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Hello to everyone! Today we have an exceptional guest! Very renowned trader — Linda Bradford Raschke. Linda began her professional trading career in 1981 making markets in options, as a member of two exchanges. She became a registered CTA in 1992. Linda’s hedge fund was ranked 17th out of 4500 for best five years performance.

Jack Schwager recognised her early success in his famous Market Wizards series. Linda is also a co-author of a highly acclaimed book titled Street Smarts: High Probability Trading Strategies for the Futures and Equities Markets. In this podcast, she describes her approach to trading and shares lots of tips how to become a professional trader.

(…) I traded the Flash Crash, that’s funny, because I remember every single tick: the price was selling down into the 20s, which was like a level I have targeted, where I’d looked to be a buyer, and I started to nibble, I bought some futures.

And I had my trading partner, this is when I had my hedge fund, so we had bought like a hundred, and I bought another hundred. I’d like to try and see if the price stops going down and then I could put my stop in.

And I remember they were like around 28, and all of a sudden they dropped to 22. And then they dropped to like 19. And I really hadn’t a chance to put the stop in. This is like 200 SP500 futures.

My first reaction was: oh, my God, there’s been a nuclear bomb going off somewhere, so I immediately hit “flatten the account” button, which was like getting rid of everything on market. I love that “flatten” button. So I flattened and that cost me like another 3 handles, they dropped to 16, and then they went 05, they broke through the handles, 90, 80, 70, 60, all of the way down to 55, like 65 handles lower in like 2 minutes, you know?

At which point, you know, I watched it and I put on the position again half. And they came back. So, I ended up basically a break even for the day like initially like getting clipped on a 200 futures like a good thing.

In this episode…

  • Linda’s trading career
  • What’s her current approach to trading
  • What markets she trades
  • How she models the markets
  • What she thinks about certain testing methodologies like Monte Carlo, Walk-Forward Analysis
  • Why Linda prefers discretionary trading, rather than purely systematic
  • Is Linda trading on Forex?
  • What is the pain threshold for Linda concerning capital losses?
  • What tools are used by Linda for trading?
  • Linda’s approach to risk management
  • What Linda is recommending for everyone who’s interested in trading

Quotes and tips from Linda

I am 100% technical in my approach, using price. I pay a little bit of attention to volume, but not whole lot. I find and get all my information from price.

Most of my modeling is just there to give me my initial game plan. But during the trading day I can get it better, or I can exit better.

I like making some day trades, but most of the money is made holding something overnight or being able to capture the trend for the day. If you’ve got the main idea right, there’s no point going in and out and in and out, just to show you can make a winning day trade.

My models are pretty basic. I never use more than 1 or 2 variables, and maybe one filter. So, they are extremely durable and robust. I don’t want a model that will work only in a particular environment, like a bull trend.

What changes is people’s bias. People tend to remember the most recent events and overweight them.

It’s human nature to try and want to put something in a black box. To try to engineer a perfect equation that you can solve, but the markets are not a closed universe. They are not a closed system.

I don’t believe in predicting or forecasting markets. Period.

It’s fun, but I’m really not making as much money as I thought I could make. I think that the real money is made when you get to the point when you can run your trading as a business, managing other people’s money. Then, I think that’s where the big money is made.

Stay away from stupid stuff like Fibonacci, Gann and all these projections and ratios, and nonsense! I mean, the big money is absolutely not made that way! I just try to picture Paul Tudor Jones doing this stuff, and I have a good laugh, you know?

What you need to learn is to immediately cut your losers super short, and learn good risk management. The winners will take care of themselves. You just need one big winner of every 10 to 20 trades. The cardinal sin is never, never, never have a big loser!

Have a lot of patience. I never saw anybody make a successful living without at least a 3-years study. It takes a long time. If you were going to become a medical doctor, you do 4 years of college, 4 years of medical school, another 2 years of specialty, then you’ll have to do internships, and on and on… It’s like a 10-year process and people think they are going to be successful traders just after 2 years. It doesn’t work that way.

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