Trader Talk – Systems and Technical Trading

Site Administrator | December 16, 2011

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Trader Talk 12/15/2011

Michael Westmoreland –

Jerry Simmons –

How did you get your start in the markets?

Mike – I came into the markets in 1990.  A friend of mine was already in Chicago and called and invited me to come trade Bonds in Chicago.  From there, I moved through the bond market  over the years through various sectors.  The best part of being in the markets was that you were never bored.

What strategies are working best for you in the current highly volatile market?

Mike – Some strategies that have worked in the past can be thrown out the window.  I think more than anything, I’ve had more discipline.  Adhering to discipline and stops, and not trying to chase anything.  Being in cash has proven to be a heck of a strategy.  Let things shake out of the market and look for a re-entry point.

Jerry – What we do primarily is day trade with some swing trading.  The more volatile the market is, the more we like it. We put primary and priority focus on capital management and risk management.  We focus on structure and trend.  We’re looking to go at a short term trend at a strategic point. It's very simple, yet powerful over the long term.

What is your favorite all-time trading setup?

Jerry – Speaking of volatility, we have several designed or highly designed trade set-ups.  It's really tough to select one, but I’ll select one that we’ve used most recently. We look for periods of anticipated expanding volatility.  What we’ve found, is that a period of volatility expansion is preceded by volatility retraction.  Take a weekly chart and look for the smallest weekly range in the last 7 weeks.  When you get that, the odds highly favor a volatility break out and range expansion the following week.  We highlighted this last week and said we would get a good move in the currency market, we waited for a break out.

Mike – There’s a lot that I like to use with technical analysis.  I like looking at flat formation breakouts.  Granted, I can’t see everything, but when I spot something that has broken out, I am watching that closer than anything else.  What you want to see is a flag pole on top of a flag.  Although I can’t catch everything, I do see a lot of great moves.  Those are the ones that I really enjoy trading recently.

What is your opinion about what is in store for the market in 2012?

Mike – I can break that out, I have a lot of different opinions.  One of the things that I’m looking at is a specific sector.  I like the equities.  I like looking at the mergers and acquisitions and bigger names coming into acquisitions. The stocks associated with those are doing really well.  I can see a repeat of this past year.  2012 will certainly be volatile.  It’s a trader’s market, and next year will be the same.  I think the destruction of the Euro as a currency itself will be a good thing.  That’s the big elephant in the room.  I don’t think US politics will be an issue.  Cash management is at the top of your list.

Jerry – The only opinion I have is from looking at the charts.  It looks like we’re forming a reverse head and shoulders pattern right now.  Either way the right shoulder goes, we’re looking at a good move in this particular scenario.  The key thing is to get confirmation.

Mike – How do you use pattern recognition in your trading?

I’m watching the head and shoulders formation.  These patterns can create very big moves.  There are several patterns that you can find.  I like looking at those because associated with volume, you can get powerful formation.  That’s how I use it.  To pick my spot in the market and how I want to trade.

Jerry – What appeals to you about designing trading systems?

Specifically, generating trading profits and income.  The opportunity to design and program and implement trading systems is simple.  You can program it, back test it, and that can become an important component in a trading program.

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