Erich Senft is a recognized futures trading expert and has been trading futures since 1995. He is a registered CTA (Commodity Trading Advisor), designated Trader Kingdom Expert, trading teacher, coach, and contributor at Wheatland Investor Report, MrSwing.com, Pitnews.com and The Technical Analyst Magazine, among others.
An Interview with Erich Senft, CTA
Could you tell us a little about yourself?
There's not much to tell. I was born and raised in a small town in central Alberta – in the heart of the oil patch. In my early 20's I met my wife and we moved to the west coast where we've lived ever since. I've done a lot of different things over the years, but trading has been my passion ever since I caught the bug about 20 years ago.
How did you get started trading?
I was first introduced to the world of trading in the mid-70's when I was a young boy and the Hunt brothers were attempting to corner the silver market sending silver prices soaring. My cousin, who's always been more ambitious than me, starting hording quarters for their silver content and I helped. We must have collected $300 worth of quarters before we found out that the government stopped putting silver in quarters in the mid-60's!
Fast forward 15 years when at a very difficult time in my life financially I got the “Ken Roberts” flyer in the mail and promptly sent for his commodity trading course. I poured over the information and a few months later I opened a trading account only to blow it out about a year later but I was hooked and determined to figure out how to become a profitable trader.
What do you like best about trading?
Without a doubt it's the freedom and flexibility, especially nowadays with the Forex, Global markets and liquid after hours markets. You can literally trade anytime of the day (or night) that suits you.
What markets do you trade?
I started with the grains and still favour them, but in recent years the margin requirements have gone through the roof. Now I tend to spend more time with the emini S&P although I do like to dabble with the Bonds and Forex.
What style of trading do you use?
I'm principally a support and resistance trader. I look at a chart and figure out where the buyers and sellers are and once I decide who's in control of the market I’ll trade with the dominate group.
What have been the biggest influences on your development as a trader?
Two things: people and losses.
I like to think that I can learn something from every trader but there are three people who have had a significant influence on how I trade today.
The losses are self-explanatory. It's funny, while extremely gratifying, you never seem to remember your winning trades to the same degree that you remember the losers. Losing money is an extremely painful experience and I will agonize for days over a losing trade – analyzing what went wrong and trying to figure out how not to let it happen again. There are some losing trades that are still vivid in my mind, even though they happened many years ago.
What is the one biggest lesson that you have learned since starting trading?
Biggest lesson? I have to choose just one? That's tough, but I'd probably say money management. If you don't know how to get a handle on your losses you might as well take the money out of your account and go to Las Vegas where you'll at least have a good time spending it.
Many years ago there was a trader who went by the cyber handle “Phantom of the Pits” who gave a printed interview on the internet. While some of his concepts were a little mystical, two things struck me about his trading philosophy: 1. assume you're wrong at the outset (ie. get ready to take a loss, keep losses small) and 2. press the trade if it goes your way.
Unfortunately the interview never gave specifics how to accomplish those things, but I still believe it to be sound information, especially the advice on keeping losses small.
How did you get interested in coaching other traders?
About 10 years ago internet trading forums began springing up and I would spend time at the forums posting and reading posts. I noticed that there were a lot of people asking trading questions, desperate for information, and either getting no answers, or worse, getting bad advice.
I started posting more and people liked my answers and advice. A star was born.
Do you focus on coaching of one particular area of trading, e.g. risk management / psychology or finding trades?
No, not on just one area but it depends a lot on what the individual needs. There are some people who are okay with some pieces of the trading puzzle but lost in some other aspect of trading. And then there are the ones who are simply lost or so overloaded with information that they haven't got a clue how to proceed.
People usually tell me what they need, and if they don't I can usually spot it pretty quick.
How do you work together with your clients? E.g. phone / email / screen sharing?
All of the above, but as the internet becomes more sophisticated we're doing more trading rooms, with screen sharing software. It's as close as you can get to a one-on-one experience without the plane ticket.
What sort of results do your clients get after coaching with you?
I suppose you should be asking them, but I would like to think that they're more confident with their trading abilities. People gain a lot of confidence when they get to trade with someone else to “show them the ropes”. There's usually at least one “ah-ha!” moment when things start to come together. It's kind of like trading with training wheels – you feel safe until you can do it on your own.
What is the most satisfying part of coaching traders?
People are always so grateful for helping them become better traders. When you think about it, there really are no trading schools, at least not in the traditional sense. If you're looking to learn to trade you're limited to two options: teach yourself or find someone to teach you; that's it.
What is the biggest but most easily fixed mistake that you see traders make?
I'd have to say overtrading. It's a big problem, but an easy fix.
There are a lot of traders who get hooked on the “trading buzz” and will get into another trade to get their fix, not unlike a junkie. Of course the buzz wears off pretty quick after a big loser and that leads to other problems, which also tends to result in overtrading so you're stuck coming and going. But if you want to fix your trading, be a lot choosier about which trades you take.
The next biggest “easily fixed” mistake is that people give up too easily.
Do you recommend journals or other record keeping as an important part of trading?
Absolutely! What an undervalued resource a trading journal is, even if it's just a basic recording of where and when you got in and out of a trade and the profit or loss. Better journals keepers will make notes of why they took the trade and will review the trades and reasons later, but whether detailed on not, every serious trader needs to keep a journal.
There are very few absolutes in trading, but keeping a journal WILL make you a better trader. Guaranteed.
What are the most common issues that you see in your clients that prevent them from becoming better traders?
They're the same ones that get us all: fear and greed. Fear makes us doubt our method and greed just makes us do stupid things.
One of the best traders I ever knew was a pilot. He was methodical almost to the point of being annoying, but he was able to import his experiences as a pilot and transplant them into the trading arena. Pilots don't question what their instruments are telling them. They just read the information and act accordingly. As a result he was able to eliminate much of the fear and greed components that plague the majority of traders.
What advice would you give traders who are just starting out?
Start small and don't rush. Test your method and then test it some more. Get comfortable with the notion of trading multiple contracts or positions because that's where the real money is at.
Should traders trade live while their learning?
No, absolutely not. At least I don't think so. I know some people will argue that you can't get the emotions going on a simulator the same as when there is real money involved, but I don't agree. The simulators they have now will let you piggyback on a live data feed so it is just as if you are trading real money but you're not.
Besides, the emotions come into check with practice. You'll still experience the frustration of a losing trade, even if it is just a sim; likewise the satisfaction from knowing you've got a money making system and the confidence to trade it can also be learned through a sim.
What 3 books do you recommend traders read?
I'm assuming you're referring to trading books? There's a lot of garbage out there but worse than that, there's a lot of books that don't tell you anything! I'm a big fan of “how to” books, but there are not many out there in the field of trading worth reading.
If pressed, I'd probably say my two favourite trading books are: "Technical Analysis of the Financial Markets", by John Murphy and “Day Trade Online” by Christopher Farrell, which coincidentally are the only two trading books on my bookshelf.
“Technical Analysis” is the Bible of trading books and covers just about every aspect of trading; however like most textbooks it leaves the reader to draw their own conclusions as to what is valuable and what is not, but as a reference it's tough to beat. Chris Farrell's “Day Trade Online” is about stock trading and is a bit out of date; however I like to read it for the concepts and he's a pretty entertaining writer as well.
The third book I would recommend is “The Truth About Trading Support and Resistance”... which is the trading book I wrote, a shameless plug I know, but self-promotion aside I like to think of it as a trading manual more than a book as it is full of “how to” stuff. It has been well received over the years, but it too is due for an update.
Maybe more than a book I could recommend a movie? “Enemy at the Gates” stars Jude Law and is a true story about a Russian sniper in WWII and while not directly related to the field of trading it's amazing the parallels that can be made especially in the opening scene where he is a child hunting wolves with his grandfather – if that isn't a metaphor for what makes a good trader I don't know what is!
Another good trading movie is “Rounders” with Matt Damon, which is about poker players and not trading, but again, there are a ton of parallels that can be made to the trading world. “21” with Kevin Spacey is another such gambling/trading style movie.