LINDA RASCHKE Interview - The New Market Wizard

Ja, really brilliant to have Linda Raschke on for a chat for the Amplify Masterclass series. We're delighted that you've taken the time to chat, and I'm pretty sure there is no trader in our room that doesn't know who Linda Raschke is and your background. There's a huge amount of great interviews with you on YouTube. And I suppose for this conversation, I wanted to maybe ask you what you would like to talk about because you have kind of done a lot of conferences over the years and there are recordings there. But I mean, yeah, Linda Raschi, over to you.

I have been listening to some books on Audible now. So when I— didn't you say you're a horse person?

Yes. So to premise this, Linda and I got talking after I finished her book and I realized Linda was such a horsey person. And I come from a very horsey family. We have a riding school and my sister trains events, 3-day event horses. And yeah, so I'm the black sheep of the family that makes money from markets. But yeah, we got talking.

You don't make much money from horses.

It's hard to make money from horses. It's a great way to lose money, I'd put it like that.

Conversely with trading too.

Exactly, exactly. Yeah. Um, and so, so are you still writing or—

Yeah, so I was going to say, I, uh, you know, I listen to Audible when I drive back and forth to the barn. So I pretty much, after the markets close, I go out to the barn every day. And, uh, I just finished one book that I highly recommend called The Biggest Bluff by Maria Konnikova. About poker. And then I'm right in the middle of another book called Alpha Brain. And both of them deal with, you know, interesting topics regarding our decision-making process that can come into play with the markets and so forth, and cognitive biases when we know we're doing stuff wrong, but we still choose to do it anyway. All these types of issues. So the markets to me are not really about, you know, the setups and the technicals and so forth and so forth. I think it's more about your process, knowing yourself, knowing the areas where you could go on tilt or get trapped up in your own biases and so forth. And so that's what I find really holds people back, you know. And it's very difficult in this environment where we've got so much information coming at us you know, through blogs and Twitter and social media and just on and on and on, news. And I can't think of one positive thing that really comes out of that. You know, anytime you hear a piece of information that's not of your own or, you know, from your own modeling or process, it's kind of a double-edged sword. You know, is it going to give you a factor of overconfidence? You know, is it going to influence your own decision-making and so forth? So, um, You know, the things that people can do to protect against that. First of all, you know, don't go reading all this stuff first thing in the morning and letting it influence your work. Sometimes I like reading articles by respected people that might have more to do with perhaps economics mechanisms like that, but they're not going to be pertinent to an individual market per se, you know, because right now, obviously, the big buzzword is inflation, inflation, inflation. Well, that should really be no surprise. It's been in the pipeline forever, but it's just been bubbling to the surface now, you know. But you look at all these stocks, uh, and they've been in sustained uptrends for quite a while. So it's going to, a, you know, perhaps get you too aggressive at the wrong time. Perhaps you buy gold or silver, but you're not really able to then ride out the little ensuing shakeout. And so forth and so forth, you see. So that's a big danger there with all this extraneous information. And so, you know, how do you protect yourself against that? A, you know, through your own preparation and written game plan, or B, through statistics. That's a super safety net and insurance, you know, relying on some type of modeling process. So I very much trade around models. And that's my defense against cognitive biases, because even after 40 years, I'm quite susceptible to that, as is anybody, because we're human, you know. And it might just cause you to overweight something in your own trading or get blindsided by something else, because in the big scheme of things, you know, markets are an auction process, right? So that's the, you know, the markets, the dynamics of determining what is value and price, or where price should be trading. There isn't pure value. It's just auction up and find out where sellers come in, take it down and find out where buyers come in. And sometimes in this testing auction process, it's very easy to get tripped up by the noise, you know. So we can just reduce it down to this pure and simple playing board and not look too far ahead. That's also another big trap, is people wanting to project, you know, where will we be a week from now, where will we be a month from now? So that's one danger, looking out too far ahead. And then the other danger is looking at too tight of a time frame, you know, 5-minute charts or whatever the case may be, and then you're tripped up in the noise. So I think for the individual retail investor, it's a balancing act about finding where the sweet spot is in the data for you. So I try to reduce it down to my playing board just for, you know, today, maybe tomorrow, looking at the short-term, uh, you know, 1-hour to 2 or 3-day time horizon, and forget about all the other stuff. And then think about, here we are, you know, providing liquidity to the market in the auction process. That puts us in the chair of possibly opportunistic trading, which is to be there for when one side gets shaken out. You see, that's very good risk-reward. Board instead of trying to force breakouts, sitting back and waiting for that, you know, opportunistic trade. And so, you know, forget all the little strategies and stuff like that, you know, but really understanding the dynamics of your game.

So this is something that I focus on with a small group of traders that I work with. It's all about auction market process. It's about who's getting shaken out, where is it cheap, where is it expensive, where is it going to get more expensive. Sense of imbalance. But now that, now that we've kind of steered into this sort of auction sort of chat and theme, you know, you look at Stiedelmayr, you look at Dalton, they even say— even, even the study that was done from the CME on auction market theory, they were, you know, they were saying that it's not a standalone box in a way. It's, it's, you know, you need another sort of flavour on your market day, if you like, you know. And do you have it? What's your thoughts on that?

Yeah, so keep in mind Stadelmayr just initiated a basic model template from a couple of decades ago, and even he also was trying to come up with something new. So it's just like his original work stands alone. And I think of the auction process as providing the decision levels, right? So you have certain levels that you can identify in the marketplace, and we can get the same thing off of bar charts, simply looking at what was yesterday's high and low, what was the overnight session high and low. I mean, these things are really important points. And then, you know, gap areas or areas that might need to be developed a little bit more, you know, fill in. So that's a popular concept. All of these things provide levels. So for me whether you get your levels, which are horizontal levels always, not convert, you know, not the diagonal lines. You know, you have your levels drawn off. It doesn't matter if you get them from the Market Profile or from bar charts. They're just levels where you want to watch that market with a little bit more intent. Okay, so now it comes down to two things. If you have some type of technical condition, meaning a loss of momentum as you approach that level, a non-confirmation, or perhaps increased volume and momentum, which means you're going to slice right through that level, you see. So they just give you areas that to me are more watched by the market participants. So I don't do the Fibonacci and the Gann and the Traders' Pivots and all that kind of stuff because nobody sees them, so they're not significant. But everybody sees a previous high or low or a swing high or low or a gap area, you know. Or conversely the volume nodes, just to draw a horizontal line through, you know, a number of price bars and voilà, you don't need the profile.

And this kind of comes back around to, you know, something that I love about, you know, your kind of philosophy and your anti-noise gate is that it's kind of like trade your trade, cut that noise out, you know, you don't listen to kind of news and other views coloring your kind of contextual view of the market. And, you know, something we— that I talk about and we talk about in our room is like, you got to trade your truth and, you know, trade what you see and not kind of levels that some other guy's talking about or some other girl's talking about. And, you know, I think it's interesting to kind of find out and to hear from you, kind of, do you look at— do you look at like market internals when you're making decisions around your areas? Let's say maybe it's whatever, market profile, volume profile, uh, highs, lows. Like, do you look at market internals? Are you looking at VWAP? Are you looking at every— all of the— all the above?

Um, I never look at VWAP or things like that, but, um, the market is an organic, you know, dynamic, uh, mechanism. So it's all about the money flows, you know, and those money flows will translate into the financials, the metals, you know, the energies, the currencies, all these things. So, um, you, you can see on a heavier volume day, all the markets are in play, and a lot of them will make cycle highs and lows together. So the heavier the volume, the greater the correlations, if you will. And then of course crude is its own standalone, grains are its own standalone, and so forth. But, um, sure, market internals, you know, the You know, you have to understand, um, just the, uh, the crosscurrents with the market internals, especially in the last 2 or 3 years, because so much of what I look at market breadth is going to be 90% the small caps, you know. So you could have a dynamic move underway in the Dow like we did, and the breadth may or may not reflect that depending on if the small caps are going to participate. And likewise with old traditional indicators like the TICKS TIX are totally dependent on the swings in the small caps. Um, so as long as you understand the nuances of the market internals, you know, and, you know, things like breadth— it's not the absolute breadth reading, it's the trend of the breadth. So this morning when we opened and we had this big ginormous gap down, of course the breadth readings are extreme and everybody knows that, but the trend was basically up in that market breadth. So I, if I had to just pick one market internal journal that I felt was like of most value to me nowadays, it would just be the VIX. And I use that to smooth the noise in the S&P's because there's really not much of a leading or a lagging edge. I mean, you could drill down to a 10-second chart and you'll see them pretty much turn on the dime, uh, but the VIX will have a tendency to smooth the noise a little bit more than you'll see on the S&P's. And there's just some other little tricks, you know, time of day stuff for me and all. But, um, you know, you only need one type of trade that works for you. And I think that the challenge for people is to have patience and learn to discriminate, you know, not want to get, um, overly, you know, reactive to all the, uh, stimulus and so forth, which is very easy for people to do with the electronic trading now. You know, it's and especially, you know, oh gosh, you know, the, the fear of missing out and all these other little things like that, you know. Again, if you go down to your record keeping, you're writing stuff down, and, and frame it out with statistics, that's a good guard against that. And if your statistics were, let me see if I can have 4 out of 5 days plus, you know, for the week, okay, now you've framed it out differently as opposed to wanting to be involved with everything. And you have to turn it into your own little game. So if you take that as a departure point, so, you know, so on that, you know, the word consistency is bandied about all the time.

And in the New Market Wizards book, I think it's, um, I think it's, uh, Amrit Sahal, one of the traders, he just kind of takes the, the idea of consistency and he's kind of like, it's kind of like this fallacy in a way. It's, you know, everyone wants it, but they don't really have any clear-cut path to achieving it. And it's not a very binary sort of thing to a lot of people. What, what does consistency or getting towards consistency kind of look like to you in a, in a kind of boiled-down sense? And, you know, I mean, because a lot of people—

it's all about process, you know, and it was Wyckoff that actually put forth a lecture many, many years ago about doing your own analysis in a closed room with no windows, no doors. In other words, no outside influence. So that's where you need to start with this notion of consistency and process. Do your homework at the same time every day, preferably when the markets are closed. If you can't do it the night before where you're not going to be influenced by everything, do it first thing in the morning, but you're more likely to be influenced by the overnight action. You know, then how are you consistent in your execution process? Are you immediately putting on constraints to manage a trade once you initiate, you know, what is your process for active trade management? Everybody wants to monitor and stock for initiation, but nobody really has a good process for managing their trades. I mean, I shouldn't use generalizations, a lot of people don't have a consistent process for managing their trade, you know. Then once you're out of that trade, do you want to immediately get back in? Do you feel like you got out too early? You can't do You can't double dip and stuff like that because you'll find that you'll be more prone to errors that way. You know, I find that some people have a higher percentage of losing trades in the afternoon because our decision-making process gets fatigued. But on the other hand, you have more certainty as to the trend for the day or how things unfold, at least in the US session. You know, you come down in the morning and there's more uncertainty as to how those players are going to come in. That's why there's more testing process and dynamics for counter-trend trades in the afternoon session, you see. But everybody's going to have their forte, you know. So no, like, it's— you need to study the patterns in yourself, not the patterns in the market, you know. And those were the things that will lead you to be more consistent, eliminating the bad patterns in yourself.

Yeah, that's such a common one for a lot of the European hours traders that, well, we have the benefit of, you know, our 8 AM, we're doing European market, and then we go into the US open. And a lot of the guys and girls, you know, get on a regular basis, they get hosed down in the morning and then make it back on the US session, and then they're completely physically, mentally spent, and they're kind of net-net flat on the day. But they avoided, you know, the horrible losses that they had in the morning. So it's really good to get your kind of that view on it that It's horses for courses.

Um, well, I'll bet you one thing, okay? I bet you that I could flip a coin at the start of every session, okay? Europe session or US session or Asia session, that's how I break it up. I could flip a coin and say to you, heads, you can only make one long trade a day. Tails, you can only make one short trade today. That's it. And I don't care if it's for 2 ticks You know, but I want to see if you can get a green trade. And if I put that to you and said, okay, I'm only going to take the people under my belt that can make 90% winning trades— so we'll add some incentive there, okay— over, say, a 4-week period, you know, if you can get 4 out of 5, you know, or something along those lines, 80%, and I don't care if it's for 1 tick, I'll take you under my belt, right? I bet you, I bet you everybody could do that. Okay, one spot on the biggest trend day up. If I said you can only make a short trade today, and I don't care if it's for one tick, I just want to see it green at the end of the day, everybody could do that. So it's the patience and the stalking and the fact that, you know, your decision-making process has been narrowed down to one thing. Okay, so you already know the market, you already know your size, one contract, you already know the direction. It's just waiting for a spot, and everybody can do that. But when we haven't narrowed down our decision-making process and it's the heat of the battle, you see, that's where you run into trouble. So therefore, if you write out your game plan, like, what is the play for the day? Am I looking to make one long trade? Am I making one short trade, and perhaps your method might dictate that you want to get the first hour's range under your belt, or see how you trade off the opening price. It could be whatever style you want, but once you do that, you are so far ahead of the game. See, and my hero George Douglas Taylor would say, you know, having some game plan is better than no game plan. And if I have a game plan, I'm more likely to know if it it's the wrong game plan, you know.

So you think most people are not designing the game that they can win? Is that really where you see a lot of, a lot of just people going by the wayside with their trading, with their trading days?

I don't really see what other people do, perhaps in the same capacity that you might. I can tell you I see that people far underestimate the learning curve and how long it takes to learn to process a lot of information. Okay, it's, you know, I can sit there and monitor 20 markets at once and market internals and everything under the sun because I've been doing this for 40 years. But it takes a really long time to build up to that, much longer than people think, because first of all, you, you, you know, you're kind of getting your bearing on just watching the tape and the price action and the charts, and then you need to see it in in bull markets, bear markets, heavy volume markets, low volume markets, you know, random outlier events. And all these different scenarios can take 2 to 3 years minimum to unfold before you start to have confidence that you're a little bit more in control. So people get frustrated, they get reactive, you know, they don't understand that— how long would it take for you to become, you know, a radiologist, for example, a professional career where you could make a decent living? Well, you do your 4 years medical school here, your 2 years after that, you have to do 3 years residency and internship and stuff. Finally, at the end of 8 or 9 years, voilà, you're a radiologist, and now your eye is trained towards all the charts. So the training's not much different, you know. Same thing with becoming a professional tennis player— clay court, grass, wind, rain, cold, you know, all these different variables, different opponents and so forth. It just takes much longer than people think. And it's not about, it's not about studying an individual strategy, you know, taking a course, reading books. It's the proverbial number of hours in front of the screen, you know, the mileage. You can't substitute stuff for that.

Yeah, fantastic.

Well, that's what makes it nice for people. If you have a trading room, it makes it interesting day after day, keeps them engaged, keeps them from like hopefully tuning out and surfing the internet or doing other things. It's keeping your focus up.

Yeah, we try to keep people focused on the right things and away from the noise, I think, and try to dampen noise and just really, you know, focus on what matters. You know, I totally 100%, 1000% agree. There's way too much noise out there, way too many distractions, and it's just so easy to get turned around, I think, with the way the markets are. with, you know, the amount of technical indicators, um, that people just want to flock to, especially the early stage traders. Um, so to— I mean, just moving on to one more thing, uh, that, you know, I always hear you say in interviews is correct mistakes as soon as possible. And I think this is something that, you know, I've been trading equities 15 years Futures 5 years, I still say this to myself. I still say I should have gotten out of that quicker, I should have banked that faster, I should have, should have, should have. But I don't beat myself up about it. But is this, you know, is this something that is just trading and that we always, you know, try to do better and better on?

Sure, I think that's what's anything. If it's a sport or music or riding horses, you know, you're always working on getting better and better, but also learn how to protect yourself. You know, don't put yourself in a vulnerable spot where you haven't defined your risk management ahead of time. If you've defined your risk management ahead of time, then you can simply say, oh, I was dealt a bad hand, I think I'll fold. You know, with poker, you know, I think I'll just fold, right? But if you haven't set your parameters ahead of time, you know, things can get a little bit out of hand and you might lose more than you, you thought.

Sure, yeah, absolutely. I mean, something that I try to preach is consistent risk size on every single trade. Um, I think, you know, I think there's various different ways to look at controlling your risk. Um, but, um, okay, fantastic. I mean, uh, something that we, we do is we see a lot of new traders coming in, like, uh, really starting from their early 20s 20s, um, some in their late teens actually, but mainly kind of late 20s. And then other people who've had careers in other fields who, who are now finding themselves drawn to trading. And, you know, I remember when I started out in futures, I was kind of really then drilling down into the success rates of traders over time, you know, that, that kind of, that kind of, you know, who survives beyond 3 months, 1 year, 2 years, 5 years. And there's all these statistics floating around and then brokers have this kind of stat that, you know, 80% of accounts will blow out within 3 months. And, you know, putting that all aside, I just kind of wanted to go back to your early stage of your career. And I have read the book and, you know, great start and some mentors in there. But I mean, when was it that you really felt like you had that uber confidence? Well, maybe not uber confidence, but you had that real pure confidence of like, I've got this, I'm controlling my risk, you know, I, I can, I can make something here in these markets, you know, like, never, I'm never 100% confident, I swear to God, you know, after 40 years it's, uh, but I will tell you one interesting story.

I started on the trading floor in the options, so slightly different game, and you had a little bit of edge back then because things weren't weren't priced well, and it was an arbitrage type of game. But even so, you know, I did my charting and my updating every day and my numbers and, and so forth. So, uh, come, uh, 19— 1987, I'd been in the markets for 6 years, and the market had reached this phase where it was just doing the creeper trend mode, you know, where there's no volatility it's inching up to new highs, new highs, new highs, new highs. And I remember thinking to myself— this is after 7 years of full-time professional trading, and I had an exchange membership and everything— I'm like, I have no fucking clue, you know. I have no idea, no idea how to do a roadmap or get a handle on things. And that was after all those, you know, years. So, uh, but you were— it's a long journey. Just technical analysis in and of itself is a very long long study.

But I think at that point you were, you were managing quite a bit of money, I think, at 7 years in.

No, I didn't start managing money until, uh, 10 years after I had started trading. So, and even then, you know, it's, it takes a while to build up. Nobody just says, oh, here's $100 million. It takes a long time to build track records and, you know, develop your models and so forth.

So, um, I think that's so refreshing to hear that that, you know, it's like, it's a craft, it needs time, you need to allow yourself to do that, I think. For— and I say that because I see so many traders come in and they really expect huge results, you know, they want to get that radiology degree, uh, in 3 months, you know, in, in 1 year, and when it doesn't happen, it's, it's, it's, you know, it's a, it's a huge personal failure. And I think that's—

it's really difficult because we have been in a once-in-a-lifetime unusual environment with the increase in the monetary base and the conditions that we've had the last couple years. That's not going to be the way going forward. So you hear about these people that just got lucky with these crazy gains, and we saw this in, uh, in 1998, 1999 with the tech stocks back then too, and you had this ginormous exponential movement in the price. And then of course, maybe 10% of those tech companies survived, and the ensuing bear market after you did that parabolic spike for 2 years basically took out about 95% of the people out of the game. So what people need to think about is treat yourself as if you are your own best client. Okay, those are the words of Hank Pruden, who was quoting Wyckoff. And so you want to think about what is a program that I could sell to investors, meaning I could sell to myself. So what is my program that I am pitching to myself? I specialize in trading breakouts off the first 15-minute bar you are, or I do this or I do that, right? And then once you have a solid, consistent bread-and-butter type of style, then the whole name of the game isn't like hitting home runs and holding it for bigger wins or longer periods of time. It's more, um, increasing the leverage, you see. But you can't— that's where the money is made. The money is made not from capturing these home runs outlier events. The money is made from increasing the leverage. And obviously, if you're a CTA or a money manager or something along those lines, the ultimate is making money with other people's money because you don't have any risk that way, you see, even though you're only getting a much smaller piece. But, you know, it's, you know, making— I think I had $150 million under management, so therefore you know, the pay down to me is much higher than I would be able to make just with my own account. So, um, you know, it's, uh, that's what you want to think about when you are learning and starting off as a trader. It's not, uh, you know, not that everybody has the aspirations to be a fund manager, and I don't recommend it these days. You know, I retired and hung up my light licenses because it's really running a business. It's not glamorous being a hedge fund manager. It's accountants and lawyers and paperwork and teams and, you know, all this other stuff that has nothing to do with trading. But pretend, pretend you were going to do that.

You know what I wanted to ask you that because, you know, I, I've read, I've read a lot of books about people who were doing very well, um, you know, like on the, the spews to, to the 10-year, uh, correlation or, you know, inverse correlation moves in the, in the '90s and the noughties. And then they took on money and everything just unwound for them. And this is, this is such a common thing I read about. Um, and really, I suppose the question to you is, was it worth it to have to be— what did it, did it bring you off kilter in a way from where you were prior to taking on the outside money?

You mean, was— did managing money take, take me off kilter?

Yeah.

No, quite the opposite. I love managing money. I love it. I'm like the type of person that wants to, you know, give the teacher an apple and have her put it on the desk and say, oh, you're so good, you can do this better than anybody else, with, you know, great Statistics. Look how great you are, you know, great Sharpe ratio, great, you know, I love that. I want to work to please, you know, that's just my nature. So I, I loved it. And, you know, I had such a wonderful team around me and it kind of morphed over the years, you know, I'd have like one or two good people and then we added on somebody else and this and that, just fine, fine individuals who could do modeling for me or infrastructure for me who made my life so easy, you know, because I hate dealing with computers and all that kind of stuff. But, you know, it's part of our business, right? So I loved it. It's just, it became— in the United States, the regulatory requirements just kept on increasing and increasing, you know. And I had $150 million and I had a business manager and 3 other people, but it was still, you know, turning into 80 or 90-hour work weeks. And the problem was that would be fine if it was trading and technicals, but no, it was more like 20 hours of, you know, bureaucracy and, you know, other types of variables that wasn't the type of work that I enjoyed. And so then they started increasing the data fees, you know, on the exchanges over here. Now mind you, I have like 3 people working for me and several platforms that I use, and all of a sudden my data fees were running me $12,000 a month, you know. And I'm like, that's not even including office fees and everything else. And I just was like, this is ridiculous. So I just kind of used that as my excuse. I'm like, let me quit while I'm ahead, you know.

Right. And so, I mean, the parts, the several parts in the book where I kind of get, I had this sense when you were thinking Florida, that, you know, you had, you had your trading office on the ranch. So the horses were kind of just outside the door. There was dogs roaming around chickens and all sorts of stuff. No chickens, but yeah, no chickens, but it sounded great. And it sounded like if I was to put my my trading desk up in the yard where we have multiple dogs, cats, horses everywhere. So have you, you know, and I got the sense from the end of the book that you kind of had scaled back on that sort of, you know, ranch craziness and, you know, streamlined it a little bit. And is that still where it's at or—

Well, that's funny. That's very funny. I had quite the spread in Wellington, Florida, and so I actually, after having gone through 3 hurricanes, I had started a separate office up in Chicago, okay, just because, you know, it was like a safety net. Plus it was a good excuse for me to go up and see the person that I was dating at the time. So now we're married, and, you know, everything kind of has its own life cycle there. So yeah, the Florida ranch was wonderful. So I sold all the horses and, you know, the farm— it was, you know, quite an operation— and moved up to Chicago. And after 3 years, was totally miserable with no horses and cold winters, right? So then it started off where we had to buy one horse, and then the farm, you know, where I had the horse, you know, the arena and all, they were selling. So then I had to move them, and then, you know, uh, I ended up getting another horse because, you know, was injured. And so before you know it, I ended up owning, uh, two farms. I have one farm up there that's, uh, 38 stalls and 40 acres, and, uh, you know, the covered ring and all. And then I have another farm down in Florida, uh, you know, 20 stalls house, riding ring, whole nine yards, and 4 horses. Okay. So now I'm trying to scale it all back down again.

Are the 38 stalls full, full in the other yard though? Okay.

Oh yeah. You know, but I just lease, I lease it out to a trainer, so she keeps everything running and stuff and I don't have to worry about it, but I'm trying to simplify life again. So that's kind of, it's like our waistlines in life, right? Our waistlines get bigger and then we got to trim down a little bit, you know? Anthony Cheung.

Yeah. And so something I was really interested to read was, you know, you, you had a lot of bodybuilding in your, in your pastime and you're, you're really hitting that gym and working on some strict physical targets and goals and competing. And so, I mean, that, that completely came out of left field for me. I mean, in terms of, you know, I never, I never read that about you. And so are you still very active on the gym.

The hidden life of Linda Raschke, bodybuilder.

Yeah, yeah. So, uh, you still can't do that anymore.

My shoulders have kind of given out. I have to get them injected just so I can go ride. But, uh, that was my stress relief, right? I mean, everybody has to do something for the market stress. It's so important. So it could be gardening jogging, swimming. I find physical things work best for me, you know, but maybe you have to go and play an instrument or do something, you know, so it really doesn't matter what it is, but you have to get rid of this tension and stress.

Yeah, absolutely. And then maybe, you know, that being one thing that I think is— should be keystone around your life committed to trading. Well, personally speaking, I would totally agree with what you're saying there. But I mean, you had in your book probably like 4 or 5 key sort of characters and people that really were sort of along the journey that really, you know, helped you through and sort of, you know, shone a torchlight light on a couple of things for you. And, you know, you know, call them mentors, call them now your husband, maybe, you know. How important is that in that journey, you know, would you say, to have, you know, that?

I think it's important anytime, you know, people are, you know, have a certain intensity in what they're doing to family or friends or one good friend or one good companion, some solid, uh, person that you can communicate with, you know, that's a little bit of a rock. And so for me, it really was Mr. Bill. He was like my surrogate father because my father was out of my life, you know, pretty much after I was 20. And so he could be, um, just a common, you know, denominator for all different kinds of conditions. I could go and work out with him at the gym and we could discuss, uh, it wasn't just about diet or physical exercise or something, but a common philosophy of, um, positive thinking, you know, belief in a higher faith or entity, um, you know, all those sort of tangibles, which I think are just important for keeping a positive outlook in life.

Okay. Yeah. Brilliant. Um, so maybe to bring this back to markets, um, in terms of the monetary system at the moment, in terms of this flood of QE, you know, we saw 200,000-odd numbers added on NFP last week on the expectations of a range between 1 and 2 mil. And, you know, the markets scream up and, you know, make an attempt at new all-time highs. I think Dow definitely did make a new all-time high. I wanted to get your take, and I know you don't like crystal balling, putting yourself in the future or putting your mindset in the future. But I mean, for someone who's been trading for 40 years, I would love to get your take on where do you think we're headed with this current Fed policy? And something I am absolutely plagued with hearing at the moment are these two words, inflation and transitory.

And what?

Inflation and transitory, as in inflation will be transitory is what we're hearing everywhere at the moment. What are your thoughts on all this?

If we just go back to statistics and you look at any time that the markets had a better than 40% gain in one year, be it an outlier or coming back from an outlier, as was the case last year— everybody likes to say, oh, the market was up X percent, but you know, if you lopped off that little slip on ice there, you know, it wasn't up quite that much, you know. And, um, But anytime the markets had that type of price appreciation— and there's been over 20 occurrences in the last 100 years, so you've got a decent sample size there— then the year following, which would be this year, there's always been an 8 to 10% correction. Okay, so that's just a good statistic to hang your hat on. And, uh, and conversely, there's never been a huge give it all back. You know, it's not like you ever went up 50% and then gave it all back the next year. So it would be reasonable to expect that we've probably done the bulk of the gains in terms of the equity markets, and there's going to be an 8 or 10% correction at some point this year. And we can get a lot of choppiness in the meantime. But a good lesson also is relative strength. So you're seeing a lot of rotation. You know, the materials, the industrials, the financials have become the relative strength leaders after the FANGs. And of course, you know, if you look at the materials, the steel stocks and, you know, International Paper making all-time new highs and engineering firms and stuff, it's just a shift, you know, in where the economy is utilizing the dollar. So that's to be expected. I don't think that's anything out of the ordinary. And in terms of, um, inflation, you know, there's so many ways to measure inflation. I have a degree in economics, and the, you know, the most problematic degree, uh, type of inflation is, uh, wage inflation. Okay, so you could actually have price inflation, and if you have a price inflation that people have to spend money on, say fuel and food, it could actually be quite deflationary in its effects, in that people have less disposable income to spend on consumer discretionary spending, you see. So it's all this couching of semantic and words and stuff. Um, and you know, the other thing is that everything cycles. So we've really been been in a massive deflationary cycle, in my opinion, for 20 years. And that's because of the advent of globalization, you know, that we've been able to use labor sources in other countries where the costs have been quite reasonable. And I think now, you know, you've seen a convergence there of some of these things. And with all— with that and the dollars that are built up into the pipeline, I think it would be reasonable to expect inflation just in terms of price and wage inflation over the next 10 years. That would be logical from a big macro cycle type of analysis.

So if you do get that wage inflation, then the Phillips curve essentially is back alive. So we have a broad— then that is a lasting— what you're talking about there, from my my understanding would be a lasting, broader tone of inflation rather than this temporary sort of spike of inflation that would be quite short and transitory.

And yeah, don't forget that it's going to affect different economic, uh, you know, stratospheres, you know, like the lower, you know, the people that are the, you know, bottom earners there, it's going to affect them differently than it would be, uh, you know, the top group. And then of course taxes can compound that and so forth. But, um, yeah, I think it'll be very robust, which is great for traders in the sense that we like swings and volatility and so forth. And I see it as more of a, of a normal type of environment, you know. And the problem is that you have, you know, a lot of people on this earth and not the resources to support you know, the population that we have now.

Well, that brings me on to really something I'd love to get your views on, which is the commodity supercycle in terms of it kind of crept up on us in a way coming out of the tail end of sort of wave 2, 3 of COVID Maybe 2 months ago, we're seeing massive prices in, in lumber, in metals. Uh, you know, what are your thoughts on this? I mean, do you think that we're just at the very foothills of the broader commodity supercycle? I mean, I think the last supercycle was '08. Was it '08? '08 to '14?

Yeah, I don't really see that as being a, you know, supercycle. And I think you have to take out the energy component there. You know, the crude is in its own little category and stuff. And I don't think you can look at lumber. You know, if you look at the number of contracts that trade, there's not hardly any volume at all. And that was more a case of the fact that they couldn't get people to go to the mills in Oregon. You know, they couldn't hire people for overtime or weekend or anything like that. So that was a little bit of a different situation. But it's true that there is a huge, ginormous demand, you know, building houses and stuff that is is surely, I think, a factor of super unrealistically low interest rates. And so when you hear these, quote, talking heads refer to inflation as transitory and stuff, you have to keep in mind that our, you know, administrators and bureaucracy that be have a vested interest in keeping interest rates as low, as low as possible, because we have to finance the debt. So the things that they put out there, I think, is a lot of jawboning, trying to buy time and buy more time and buy more time before they have to, um, raise rates. And, you know, the thought was that, oh, now they don't have to raise them until, uh, '23. But that's why you've seen this dislocation in the yield curve.

So it was something on that same topic, you know, there's a lot of people kind of saying that are the Fed kind of running a little too, or planning to run a little too hot? You know, you've got Jay Powell talking about letting it run above 3%, you know, well, well above 2%, 3%. It sounds like 4%, he doesn't really care. He just wants it to run hot for quite, quite some time, and then they can start, you know, bringing in the interest rate hikes.

The Fed is always behind the curve, so you've got to get that straight. They have— they are behind the curve 99% of the time. He made one little mistake once upon a time and trying to be— do the right thing, and it backfired on him. So the Fed is always behind the curve, and it's just trying to justify being behind the curve. So it's not a matter of letting it run hot. It's just that the cost to finance these ginormous deficits, you know, you start magnifying what a a quarter, you know, of a basis point will mean in terms of financing the deficits. And I mean, the numbers are unreal. So they really don't want to go there. I think they're hoping that you can— I mean, traditionally, Western civilization, what is the cure for deficits? To inflate them away, you know. So that's what we're trying to do, right?

So, you know, as we've been creeping up up over the, you know, on the back of this quantitative easing and equities, I just find myself dreaming about, you know, a 25 basis point hike and the markets just absolutely scream to the downside. I mean, you know, does it— these equity, these equity valuations to me just feel insane at the moment. I— but, but I've been saying that for 10 pretty much. And I mean, is it, is it just, you know, stick to your guns, only trade, only trade the pullback when you see it? Or, or do you, I mean, do you agree with these equity valuations where we are up here, you know, 26 times?

I don't think it matters. Okay. It really doesn't matter what the valuations are. You can't think that way if you're a trader. Who's to say what's right or wrong, you know, in a yield, in an environment of negative yields where you could have huge earnings growth and this GDP of 8%. Who's to say what valuations are? You know, are you looking at valuations now? Are you looking what valuations are pricing in a year from now? Who's to say?

I think so. I think when I talk about that, like, you know, Tesla at $700, $800, um, these companies that kind of— they don't have the— they don't feel like those robust, mature, sort of safe type of companies, but they're on these big valuations. They're very sexy companies, um, and I suppose we all want to get in on them. Um, so yeah, I mean, it's, it's interesting. I, I, you're totally right, it doesn't matter. We could keep going up.

All that thinking is a big trap to me. You just can't think that way if you're a trader. You know, what is considered to be a discounted price you know, this week? You know, what's the markup in the price this week? And, um, that's the type of thinking that takes people out of the game, you know, because now you have a cognitive bias. And for every, you know, argument you make, I can give you two sides of a coin. Every single issue out there, if you give me a negative, I can give you a positive. If you give me give me a positive, I can give you a negative with anything out there, you know.

So, okay, fantastic. That's amazing. Really good insight there and good advice. One last thing, cryptocurrencies. What do you think? Where do you sit on Bitcoin, the decentralized finance space? Do you even care about it? Is it something— I know a lot of the guys—

I don't trade them for several reasons. First of all, you have a lot different cryptocurrencies out there. Reminds me of tech in the late '90s. Let's see what shakes out. Let's see what, you know, the last man standing or the last 5 men standing. And I don't trade them for the sheer reason that, A, they're not scalable to me. So I'm looking for a market that has liquidity. I don't want to go and do a 1 lot. I want something where you can go and do 100 contracts. I don't feel comfortable doing that on crypto. I think there's too many dislocations. I think that was a wake-up call for people when China took down the network there, and it's like 50% of the power to drive the Bitcoin— oh, it's gone, you know. So you're giving control to China. I think that despite the, you know, proclamation otherwise, I think they are a horrid waste of resources and energy, just in terms of the demand that it keeps to run all the networks, even though, okay, so it's in Greenland and the energy is not being used for anything else. I mean, here we are killing ourselves to, you know, go to electric cars and reduce the carbon footprint of the planet, and you have the most insanely wasteful medium out there. You know, everybody was ragging on poor Charlie Munger, you know, you know, old-timer that he is, like, oh, he's an old man, you know, he doesn't have time to wait for the green bananas to ripen here, you know. But on the other hand, he made some valid points. So you have a medium that's a double-edged sword. Yes, it's— every day we see it used for ransom, um, you know, in all our networks and so forth. Companies, okay, you know, we've got you hostage, pay us in Bitcoin because it's not traceable or whatever it is. We'll see where it all shakes out. I do think that there's merit to having, you know, some type of digital medium there for currency that isn't controlled by the government, is a store of value perhaps. Um, there's a lot of flaws currently, you know, uh, you know, the transaction time has gotten shorter because you have people now like PayPal and Visa, you know, doing transactions in Bitcoin. But that was an issue there. It's not like, you know, if I go pay in Bitcoin, it is an instant 1-second transaction. You know, they're trying to overcome some of these things. So, you know, we'll see where it shakes out. But for me, you know, I have no problem getting into trouble with other markets. You know, I mean, who's to complain about copper and these grains and crude oil and that gas and bonds? I mean, All I want is liquidity and movement. So whatever works for you, I guess.

Fantastic. Listen, I've taken up a lot of your time, and it's been a sheer pleasure to— and we've covered quite a bit, um, really interesting. An absolute pleasure for me. So Linda Raschke, um, I hope you get to buy some more horses and get to ride a lot more. And, um, yeah, I'm trying to sell horses now.

We're trying to simplify life, you know, start still enjoy life, you know. But let me just pass on one thing to your, um, to your viewers, and that is if you go to my website, lindarashke.net, I always try to provide a lot of resources for free. You know, I'm not out here selling things and doing all this kind of stuff. I really enjoy what I do and want to share that passion for technical analysis and so forth. So under my resource section, I'm I must have done 100 YouTube videos on different things for free. So a great resource for people. I think you've seen some of them. And then, you know, my Twitter feed, I only try to post like links and resources, things that I think will be of value to people without trying to shove something down their throats.

So I think I'm going to be starting the Linda Raschke fan club. We'll be selling t-shirts and caps soon enough. I've seen all the videos.

No, that's a good thing. You know, that's like, you know, I try, you know, you want to be a low profile, you know, it's like I don't want anything to mess with my head.

So, uh, and, uh, and the book, of course, the book, uh, Trading Sardines. Fantastic read. Fantastic read.

You know, I don't have that many more copies left. I only did one printing and I didn't do that many. And I, I've only I only sold it off my website, so I don't sell it off Amazon or anything. And I'm wondering if I'll even be able to afford the paper to do another printing, you know?

So— Yeah, to plug the book, it is only available directly on your website. And so I definitely urge people to go on there and get it for sure. It's definitely one for the library. Absolutely. So listen, it's been an absolute pleasure to take up your time and to talk to you. Talk with you and, uh, look forward to seeing you in Ireland. And, uh, we'll get you out on some horses here.

It sounds like your group of traders is really fortunate to have you, uh, being a little bit of a leader there for them. So I've never been to Ireland. I would absolutely love to come to Ireland.

Well, anytime you want, hit me up on email and I'll pick you up from the airport.

Deal. Alrighty, great.

Thanks so much. Have a great evening, and we'll talk to you soon. Thank you.

Night, guys. Bye-bye.