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Charles Kirk Q&A with Dave Landry
In April, Charles Kirk
interviewed me. Below is that interview in its entirety. Special thanks to
Charles for letting me republish the interview. Charles can be reached at www.kirkreport.com
If you trade stocks, sooner
or later you are bound to cross the path of Dave Landry.
Through the years Dave has
created a loyal following and strong online presence by offering his daily
insight and trading advice. Dave has been actively trading the markets since the
early 90s. In 1995 he founded Sentive Trading, a trading and advisory firm. He
is author of Dave Landry on Swing Trading (2000), Dave Landryís 10 Best Swing
Trading Patterns & Strategies (2003), and The Laymanís Guide to Trading
(2009). Dave is also known for among other things for his unique ďMarket In
a MinuteĒ video which is provided daily to subscribers to his free daily
Dave has made several
television appearances, has written articles for several publications including
Technical Analysis of Stocks & Commodities, Active Trader, and Traders
Journal (Singapore). He has been publishing daily web based commentary on
technical trading since 1997. He has spoken at trading conferences both
nationally and internationally and is a registered Commodity Trading Advisor (CTA)
since 1995 and a member of the American Association of Professional Technical
Dave brings a tremendous
amount of trading experience and insight for us to consider. In fact, when I
polled members in our annual membership survey and asked for recommendations on
who I should interview this year, Dave Landry was at the top of that list. So,
it is with great pleasure to present this Q&A. We hope you enjoy it and find
Kirk: First of all, thank you for taking the
time to answer our questions. I speak for many members who have a great deal of
respect for you and we sincerely welcome you to the website.
Dave Landry: I consider it an honor to be here
Charles. Thanks for having me.
Kirk: Please tell us a little bit about how
you got interested in trading.
Dave Landry: I think Iíve always had a
fascination with markets and trading. When I was a kid I collected coins. I
remember in the school yard offering other kids several times face value on
dimes, quarters, and fifty cent pieces with the year 1964 or lower. They, or my
likely their parents, eventually got wise to me, realizing those coins were made
out of silver. I remember showing my mother that my coin collection was worth
around $10k based on an ad in the newspaper for a traveling salesman offering to
buy silver. I fantasized about how much my silver would be worth in coming
years. This was at the height of the Hunt brothers trying to corner the market
on silver. It was a great lesson in bubbles. I was also a gold bug. Somehow, I
managed to get my father on every brokerís cold call list you could imagine.
Although he wasnít very pleased with this, he appreciated my interest in the
I never did lose my
fascination with the markets but somehow I got sidetracked in college and in my
early career. In the late 80s, I began investing in mutual funds. Iíd plot
them and post the charts in a spare bedroom of my apartment. I eventually got
bored with their lack of movement and decided to start trading stocks. I sold an
old boat that wasnít being used for $1,000. I bought 100 shares of my first
stock and watched in agony as it sank $1.50 the first week I owned it. Although
it wasnít like I needed the money to live, I felt like I had been wiped out.
This was my first lesson in market timing, money management, and traderís
psychology. Eventually the stock began to rally. I sold the shares parlayed the
money into an options position. Luckily, that worked. Before long, I was
actively trading stocks and options.
Kirk: What is your professional and
Dave Landry: I have an undergraduate degree in
Computer Science and an MBA. The MBA is pretty much worthless for trading but it
does look good on the wall. When I decided to become a full time trader, I
assumed that the computer science degree would really come into play. I figured
all I had to do was to program a mechanical system and I would sit back and make
money. I spent years searching for the ďholy grail.Ē Eventually I realized
there was none.
Kirk: Unfortunately too many traders donít
come to that realization before it is too late!
Dave Landry: Amen, I think itís a journey we all
have to go through. Time and time again, I see novices do really well with my
simple approach. However, as soon as they hit the enviable drawdown, they go off
to chase rainbows. Those who tough it out, usually end up right back where they
Do you trade anything other
than equities and options (futures, ETFs, currencies, etc.)?
Dave Landry: A friend once joked that if I heard
that intravenous drug use was on the rise, Iíd buy needles. I donít think
Iím that bad but I will trade pretty much any instrument that moves. In more
recent years I have focused mostly on stocks but again, I will trade any
instrument that moves. Drug use isnít on the rise, is it?
Kirk: Why and how did you decide to focus
more on trading stocks recently.
Dave Landry: Markets that are over analyzed and
traded by many tend to be efficient. They tend to chop around. And, when they do
trend, they donít make very big moves, at least not shorter-term. Everyone
tends to agree on price and traders tend to cancel each other out.
An inefficient market is
one where everything isnít ďpriced in.Ē It has a chance to make a large
move as new information flows into the market and more and more traders
ďdiscoverĒ the stock. Itís much tougher to capture trends in something
like the S&P Minis where everybody and their brother is trying to trade
them. Iíd much rather dig through 1000s of stocks looking for the next big
winner. I let the other guys fight it out in the overtraded markets. Now, this
is not to say that great trends cannot be caught in other markets. Itís just
not as easy. You have to be selective. I like trading transitional patterns in
Forex off of major highs and lows. Obviously though, major highs and lows
donít occur that often.
Although my favorite thing
to go on a treasure hunt for the next big stock, I will occasionally trade ETFs
based on commodities, bonds, or other instruments. Youíre not going to get
rich with these, but they can help to supplement or smooth out your portfolio,
especially in less than ideal stock market conditions.
Kirk: So, in a nutshell, how do you
currently approach the market and your primary trading strategy?
Dave Landry: Pullbacks!
Kirk: Ok. What are some of the key rules or
factors that you consider before selecting any potential trading opportunity?
Dave Landry: I approach the market in a top down
manner: market/sector/stock applied in a bottom up fashion: study 1000s of
stocks, study 100s of sectors/ETFs, and then study the indices. Looking at all
these charts gives me a good feel for whatís really going on within the
Kirk: In an average week how many trades do
you make? What is your average hold time and how many positions do you have open
at any given time?
Dave Landry: It varies depending on market
conditions. In choppy markets, I might go weeks without making a trade. In
momentum markets, I might be putting on positions daily. In general, there are
only a few stocks that Iím looking to buy or sell short daily. As far as the
number of positions, I get a little nervous once my portfolio hits high single
digits. The good news is, usually if I have that many positions on, they were
likely built during good times. And, I have taken partial profits along the way.
As far as hold time, whenever I enter a position I hope to be in it 10 years
from now. Unfortunately, the money and position management takes me out much
sooner. So, it varies from a few days to months. Although Iím slotted as a
swing trader, I like to see myself as an intermediate-term trader with better
entries and money management. I think this approach is the best of both
worldsólooking for short-term gains but willing to ride out longer-term
Kirk: What would you say is your average
win/loss ratio for your trades?
Dave Landry: I used to spend a lot of time studying
statistics. Now I just focus on finding the best setups. Statistics are
worthless, 78% of all people know that. Seriously, the methodology is skewed.
So, a few big winners make up the majority of the gains. Iím not sure that
averaging this out makes sense. In momentum markets, the methodology prints
money. In less than ideal conditions, it under performs. I suppose that pretty
much goes for trend following in general. So again, Iím not sure statistics
are valid, especially since itís a discretionary methodology. Although, I
donít publish official results, I do make available 5 years or so of my
service archives. I like to let people draw their own conclusions. Essentially,
you chip away it with a poor win/loss ratio and then bam you hit a few big
winners and make your year. In better years, you get more and more homeruns. I
remember in the late 90s, I had stocks from my column skyrocket within a day.
One went up over 50 points in one afternoon. Now it seems to take a while. We
did a have a few winners of that magnitude in 2008 but they were held for many
months. Without those, it would have been a negative year. As a trend follower I
respect said many years ago, youíre playing for the outlieróthe few big
trades that make your year.
Kirk: How has your overall performance been
recently, as well as the past few years?
Dave Landry: Again, I donít publish results but I
do make the last 5 years of my service archives available so people can draw
their own conclusions. As far as recent performance, quarter one was tough one.
We did no better than the overall market. Choppy markets and sharp reversals are
the nemesis of trend trading. In Q1, we had both. The good news is, good times
tend to follow bad and unfortunately, vise versa. With that said, weíre seeing
some improvement in Q2. Last year we ended in the black but didnít set the
world on fire. Prior years were much better.
Kirk: What would you say are your favorite
kinds of technical setups in trading pullbacks?
Dave Landry: Probably my favorite versions are
transitional setups since the potential exists to capture a new trend early. In
a great momentum market, generic pullbacks work the best.
Kirk: Can you give us a recent example of a
technical setup you found to be very attractive?
Dave Landry: Its been tough in more recent times
but a few come to mind. Bonds (basis the iShares Barclays 20+ Year Treasury
Bond Fund (TLT)) made a sharp thrust lower from multi-year highs followed
but a retrace (pullback).
This is a pattern I call a First
Thrust I think we may have caught the mother-of-all tops here. Energies,
especially on an individual issue basis have been making some nice moves out of
transitional patterns lately.
Kirk: Have you noticed any setups more prone
for failure than they have in the past? Are there any patterns you tend to shy
away from based on personal experience?
Dave Landry: Yes. Markets have become more volatile
over the past few years. Itís much tougher to ride out trends. I have
compensated by widening stops and decreasing positions sizes. In general, give
me a nice long-term bull market and Iím happy. As far as patterns, pretty much
all my stuff is based on pullbacks in trends. This has worked for 100s of years
and I would imagine that it will continue to work. Iím not saying that you
donít have to adjust or itís easy. I just think that a conceptually correct
simple approach works best longer-term.
Kirk: In recent years, have you discovered
any new patterns that have been helping you achieve more success?
Dave Landry: Not so much new patterns as variations
on my existing pullback patterns. For instance, Iíve recently discovered a way
to help quantify my First Thrust pattern. Iíll probably continue to use the
First Thrust pattern as is, but I think people who need things more quantified
or visually easier to recognize will really like the pattern.
Kirk: What the most important thing to know
about how to buy the pullback successfully?
Dave Landry: Thereís a lot to it. In sharp trends
you want sharp pullbacks. In longer-term momentum markets, shallow pullbacks are
okay and work well. With transitional setups, you have to take them at the first
sign of a correction. Otherwise, youíre going to be left behind. In runaway
momentum markets, you want to enter as early as possible. You can trade in more
of a textbook manner and sometimes even front run the setup. In choppy and
volatile markets, you want to be more liberal with your entries. In recent
years, this has kept me out of a lot of losing trades that would have triggered
in a more textbook manner on noise alone.
Kirk: From your ďMarket In A MinuteĒ
sessions, your chart setup looks fairly basic and straightforward. Do you
utilize any technical analysis studies (like Stochastics, moving averages, etc.)
Dave Landry: Whatís a Stochastic? LOL. Iíve
studied everything under the sun and have come back to a simple blank chart. I
do occasionally use moving averages (e.g. my Bow Tie pattern) but more
often than not, I use blank charts. Indicators are based on a derivative of
price. Therefore, they have lag. Iím a price purest. In fact, I donít even
use volume. I do respect those that use indicators successfully. However, Iíd
be willing to be that if you took away their indicators, youíd discover that
they are great chart readers.
Kirk: Do you still used the Average
Directional Index (ADX)?
Dave Landry: No. As I said in my second book, I
think I inadvertently put too much emphasis on it in my first book. Back then I
was encouraged to quantify trend and did use it to some extent for scanning. Now
I just look at a tremendous amount of stocks with very loose parameter scans. In
fact, I look at my entire tradable universe daily. Youíll notice that my
second book (and soon to be published third book) does not have any examples
Kirk: Can you provide us with few examples
of successful and unsuccessful trades recently that provide a good idea of how
you integrate chart analysis in your approach?
Dave Landry: With transitional patterns, I seem to
have a habit of being right but early. Apollo Group (APOL) looked like it
was rolling over and after some initial follow through to the downside, had a
sharp retracement and hit the stops. Of course, it then imploded.
With all trades, I do a
post mortem. In this case and in pretty much every case over the last few years,
I could not find anything wrong with the trade. I noticed that the stock was a
little wide and loose but I knew this going in.
Someone recently emailed me
telling me that they are going to go back and learn what not to do from each and
every recent losing trade. Although there might be something to learn, sometimes
you can do everything right and still lose money. This gentleman seemed certain
that there was something to learn from ever trade. Sometimes there isnít any.
I would imagine that this individual is going to create a lot of unnecessary
rules for himself.
As far as winners, the
aforementioned top in iShares Barclays 20+ Year Treasury Bond Fund (TLT)
(or bottom in ProShares UltraShort 20+ Year Treasury (TBT)) comes to
mind. It made a nice transitional pattern off of life of contract highs. This is
one of my favorite patterns. In fact, I think if all you did was take
transitional patterns off of all-time (or at least multi-year) highs or lows, I
think youíd do quite well. Youíd spend a lot of time sitting on your hands,
but I donít think this is a bad thing. We recently got knocked out of a few
longer-term ďtrend following moronĒ type trades left over from last summer,
believe it or not. This is where the real money isólonger-term trend
Kirk: Letís talk a little bit about
position sizing. Can you provide an example of a recent trade and explain your
method for determining the size relative to your own trading portfolio?
Dave Landry: I try to stay consistent on all
trades. I risk 2% maximum if stopped out. This doesnít mean I buy $2,000 worth
of stock on a 100k portfolio. It means that if stopped out, my goal is to lose
no more than 2% of my portfolio, regardless of the price of the stock. As a
recent example, Berry Petroleum (BRY) set up as a Bow Tie/Pullback on
The entry was $12.50, the
protective stop was $9, and the initial profit target was $16. Since you are
risking $3.50 stopped out, based on a 100k portfolio $2,000 risked if stopped,
you would buy 571 shares (2000/3.50=571) or 600 shares round numbers. $3.50
might sound like a loose top, especially on a percentage basis, but thatís
what the stock calls for. It has a 50-day historical volatility rating over 100.
I ďeyeballĒ these things and notice that the stock bounces around a least
1-2 points a day. Therefore, it requires a fairly loose stop. Again my service archives
are available if you want to study this and prior trades.
Kirk: What mistakes do you think most
traders make concerning position sizing?
Dave Landry: They are inconsistent. Each and every
trade has the potential to be wrong. You have to trade with a fixed percentage
of your portfolio on every trade.
Kirk: I know you emphasize the utilization
of stops. So, whatís your method to setting stops?
Dave Landry: I tend to eyeball them. I have an
article on my website which goes into more detail but the bottom line is, I just
eyeball them. If a stock bounces around 5 points a day, then your stop better be
more than 5 points away from your entry. Otherwise, youíre going to be stopped
out on noise alone. I think the most common mistake is thinking that you are
controlling risk with tight stops. Tight stops actually will create losses.
Kirk: Do you ever average down into a losing
trade? Why or why not?
Dave Landry: No. I take my licks. In theory, you
could average down provided that (for longs) the company never goes out of
business and you donít run out of money. Those are two big ifs.
Kirk: Can you provide some details regarding
your money management system?
Dave Landry: My basic money management system is to
look for to make at least the same amount of my initial stop on half of my
position. When this goal is achieved, I move my stop to breakeven on the
remainder. This gives me the potential for a home run on those shares and the
worst I can do is breakeven-barring overnight gaps. I then trail the protective
stop on the remainder at the same distance as my initial risk. For example, if I
bought a $30 stock using a $5 stop, I would exit half at $35. I would then trail
my stop on the remainder at 5 points below the closing price. If the stock
continued to move in my favor, I might open that stop up a bit within reason.
This helps me to participate in a longer-term move. One more point, I do trail
the stop higher on a favorable move even before the initial profit target is
hit, usually on a closing basis. For instance, suppose I bought a stock at $30
and my initial stop was at $25. If the stock closes at $31, I would raise the
stop to 5 points below that closing priceóto $26. I usually trail on a closing
basis unless the profit target is hit, then I immediately move the stop up to
Iíve been asked if my
money management system is statistical or psychology based. My answer is yes. I
like being able to ďplay with the marketís money.Ē Once youíve taken
partial profits, itís a great place to be from a psychological standpoint.
From a statistical standpoint, sometimes youíre able to profit from noise
alone in less than ideal conditions. One more because I know someone will ask
it. If all you ever achieved was the initial profit target and then got stopped
out on the remainder, youíre risking twice as much as you are making.
Therefore, unless you are extremely accurate, this money management system would
have a negative expectancy. The reason is does work is because you have the
ability to make many times the initial risk on the occasional homeruns.
I use the work ďbasicĒ
because there are ways to improve upon this system. In choppy markets I might
take partial profits on a ďnear missĒ and in momentum markets I might let
things ride a bit. I explain these things in articles on my website and in my
Kirk: I can see how this kind of strategy
can work and be useful if employed consistently.
As you know, all good
traders dedicate a lot of time and effort to improvement and reducing mistakes.
How has your trading method evolved and improved over the years?
Dave Landry: Iíve become more and more selective,
sometimes to a fault. I used to always want to be in the market. Iíve learned
that youíre much better off letting the market prove itself before entering. I
tend to trade now only when I canít stand being out of the market because
opportunities abound. One thing that I have learned in more recent times is to
be a little more quick to adjust to changing volatility. Over the years I also
have learned more and more that the real money is in longer-term trends. I think
my short-to-intermediate-term approach allows me to have the best of both
worldsóshort term gains and money management with the potential for
Kirk: Can you provide an example of
something you thought was true when trading early in your career and now believe
is just dead wrong?
Dave Landry: Yes. I thought that there were people
out there who knew EXACTLY where the market was headed and that if I studied
hard enough, I too would know. I also thought there was a way you could pick
tops and bottoms. I now know that you have to wait for some sort of transition
in trend before looking trade off a top or bottom.
Every now and then even to
this day I get stressed when someone hits upon something that appears to work
incredibly well or so they claim. I feel better when they hit the inevitable
drawdown. Itís not schadenfreude though. Iím not being malicious. It just
makes me realize that no one knows exactly where a market is headed. It also
reinforces the fact that I should stick with something simple.
Kirk: How much time and attention to you pay
attention to othersí opinions about the market and/or stocks you are trading?
Dave Landry: Very little. I know this might seem
vain but it tends to cloud my judgment. There are a few people out there that I
admire and respect and you are one of the few Charles.
However, again, when I
begin listening to them it tends to cloud my judgment. If I agree with them, I
tend to become too confident. If I disagree with them when Iím confident, then
it tends to shake my beliefs.
Kirk: I appreciate the sentiment and you
know Iím in complete agreement with you on this. Opinions from others can
wreak havoc. While they may help to some degree, the traders who do well listen
to only one voice - their own.
Please describe a typical
trading day for you? How do you organize and dedicate your time?
Dave Landry: Most of the work is done after hours.
I spend hours tooling through charts. In fact, I recently did a webinar
on just that. All of what I do is very open. In fact, I even give away my scans.
Itís a lot of work. Most arenít willing to put the time in. As far as actual
trading, the open can be a little hectic. After that, much of the time,
thereís not much to do. In an ideal world, I just ride out longer-term
winners. This gives me time to work on projects, research, and my educational
and research business.
Kirk: Can you give us some idea of what
tools you use to monitor the markets (i.e. your trading platform, software,
Dave Landry: I use a major brokerage for
executions. I would recommend staying with a major brokerage. In theory they
should give you better fills and have more shares to borrow. For my methodology,
you do not need direct access. In fact, I would caution against it.
As far as websites, since I
generally donít follow anyone, there arenít any. I do occasionally go to
Yahoo Finance to company profiles. Iím not looking for fundamentals when I do
this. Iím simply confirming what sector the company is in (when in doubt). For
charting, I use TeleCharts. I love it. I sent so many people to the company,
they made me a distributor. I do virtually all of my analysis with it stocks,
scanning, sectors, ETFs etc. I can go on and on but it will start to sound like
an advertisement. I truly do love it and use it. Have your readers contact me
directly if they would like to be part of my club there. Again, Iíll even give
them my scans.
Kirk: I know from watching your ďMarket In
A MinuteĒ videos that you stress sector-based technical analysis in your
approach. Why is this so important to you?
Dave Landry: One of the few Wall Street Adages that
is true is ďa rising tide lifts all boats.Ē This is even more true for
Kirk: Please explain the process of how you
go about finding your trading setups.
Dave Landry: Once a week, I run a simple price
volume scan to produce a tradable universe watchlist. ďTradable universeĒ
varies with market conditions. For instance, since weíve had such a long bear
market, Iím considering somewhat lower prices stocks. With that said, right
now, Iím looking for stocks with at least 400k average volume with a price of
at least $5 per share. This produces around 1600 stocks. I look at my entire
tradable universe sorted by volatility usually an hour before the close. From
this, I have a pretty good idea where Iíll be focusing the next day. Iíll
flag anything thatís interesting and put in a list I have dubbed my ďTop
100.Ē After the close, I run a simple pullback scan on the entire stock
universe. Once again, Iím flagging stocks and copying them to my top 100. I do
this very quickly. I then go through my top 100 more slowly, paying a little
more attention to each stock. On those that I think might have potential, Iíll
make a note of them. If I notice that I have a half dozen energy stocks setting
up, and not much anywhere else then I know that I should probably focus on the
energy stocks the next day. This list is what I call my ďLandry List.Ē I
then do my sector analysis which consists of looking through all 239 MorningStar
industry groups. Iíll also look a major sector indices such as the XOI, XBD,
SOX, etc.. I then look at the top 100 or so ETFs sorted by volume. I donít use
volume as an indicator but rather as a means to sort out less meaningful ETFs. I
used to look at all of them, but now that thereís 900 of them, I really
donít care about the super thin ones towards the bottom of the list. For
instance, I am interested in whatís going on in the Qs, Russell, Bonds, Gold
ETFs which trade thousands of shares daily. Iím not so much interested in
South African Monkey Bonds ETF which traded 10 shares today. No offense to those
who trade monkey bonds.
Kirk: Yep, be careful of those monkeys!
Iím sure this process would take a lot of time to get used to, but certainly
would offer a great preparation for the following trading day.
Like everyone else, we both
experience hot and cold hands at times. Are there any ďtricks of the tradeĒ
that you use to help maintain a consistent successful approach over a long
period of time?
Dave Landry: Longevity is key. If you can survive
long enough, youíll get it. You survive through the use of following your game
plan and three other things: money management, money management, money
management. The highs are high and the lows are low. Balance is also key. You
canít let it go to your head in good times and you canít get too depressed
in bad times. Good times follow bad but unfortunately, the opposite is also
Momentum trading can be
streaky. You print money for a while then underperform. Novice traders who begin
following me during good times think Iím God. And worse, they begin to think
they are too. They begin to get careless, risking too much and trying to
outsmart the system. On the flip side, novice traders who follow me during less
than ideal conditions think Iím an idiot. They probably wonder if this guy
ever makes a buck. They give up right before the next big trends develop. I call
this African Queen Syndrome. In the movie African Queen, Charlie (Humphrey
Bogart) and Rose (Katharine Hepburn) go through all sorts of trials and
tribulations with nature and the enemy as they try to make it to lake at the end
of the river. They give up. The camera pans back for one of the most powerful
scenes in the history of cinema. They were within feet of the lake. If only they
would have hung on a little longer, they would have made it.
Kirk: I have to rent that movie!
Dave Landry: You can borrow my copy!
Kirk: Most traders I know have a set of
rules that they have learned from past mistakes. What are a few of yours that
you think most traders would benefit from?
Dave Landry: Keep bets within reason. No matter how
great a setup looks, thereís always a chance you can still be wrong.
Donít fight trends. Trade
only when you think you have an edge. Ideally, this means that the market, the
sectors, and the stock are all trending. Realize that knowing when not to trade
is as important as knowing when to trade. I often joke that we are more wait-ers
Kirk: Youíve been trading for some time
now. What would you say are the biggest changes in the markets and trading in
general youíve seen during your career both good and bad?
Dave Landry: The market doesnít seem to trend as
well as it used to. However, I would hesitate to say that something has changed.
The market didnít trend for extended periods in the 70s.
Kirk: Do you think it is easier or more
challenging to trade for a living now than in the past?
Dave Landry: Volatility dried up after 2000. It
became tougher to trade during lower volatility markets. I suppose you need to
be careful what you wish for. Itís now back. With volatility comes
opportunities but it seems to be tougher to catch trends in more recent years.
Donít get me wrong, weíve caught some great ones ó shorting energies and
stocks in general for that matter in Ď08. They (big winners) just seem to be
fewer and farther between. It seems like you have to work harder now than you
ever did. Again though, longevity is key. When we hit the next great bull
market, Iíll be ready. In the meantime, if the market rolls back over, Iíll
be shorting it. Itís tough to ride out the retrace rallies, but it comes with
One other thought since it
seems to be a hot topic. I donít like all the government intervention in more
recent times. This has made trading more difficult. Free markets will eventually
fix themselves. I think the intervention does more harm than good.
Kirk: The learning curve to trading
successfully is long and expensive for most. Can you tell us about how you
navigated this curve successfully?
Dave Landry: It was no different for me. I spent a
ton on education materials and much more in real markets. It took me years to
figure out my simple approach. During good conditions, a novice can take my
stuff and do exceptionally well. However, human nature eventually rears its ugly
head. If conditions continue to be great they tend to try to outsmart the
system. They begin looking to anticipate the beginning and ending of the trend.
They begin risking too much. When the first inevitable drawdown comes along,
they begin looking to change methodologies because trend following no longer
works. They start trading choppy market systems, using a bunch of indicators,
and so forth. They end up being perpetually out of phase. Fast forward 10 years
and they find themselves back to a simple approach. My favorite clients are
those who try my stuff, go off to chase rainbows, and then return to me many
Kirk: Iíve seen the same here Dave. So,
what kind of advice would you give a person just now beginning in trading the
Dave Landry: Start small and build. The markets
will always be there. Youíll only be smarter in the future. Paper trade until
you are successful. And by the way, Iíve never met an unsuccessful paper
trader. Once you think you have a viable methodology, then slowly begin trading
it with real money. Only then will you learn about all the psychological
pitfalls. Also, you have to be very careful not to confuse brains with a bull or
Study money management at
least as hard as the markets early on. Probably the best thing you could do is
to take just one pattern and get good at it. I think something like my
Persistent Pullbacks would be a good place to start. Theyíre easy to recognize
and self regulate. You donít get many or any in choppy markets. You also
rarely get any against the trend. In fact, I donít remember any on the long
side in 2008.
Kirk: What do you think are the greatest
misconceptions beginning traders have about trading the markets and about
Dave Landry: That someone actually knows exactly
where the market is headed. All systems including mine will have losers and
Kirk: A number of people who read my website
desire to trade for a living. Like you, I receive a lot of questions concerning
capital requirements needed to start and how to make the transition to trade
full-time. Do you have any words of wisdom or rules of thumb to share along
Dave Landry: You have to have your basic needs
covered so youíre not trading with the rent money. With my methodology there
will be extended periods where there is nothing to do. Trying to make something
happen during these conditions because you need the money will create losses.
Quoting from a book Iím working on:
ďWith my style, I find
that busy traders make good traders. They tend to trade only when opportunities
present themselves and then they go off to save lives, build buildings, and do
other great things. Sitting in front of a screen all day is a recipe for
disaster. Every little tick becomes larger than life. Itíll look like a new
trend is emerging or an old one is ending. Youíll find yourself firing off day
trades, micromanaging yourself out of soon-to-become big winners, and taking
setups that are mediocre at best. Sitting in front of a screen all day is like
sitting in front of a slot machine.
If you do have the luxury
of being able to watch the markets all day, make sure you have some other
interest to keep you busy. Donít depend on the market for entertainment. In
dull conditions, do some research or study historical markets. Or, enjoy a
hobby, start a new business, or pay more attention to your friends and loved
Trends take time to
develop. Be prepared to go many months without making any money and likely
losing money. Psychologically, this can be difficult for many. Also, temper your
expectations. The best money managers in the world shoot for realistic returns
do so with very low drawdowns. If you run money and consistently make low double
digit returns with small drawdowns, youíll have all the money you could ever
want to manage. So, treat your own business as if you were professional money
manager. Itís okay to press a little now and then. Just make sure itís the
exception and not the norm.
Kirk: Great advice Dave.
What are the things you
like best about the trading business?
Dave Landry: I suppose itís the freedom but
itís a different kind of freedom. No one tells me what to do or when to do it.
However, because the markets are rarely closed and you must be present to win,
itís tough to have time off. Most of my vacations are working ones. I carry a
laptop with me. My international popularity seems to be growing, so Iím
beginning to see more the world. My next appearance is in Australia. Thatís
pretty cool. I often think how nice it would be able to put in for some vacation
days and relax. I then soon realize after a few says of bliss, in many cases,
youíd be back to having no control over your destiny. When market conditions
are good, I have the best job in the world. In less than ideal conditions, I,
and Iím sure all others who trade, find themselves doing some soul searching.
It can be a lonely business at times but I wouldnít trade it for anything in
Kirk: How does a person know it is the right
time and the right decision for them to trade for a living?
Dave Landry: From a swing-to-intermediate-term
perspective, you have to be profitable while you still have a day job. If
youíre not, donít think that something will magically happen once you go
fulltime. Once you are profitable, donít think that youíll be even more
profitable staring at a screen all day. You might find that youíre firing
trades off based on boredom or because you feel that you have to do something.
You have to have realistic expectations. Occasionally conditions are great and
you get unbelievable returns. For the most part though, youíll end up grinding
it out. As I preach, if youíre trading momentum, it can take 6-8 months and
sometimes longer to capture a good momentum cycle. Be prepared to not have any
income for this period of time. Again, have realistic expectations. Some of the
best money managers out there only return in the low double digits but do so
while keeping drawdowns in check. With my style, busy traders make good traders.
If youíre good at what you do in your current career, I would encourage you to
keep career and then slowly ease into trading. Unless you really hate what you
do, I think you could continue to do both.
Kirk: Do you think trading for a living is
getting more difficult or easier for the average individual investor? Why or why
Dave Landry: I have to speak in terms of current
conditions. Keep in mind that conditions change. Right now, the volatility is
high so itís a little tougher to hold positions longer-term. Iím not
complaining though, Iíd rather volatility too high than too low. Although I
preach against daytrading, the current high volatility environment is good for
them. Iím getting emails from people telling me how much money they are making
daytrading. The problem is, when volatility begins to dry up, theyíll have no
idea what hit them. Experience is the best teacher I suppose.
Kirk: Like me, you are privileged to know a
lot of different kinds of traders. Where do you see most traders missing the
Dave Landry: Probably that guys like us know
exactly where the market is headed. They donít realize that we take educated
guesses at best based on years and years of experience. I guess the hype out
there in the educational side of the business is to blame. I try to temper
everyoneís expectations. And, in the long runóif they can hang in
thereóthey find themselves pleasantly surprised.
Kirk: Likewise, what are some qualities you
frequently find among the most successful traders you know?
Dave Landry: They know that they donít know
everything. They put their egos aside. They worry as much about protecting
capital as they do growing it.
Kirk: Thinking back, what was most
instrumental in your development into becoming a successful trader?
Dave Landry: Realizing that there is no holy grail
and that a simple approach with proper money management can actually work.
Kirk: When all is said and done, in your
experience what is the best way to learn how to trade?
Dave Landry: Take 1 pattern and learn it. Study it.
Find 100s of examples over a variety of conditions. Study when it works and more
importantly, study when it doesnít. Start small and build. Treat trading like
any other profession. You didnít become a Doctor, Lawyer, or automatic
transmission mechanic overnight. Trading is no different.
Kirk: But, those ads for trading systems and
newsletters sure do make it look easy, donít they?
I suspect like all good
traders you are working on improving your performance in some manner. Can you
share what youíre specifically working on right now?
Dave Landry: Iím spending more and more time just
studying charts daily. I find that over time, hours looking at charts really
pays off. Projects such as books, articles, webinars, my trading service, and
other educational things help to me become better and better. It forces me to
practice what I preach because the whole world (well, at least part of it) is
Kirk: They say the best way to learn
anything is to teach others, something Iím finding within my mentorship
groups. So, if someone approached you who had no knowledge of technical analysis
before and desired to really gain a solid understanding and skill, how would you
recommend they go about learning the craft?
Dave Landry: Read the book Iím working on-coming
soon to bookstore near you. LOL. Seriously, know that a lot of Wall Street
wisdom is wrong. Know that one knows exactly where the market is headed. Know
that the only thing that matters is technicalsófundamentals do not matter.
Everything is priced in. Charts and only charts show you exactly what traders
have done and what they will likely be inspired to do next. Start small and
build. Understand the importance of money management. Understand the
psychological pitfalls of tradingóknow that you are your own worst enemy.
Essentially everything that Iíve written about in my new book, coming soon to
a bookstore near you. LOL. Iím know Iím being silly but in the last few
years, I have answered 30,000 emails. From these I know what questions need to
be answered. I think I did a pretty good job answering them in my upcoming book.
Kirk: I look forward to reading it. So, do
you have any books, websites, etc. that you highly recommend beyond your own
Dave Landry: Yes. Of course you have to read the
obligatory Livermore: Reminiscences of a Stock Operator by Lefeve (allegedly
written by Livermore). Read Livermoreís Biography by Smitten. Read How to
Trade Stocks by Livermore. Read all of the Market Wizard books. For T/A primers
ready anything by Murphy and read Pring too. Also read Edwards and Mcgee for
classical technical analysis. Also read Schabaker. Read the first 30-50 pages of
How to Make Profits in Commodities by Gann. The common sense stuff from Gann is
great. I let everyone else try to sort out all that arcane stuff.
Kirk: At this point of your career, who do
you look up to for inspiration and guidance?
Dave Landry: Good question. There are people who I
admire but Iíve become so independent, Iíd worry that they would see me
asking for guidance as weakness. Larry Connors and Jeff Cooper helped me early
on in my career (mid 90s). Usually, you always get something good out of Linda
Raschke. Iíve always been a fan of hers. Iíve recently joined the American
Association of Technical Analysts. Iím very much impressed and humbled with
the line up there (which includes people such as Linda Raschke). Iíd love to
get to know more of the members better. Iíve recently gotten to know Adrian
Manz through business dealings. Although Iím not a big fan of
daytrading, I respect what he does. Tom Incorvia who runs the trend following
portion of their hedge fund has an approach similar to mind and seems to do
well. Joe Corona is another trader that comes to mind. Heís worked on and off
through the years with ďMarket WizardĒ Tony Saliba.
Kirk: Although I know both of us share of
love for the markets and trading, what are your long-term career plans and
future for your website?
Dave Landry: My website is in need an overhaul.
Thatís on the ďto doĒ list. The learning curve in trading is a steep one.
On my whiteboard is a project to help with this. Itís only in the thinking
phase now and about 3 projects down the road, but Iím thinking. I donít
think Iíd ever leave trading. I also enjoy the educational ďretailĒ side
of the business. I enjoy helping people become successful. Itís very
rewarding. Iím not sure Iíd ever that side of the business but I would like
to get more involved with the institutional side. I think I could help mutual
funds do what they do a lot better through the use of technical analysis.
Kirk: What are some of your personal
passions beyond the market?
Dave Landry: Oh gees, youíre going to be sorry
you asked. My wife Marcy calls me ďHobby Boy.Ē Iíve dabbled in a little
bit of everything. Iíve always been like this. It makes for some interesting
childhood stories. Sorry Mom! I tend to be gung ho once Iím into something. I
used to spend a lot of time racing sailboats that was putting a bit of strain on
the home life and business. Now I keep most of my hobbies a little closer to
home. One of my hobbies in recent years is high powered rocketry. I have the
unofficial Louisiana record for the largest amateur rockets ever launched.
Itís over 11 feet tall, 8Ē diameter at its maximum, with a 2 foot fin span.
Others have flown bigger motors, but not bigger rockets to my knowledge.
I often tell my clients
when a profit target is hit to ďSmoke Ďem if you got Ďem.Ē ďSmoke Ďm
if you Got Ďm is a play on words.Ē An M motor is a large rocket motor,
weighing 10 to 20lbs loaded. I have a bit of an inventor side to me. I like
dabbling with composite materials. Rocketry has taught me a lot about this.
Rocketry also allows me to say ďtrading is not rocket science, and if it was,
I know a little about that too.Ē
My latest hobby is
restoring vintage cars. My current project is a 1975 Pontiac Grandville
Convertible inspired by Pedroís cousinís sweet ride in Napoleon Dynamite.
Iím thinking about my next projects but need to figure out how to get them
into the barn without my wife seeing them. Marcy, if youíre reading this,
thatís not my car in the barn.
Outside of hobbies and
family life, Iíve written a childrenís book that I hope to have illustrated
and published soon. A portion of the proceeds will go to charity.
I think itís a good thing
to have interests outside of trading. Iím still obsessive about the markets
but not nearly as bad as I used to me. In no longer consumes me after hours. I
look forward to my distractions. In fact, sometimes my best ideas come to me
while Iím in the garage.
Kirk: Please donít blow yourself up Dave.
Good traders helping other traders is something heavily in demand.
Dave Landry: The two major rocketry associations
just won a lawsuit against the government for unjustifiably classifying the
propellant we use as an explosive. So, thatís not going to happen. Due to
stringent self imposed rules, rocketry is a safe hobby. It actually has a better
safety record than Golf.
Kirk: Indeed. Golf can and often is
dangerous. Just ask anyone who plays with me!
Finally, if you had one
piece of advice to share with all investors and traders, what would it be?
Dave Landry: Again, give yourself time to become
successful. You must experience a variety of conditions. Understand the
importance of money management. Itís a business of longevity. You survive
until you get it through the use of proper money management. Simple methods can
work. Start with one pattern and get good with it. Then, slowly build.
Understand the importance of Traderís Psychology. Realize that the battle is
Kirk: Thank you Dave.
Dave Landry: It was my pleasure.
Disclaimer: Information provided for educational purposes only. See disclaimers at www.davelandry.com
All commentary provided on this site is provided for educational purposes only. David Landry may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. There is a risk of loss in trading. Past returns are not indicative of future returns.
Copyright © 2006-2008, Dave Landry