On Trading For A Living
Don Miller And The Ultimate Entrepreneurial Experience
How did you get into trading?Don Miller toiled in the corporate world, wondering if there were more to life -- and then he discovered there was. He gave up the comfort and safety of his career in the telecommunications industry and plunged into the world of trading, the "ultimate entrepreneurial experience." He is an independent futures trader who focuses primarily on the US and foreign indexes, including the US S&P eminis and German Dax. In addition to trading a private capital fund, Miller writes a midday column for TradingMarkets.com and has created several instructional Dvds (available at DonMillerTrading.com). He is a member of the Chicago Mercantile Exchange.
Stocks & Commodities Editor Jayanthi Gopalakrishnan interviewed Don Miller via telephone on November 3, 2004.
Trading is an acquired skill, not unlike learning to be an airline pilot, or a professional golfer, or a surgeon, or any other profession that requires a degree of skill.
Back in the mid-1990s I was in the corporate world. I had worked my way up to an executive position with a fairly large telecommunications company in the Midwest. My educational background is in finance and accounting, and I did a lot of that. But I got to a point where I had lost my motivation. I was running a division, I was testifying, I was doing all sorts of things, but it just got to a point where I looked around and said, "Is this all there is?"
Actually, it sounds like a lot!
I guess a better way to put it is that I'd lost the challenge. At that time, access to the markets was more readily available, and one thing led to another. I decided to forgo my nice, safe corporate career for what I refer to as the "ultimate entrepreneurial experience." It's been a whirlwind effort ever since.
Did you start by trading the indexes, or were you pretty much trading everything?
Actually, a lot of my early trading was with stocks. I became very proficient at scalping stocks, taking advantage of what, at that time, were fractional spreads. That reflected a great deal of my trading -- taking the wholesale position on various market turns and profiting, to a large extent, from the spreads. Of course, that game dried up a few years ago when decimalization hit, and what used to be one-eighth spreads and one-fourth spreads got narrowed down to as little as a penny. That style of trading dried up for a number of traders, and I was caught in that.
What happened?
I figured I needed to either adjust my trading style or die, as far as the markets were concerned. I migrated to the indexes, starting with the exchange-traded fundsÝ -- Etfs such as the QsÝ and the SpdrsÝ. In my view, the larger markets, versus individual stocks, tend to move a bit more in a fluid direction. They're more predictable in terms of patterns. They're not saddled by specific company risk or specific company news, so there seemed to be some sense in going that route. That's why I made the change. And it's worked out really well.
What do you look for when you trade these days?
I am a technical discretionary trader, using technical analysis to a large degree. Yet I also believe trading is an acquired skill, not unlike learning to be an airline pilot, or a professional golfer, or a surgeon, or any other profession that requires a decent degree of skill. I say that because there are really two skill sets needed to succeed as a trader, in my view. One is understanding technical analysis, which I'll get into later, and the other is just the skill set of a trader. As you know, there are so many good technical analysts out there who, for one reason or another, don't or can't trade because they possess one skill set, but not the other.
Having laid that as a foundation in terms of the technical things I look for, I'm a very short-term trader in the futures markets; I'm always looking for some kind of an intraday market bias. In terms of trends in various time frames, I look for momentum and carve out profits by scaling in and out of positions with the wind at my back, if you will.
Typically, how long do you hold on to your positions?
I look at my trades in terms of what I like to call trade sequences. The majority of them are effectively scaling in and out of a position to minimize risk, to account for the fact that if you try to make that perfect entry every time, you'll never get it. When I look at trade sequences, the time frames I trade are typically three-, 13-, and 60-minute charts. If I'm trading the lesser time frames, obviously I'm not holding very long -- I'd say anywhere from one to 10 minutes. As the time frames grow, the holding times can be a bit longer.
What about technical analysis? What kind of tools, indicators, or patterns do you look for?
I try to keep things simple. In terms of trend indicators, I use moving
averages. And while I know some people say that moving averages are lagging
indicators, I find them to be extremely helpful. The moving average obviously
reflects recent price activity, so it is historical in nature, yet at the
same time, it provides a good visual for where support can come in when
a market is trending. And a market is typically always trending on some
time frame, small or large. As for trend, I'm a big believer in using moving
averages of the various time frames that I monitor.
...Continued in the January issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the January 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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