? We see one-minute pullbacks all day
long,
but how do you know if they have any legs? If the ticks have been hanging around
+300-400, then you know there’s not a lot
of program buying/selling going on,
but if you’re getting 1000+ rallies, then you know that the buying is widespread
programs and worth being in. Chances are your stock will want to dance.
Floyd: The tick will also help identify
ST bottoms and tops.
Brice: Since it’s been quiet, have you considered some longer-term trades? If so,
how do you identify them?
Floyd:
I actually do longer-term trades every day in my other non-HVT accounts. The
picks come the old-fashioned way, doing a general scan for certain factors and
then whittling down the list by going through each chart individually. Now for longer term means, maybe I hold the trade for a few hours or a day or so,
mainly a few hours, and I always have a trailing stop in place. The same trades
that I take each day for the most part are the ones that I put on my nightly
service.
Harvey:
Right now I’ve definitely scaled back on my HVT, being very selective
in the setups I choose to take, making sure that there are more than 2 point moves in the futures.
For example, earlier today we chopped around 895 for about two hours or so, and
that was an environment where I avoided HVT completely.
Question: Instead of the futures, can we use the S&P 500 index as an indicator
to pull the trigger?
Floyd: Actually no, the SPX (S&P 500) will lag the futures.
The cash follows the futures, not the other way around.
Question:
Since you are so tuned into the SPX ticks, why don’t you just trade the S&P futures rather than bothering with
stocks?
Harvey:
Personally, I think it is the futures that allow us a leading indicator to use
as a very exact timing signal for when to enter/exit.
Gordon: Our entire advantage is the
futures. The futures will go hard and here’s where
trading listed comes in. Say your stock has 10k offered and the futures are going like crazy…
Floyd: What would be your leading indicator for the
futures? Unless you are in the pit
watching order flow, there is not a reliable leading indicator. The futures provide that glimpse of what “may” happen in the underlying
stocks.
Gordon: From watching the tape, you see prints going off on the offer 1k, 3k, 2k, you see
the buying interest. You have a time delay that works to your advantage. In Naz, forget about
it. It’s already gone.
Question: If selective, which stocks in your universe, and how
many?
Harvey:
For me, I have a basket of about five liquid SP500 stocks I trade, such as C, HD,
WMT, IBM, etc. There has to be a strong correlation between the stock and the SP500,
and it must also be liquid.
Gordon: Well, when I started trading, I had
one or two thinner stocks where it was easier to
watch the price action, DNA and BBY, 2-3 million a day. And like Bo said, higher
correlation with the spooze
(S&P). Now I like the thicker Dow components, just like Bo…HD, WMT, C, and
so on,
very high correlation with the S&P which will assure similar movement.
Question: How do you know when you shouldn’t trade for a given period of time
of day
and take a break? How do you get yourself mentally into it when things haven’t
gone well? In other words, how do you re-energize yourselves to be in good form?
Floyd: When things are not going well, the solution is real simple, get the hell away
from the monitors.
Harvey: Yes, there is definitely a time when you need to get away from the monitors, get
fresh perspective. There is no way to fight your way out of a slump.
Floyd: I know have reached this point when I am missing trades or simply losing money,
since I rarely have bad days, that is the first sign.
Harvey:
You will likely be emotional and possibly overtrade or “revenge”
trade.
Gordon: A sure fire sign that I’m trading when
I shouldn’t be is buying tops and selling
bottoms. Works every time. You’re timing is off, and you just don’t have the edge that day,
so walk away…the market will probably be there tomorrow.
Harvey: It will ALWAYS be there tomorrow.
Gordon: lol.
Question:
What is the difference between what you are doing (HVT) and
scalping?
Floyd: Scalping, at least how I have always known it, is “buying on the bid and
selling on the offer.” What a ridiculous strategy. You are always fighting
the trend…HVT is the complete opposite, buying the offer and selling short on the bid,
trading with the market.
Gordon: Trading with the momentum, which is the key…
Floyd: Hopefully you buy on the offer and the offer
becomes the bid. That is trading.
Question: Are the
three of you working in the same location? If so, is this an aid in
your trading? Also, how long was your learning curve before this style of
trading became successful for you?
Gordon: Yes, the three of us are right next to each other…and
I have to say, I couldn’t do it without these guys.
Harvey: It took a good solid three to six
months before I was actually applying what I knew.
Gordon: Me, too.
Harvey: I KNEW what the setups were supposed to look like,
I knew what I had to do, but
for some reason it took me a little longer to actually DO it…goes back to having the discipline to obey your rules.
Floyd: Having six sets of eyeballs (there are
six traders here) is better than just one
set, plus, each of us has a unique niche that the other may not, so it really
adds to overall environment.
Gordon: The setups we take are quite
easy. It all comes down to understanding the market
dynamics on our one-minute time frame
and sticking with your discipline.
Brice:
OK, guys, that’s about all the time we have. I want to remind everyone to be
sure and take a free trial of Dave’s service: https://www.tradingsubscriptions.com/subscriptions/details.cfm?item=5962&subcat=dt.Â
It’s free, and there’s some great stuff in there.
Thanks a lot, fellas!
Gordon: Our pleasure. It was fun.
Floyd: Pleasure, Brice. Thanks everyone for coming
by. I trust it was helpful.
Harvey: Definitely. Thanks.