INTERVIEW
by Thom Hartle
So how did you get interested in the markets?
I started in the futures business at a very early age. My father owned a seat on the old Chicago Open Board of Trade, which is now the MidAmerica Commodity Exchange. Back in 1961, I used to earn my allowance money by getting prices on agricultural commodities out of the daily newspaper and constructing point and figure charts, as well as weekly and daily bar charts. I would plot trendlines and at least two moving averages for my dad. And each summer vacation, from junior high through high school, I worked on the floor of the Mid-Am for my father.
ThatÕs a nice start! What did you do for your father on the floor?
My job was to keep 15-minute charts on corn, wheat and soybeans, while my father traded those markets in the pits. Every 15 minutes or so I would signal the 15-minute trend in each market to him -- for example, corn up, wheat down, beans up -- and he would only take the trades with an edge and with the trend.
So he would work to pay the bid or sell only at the offering price in the pits?
ThatÕs right. HeÕd work the edge like the other traders did, but only in the direction of the 15-minute trend. Then, instead of exiting with a quarter-cent profit or a half-cent profit, he would hold that trade until I signaled to him that the 15-minute trend had reversed.
Did you stay with this line of interest in college?
Actually, I majored in English and minored in philosophy. I earned a masterÕs degree in California and went to work teaching English back home near Chicago. After I got married, we opened a small futures account with $3,000. I thought I was a real high-roller because the minimum account size that anyone in Chicago would take was $2,500! I began trading agricultural commodities with some basic techniques.
Such as?
I used a five-day and a 20-day simple moving average crossover system. For trailing stops, I used trendlines, pivot points and divergence.
Looking for divergence between the oscillator and the price?
Right. If prices went to a new high, but the difference between the five-day simple moving average of closes and the 20-day failed to do so as well, I would tighten the stop dramatically. That was back in the early 1970s. I think that was a pretty early use of oscillators and divergences. I also used three-box point and figure charts.
Point and figure charts?
I drew 45-degree angle trendlines and entered trades in the direction of the trend. If I were already long, to exit I would use a zero in the current column lower than the lowest zero in the previous column of zeroes. But I would not reverse to a short position if prices were still above the 45-degree angle trendline.
What other rules did you follow?
LetÕs say the trend was up and I was holding an open profit that was equivalent to 10 boxes on my point and figure chart. Instead of waiting for the next sell signal, IÕd exit on the first three-box reversal. I would re-enter, or add to my positions on a three-box reversal back in the direction of the trend rather than wait for the next buy signal.
So your method was fairly aggressive, but only in the direction of the trend?
ThatÕs right. If the trend was still up, and I was stopped out, or there was a column of zeroes implying a counter-trend move, I would re-enter on the first reversal based on a posting in the column of Xs. I added to my position on an upside reversal appearing in the column of Xs rather than wait for an X higher than the highest X in the previous column. That worked out really well.
You leaned toward the classical techniques, then? Not that there were a lot of options in the 1970s, of course.
Yes. I also used classic chart patterns from Robert D. Edwards and John MageeÕs Technical Analysis of Stock Trends. Especially head and shoulders?, flags?, pennants?, triangles?, wedges? and rectangles?. I still use those.
Have you added any indicators to your analysis?
IÕve added the directional movement index? (DMI) spread. I use this to evaluate the trendiness of the impulse wave before the most recent congestion pattern. I also use the relative strength index? (RSI) to anticipate the breakout from the congestion? pattern.
How would you put all of that together?
Say we had a strong flag pole on the chart that pushed the DMI spread to a high level, and prices formed a symmetrical triangle. I would wait for the RSI to turn up from below 50, and then I would place a buy stop at the high of the day that caused the RSI to turn up from below 50. I would enter when the market moved above the high in anticipation of the breakout of the triangle rather than wait for the breakout.
How close would you say you are to trading a mechanical method?
ThereÕs a difference between a purely mechanical system and a rigorous methodology. I have never really traded a purely mechanical system, but IÕve always tried to trade a rigorous, disciplined methodology. IÕve always known what my rules are, and IÕve tried to follow them.
WhatÕs the difference?
As a young trader, I didnÕt have a computer to help me program and test trading methods. So all my father and I, and most other traders, would do was to start with an idea and look back at between 50 to 100 occurrences of it. That was our version of backtesting.
