Get to know your fellow traders. YTE speaks to trader Jake Fleming
How and when did you first become interested in the markets?
My interest developed from the simple observations I made when I was around people who had wealth. They all seemed to carry a substantial interest in the share market and naturally I wanted to be a part of it. The market was spoken about over dinners with friends and debates raged over the future of BHP, CBA and the like. Beers with mates turned into arduous conversations about stocks, politics and the future of our economy. This all started back in my final year of high school, when money became a dream and it was obvious that my future job in agriculture was going to be hard.
I had always been a bit of a hoarder with money, thanks to the good teachings of my parents. They had taught me some great lessons about life and the benefits of saving. Four years ago I began to explore other ways to make some money, I did not have the capacity to buy a house so I turned to the stock market. This is well before I had any knowledge of CFD’s, options, forex or any other trading platforms.
And then what happened?
A long arduous process of finding out the good and bad about the markets by myself. Flying blind, I like to call it. Aside from a friend or two, I had no assistance or guidance whatsoever. My family have been in the business of agriculture and the mention of stocks, bonds or derivatives was dismissed as voodoo. Starting with a few small biotechs and some larger blue chips, I threw myself into the deep end along with most of my savings. I had the same story as most people when starting out, the first few investments went great so I started getting overly excited. I didn’t have enough money to invest so I borrowed some to leverage myself a bit better, for all the money I was going to make. I was clearly young, naïve and greedy. I soon learnt my lesson. The tsunami hit Japan while I had a large portion of my money in an insurance company. The biotechs started going broke and the payments on the home loan were looking more and more daunting. I had given up and written off all my ‘investments’ a number of times over a few years, each time coming back and making the same mistakes I had forgotten all about.
How have you been able to learn and educate yourself about the markets?
Eventually I gave up. I had turned $60,000 into almost nothing with very little to show for it, other than a couple of broke biotechs and some lost pride. I decided to do something about it. I read a few books on investing, stories of Berkshire & Hathaway, Warren Buffet and Benjamin Graham but it was all so long, winded and time consuming. I wasn’t after 6% returns over a life time because 6% of nothing is still nothing. I yearned for higher yields in a shorter period of time. As a result I turned to the most useful and powerful tool known to manGoogle. It was as easy as typing in ‘learn to trade’ to find countless pages of forex companies teaching you binaries and other scam look a-likes promising massive rewards for minimal effort. Eventually after a number of phone calls and chats with numerous salesmen, I had a conversation with a man who grew up around the corner from me in Dandenong, Victoria. He worked for an options education program ‘TradersCircle’ and encouraged me to come along for the course. I completed the course in September 2014, then continued on to an ‘Elite’ course through until December. Now trading is my second job.
Did you make mistakes when first starting out?
In the beginning it seemed like I only made stupid mistakes. My trading style was often flawed and riddled with bad decisions. Even now, it’s not perfect. I didn’t have much of a problem with losing trades, as money had very little worth to me. This was not because I didn’t need it but because I was so used to losing it. My biggest problem came nearly every time I was right about direction. I was right probably 16/20 of my first trades but wasn’t making enough money, and I put it all down to greed. I wouldn’t chase my losses, but when I was winning I’d chase them till I was in a position no better off than when I entered the trades. Eventually, turning wins into losses became incredibly frustrating. With professional training and greater experience I have developed better skills and judgement in analysing the market. I have also learnt to remind myself of the three words that can save any ambitious trader… “Don’t be stupid”.
Would you define yourself as a discretionary or mechanical trader, or a combination of both?
As of this point in time, I wouldn’t know how to define myself as a trader. My practical experience is still quite limited as I am only at the beginning of my life as a trader. Having placed my first trade in September 2012, I haven’t quite gauged my style other than let’s say risky. For this reason I would lean more towards a discretionary trader. If I like something enough and it fits all of my rules, I will enter it. It is my aim to become mechanical, as I believe it will help remove a large amount of emotions that I still struggle with.
Can you give us a brief overview of your trading style?
Working full time on a farm, with only an hour-long lunch break, I am forced to do most of my work during the evening when the Australian market is closed. I use daily OHLC (open high low close) charts along with a number of simple indicators to determine my potential trades for the following day, granted the share price follows the pattern I have identified.
I make note of 2-5 companies or the ASX top 200 index (XJO) that are begging to show me some good technical levels, which I will look to trade the following day. Often I find that none fit my entry rules because of something that happened in the U.S. Other times I find I was just wrong so I do nothing and wait. If not, I will enter my positions after 3pm. I hold the trades short term generally no longer than 3 weeks, but often if I am right, I will offload within a couple of days.
I trade generally with spread trades where I buy and sell options at the same time to protect myself from some risk. This allows more time for the share price to do what I want and cover me if it does go against me for a short period of time. It’s a simple way of trading and eventually I plan on building up a larger breadth of strategies. But for now, it works and fits my busy lifestyle.
Is there any one trade (win or loss) that had a profound effect on your development as a trader? If so, what did you learn from the trade?
Oh yes! The trade that made me realise how greedy I really was and why I need to change. It happened in May 2014 just following RBA’s announcement that they weren’t going to cut rates from historical lows of 2.5%. I went short seconds after the announcement on the XJO and put a large portion of my trading bank (which I still keep small at around $20,000) into a high-risk high reward trade.
Two days later I was in a position to close out of my trade for an approximate $30,000 profit, over half a year’s wages for me. This would have been enough to buy the new car I desperately need, finish the bathroom I’m renovating and buy some stocks leading into the banks reporting in May. I turned to a colleague who was also following the stock market for a little high five and a bit of a gloat, and he said ‘why don’t you get out?’ My response was ‘the market is going to punch through this level (5750) and go down to 5500 this week and I will make 100k’. At the time I had forgotten that the night before I had identified the 5750 level as large support level for the XJO.
Within moments of my extreme greed, the market started to reverse. It showed a big candle stick reversal pattern at close then opened 60 points up the following day. My trade had turned against me. By the time the market had been open for 3 hours, I was left with only $4000 profit. I had to take it because the market was about to go long. In under a day I had withered away $26000 in profit and learnt one hell of a lesson!
Can you tell us about your best and worst trades? Lessons learnt?
My best trade was what they call a Strangle in options trading. I went both ways on NAB three days before a RBA decision with both calls and puts as volatility was very low. Hours before the RBA announced anything I was already at a 65% profit so I took the money from the market. That afternoon I placed the devastating trade I just discussed, but that one trade has taught me so much. My best and worst were both done in the same week. What a week!
Would you classify yourself as a short term or long term trader? What advice would you offer to people getting started as traders on the relative merits or otherwise of each?
Fundamentally I am a short term trader. The longest I have held a trade is 3 weeks and the least is about 12 hours because it suits me. But it would all depend on the type of trading and strategies I know and want to implement. This suits me and my smaller trading bank, along with my money management rules, so I don’t commit all my funds in case another good trade comes along.
The best advice I can give to somebody starting out or in a similar position to me is: learn and listen! There are so many people in this world that have done what you want to do for years with valuable experience and wisdom. Moreover they are often willing to share stories, lessons and techniques. But remember to always take it all with a grain of salt. No one person’s advice is enough as I can assure you a successful trader didn’t learn everything they know from just one person. Find as many sources of good information as you can and absorb it all like a sponge because no matter how much you know, knowledge is power and the second you stop learning, you’re committing yourself to a finite system that may be floored.
Lastly and perhaps most importantly, nothing great in life is easy and I’m yet to meet a great person who hasn’t worked incredibly hard to get where they are today. So work hard and do that extra little bit whenever you get the chance. Go above and beyond your peers because to be truly successful you need to be able to set yourself apart from the pack.
What markets do you trade and which markets do you prefer? Do you have a favourite and why?
- I have confined myself to Australian equities and options. I trade only the bluest of blue chips as these are the most likely to not surprise you and follow the trends.
- Combining this with the options market allows you a large amount of flexibility to change up positions as the market conditions evolve.
- Although the Australian options market isn’t the most liquid in the world, I have never had a problem getting filled. Sometimes I have to give a small discretion for the market makers to join the party.
What makes your trading style different from others? What sets you apart from other traders?
My trading style probably doesn’t differ too much from other likeminded traders that are also at the start of their career. I have learnt from the past and I am trying to stick to a set of rules that many other people follow. Imitating a successful style can work, and using this as a base for change is a great way to start, but it will not last forever. Compared to others around me, I believe, I have a higher tolerance for risk. I’m a bit of a gambler and I am willing to go a bit harder when I have strong convictions about a trade. Over time I am confident this will help define me as a trader who really goes after wins.
Do you have a favourite rule?
There are some hard and fast rules with trading that I’m sure most traders follow. Patients, trade management, profit and loss levels are all things I like to follow but above all else I follow my money management rules. Without them I run the risk of gravitating towards strategies that have more in common with gambling than trading. The money management rules I follow include:
- My risk amounts on trades that change depending on the strategy of the trade, which I try to limit to about 20%, so when I’m wrong I don’t end up wiping out my bank.
- Never be in more than two trades in one sector. This protects me from industry specific trends and shocks.
- Take profits out of my trading bank when I hit a set level. Without this I have no attachment to the money I’m making or losing. Rewarding yourself makes it all worthwhile and reminds me of why I am involved in the market. This laptop I’m typing on was the result of a good trade on a CBA short and my girlfriend’s car is the end result a few long trades I made in the bullish run of January 2015. It helps to keep me motivated and stop myself from becoming complacent.
- Most recently I have added: don’t get greedy because as the old saying goes, ‘nobody goes broke taking a profit’!
Has trading affected your lifestyle?
Learning to trade has been the single most influential and rewarding experience of my life. It has given me so many opportunities to grow as a person, meeting new friends, learning new things and developing such a deep passion for the markets while making money along the way. It dragged me out of a ‘rut’ I had found myself in. None of it has come easily though, I have worked extremely hard to improve my trading, including completing a Diploma of Financial Planning. I am confident it is going to significantly improve my understanding of the financial system and give me a better way of managing my long term financial goals. It has become my second job but it’s a job that I don’t consider work. It’s just something more productive than watching television
What books, seminars and courses have you read and attended and which would you recommend?
I can’t recommend highly enough the value of a good education, and I owe a large amount of credit to the team at Traders Circle. They are responsible for setting me up and helping me along this journey right from the beginning, even before I knew what options were. An education is crucial to get started and continuing to learn is even more valuable than that. So far this is all of the formal education I have received, but time permitting I will be sure to study more to expand my knowledge and generate a larger pool of people to draw my style and strategies from.
What does the future hold for you?
My future at this point in time is looking somewhat expansive with so many paths I can follow. Fortunately the hardest decision now is choosing which one to take.
I envy ‘Dorothy’ from the Wizard of Oz as her story was set from the beginning- ‘just follow the yellow brick road’. Currently I feel like I have an endless rainbow of ‘brick roads’ to choose from each leading to a different future. All of them include hard work and all in some way include trading, but to what extent is the question. I know I’ll complete a number of further education courses and seminars on trading options and most probably in the future some on forex and currencies. It’s a dream of mine to trade full time because I am passionate about it. Unlike working in agriculture, I can do this from anywhere. Poolside with a cocktail in a tropical country is my preferred location, but that’s years away.