He Became World Trading Champion with Algos... Then THIS happened - Stefano Serafini

The trader you're about to hear is not only the 2017 world trading champion, but an amazing and highly experienced trading professional, both in the field of systematic and algorithmic trading, where he's an algorithmic advisor to some of the top notch hedge funds in Europe, but also a highly skilled discretionary trader which throughout the years has used macro order flow and probabilities to consistently beat the markets. This is one of a series of videos I'm making in this channel where I take highly experienced legit trading professionals to share with you their insights on trading that hopefully will help you have a new perspective that can improve, on some level, your trading journey. If you want to see the next episode, subscribe now to the channel and click the bell to be notified when a new episode comes out. Now, without further ado, enjoy this very insightful one hour chat with 2017 Trading World Champion, Stefano Serafini. Hello everyone, and let's dive right in. I'd say with a bang into your journey. What were the elements that led you, I'm interested to understand, to get into trading. Where did it all start, really, from the very beginning, what was your path like?

Well, I've always had a great passion for it, so I studied economics and right before studying it, I had a background in computer science. Then I attended three years of economics and business management and later completed a two year master's degree in finance, all at the University of Trento. So in my journey, I combined my passion for trading. I immediately merged my experience as a computer science technician in trying to start testing some automated strategies. This is how I started out, with a great passion underneath it all, perhaps even a need I had at the time. Not that I don't still have it. Actually I still do, but I had the need, in short, to manage my family's wealth. A bit too.

Available.

Sure. And now in your career as a trader, after winning the championship in 2017, at this point, where are you in your journey? Where do you want to. What are your goals? Your new goals? Now, professionally speaking.

I, let's say, embarked on a professional trading path with major firms, let's say in automated investments, so hedge funds or proprietary firms, but not the trendy ones we know today, the real ones. Indeed. So those with their own capital and I started in London, I worked for five years in one company and then moved to another company, which is, I think, the leader in Europe. Cube is the largest hedge fund in Europe and there I am an external contributor. So I provide my strategies, especially strategies they use to cover the stock market.

Okay. Okay. And I would like to start right away with the main topic. In my opinion, it's one of the main reasons why I invited you here to the podcast, because it's one of the topics, perhaps more, let's say, not controversial, but it interests me the most because I see it like you. Spoiler alert. However, not everyone sees it like me or like you in terms of trading style, if we want to call it a style, or in any case, discretionary versus algorithmic. So you started as algorithmic. However, as I understand it, a good part of your trading has developed and continues to develop in this way. And the pros and cons of this. And why have you shifted shifted a bit more towards the discretionary lately. In short, elaborate a bit on this.

But let's start with systematic trading. In my opinion, it has some significant limitations, which are basically foolish. Meaning that with a few lines of code you can harness, let's say, some classic movements, but they don't always repeat. Especially the biggest challenge with systems is understanding the context in which they operate. So it becomes then a discretionary choice for the trader to manage which systems to deploy. So it's a problem that shifts a bit upstream. Everyone believes that by launching automatic systems you get automatic returns, but it's not the case. Or rather, if one structures perhaps a complex portfolio of different strategies, one could even achieve some good return horizon compared to risk. But what I've seen historically is that many systems then struggle in the real trading part. So this is a bit the need that has led me to say, okay, since I have to choose which systems to deploy anyway, then it's just as well that someone with some experience who sees the market tries to make the trades manually, let's call them that. Right? So in the human mind, there's a much higher capacity, let's say, than what you can write into an algorithm. There's no macro context, for example, everything is based on simple mathematical calculations. But what I've seen in recent periods is that the volume and macro aspect determine, I would say, 90% of the movements. So statistical repetitiveness is there. It's not that it's not there, but very often it also puts you in great difficulty. So I don't know the systems. Now, just to give you some numbers, yes, there are systems that have a 55, 60% probability in real money of seeing a winning trade. But the ones I've seen make more money, perhaps have probabilities of 33% and 40%. I'm talking about trend followers. They are the strategies that maybe when they catch the trend and the market really explodes, they manage to ride it, accepting perhaps smaller stops. And that's why they manage to make a profit, because it's the usual formula of how many times you win compared to how many times you lose and how much you earn when you win.

Of course, risk and reward.

So this skepticism has been with me for quite some time. It's not new. I mean, I've seen it in different phases. And the reason why companies like Cube, who called me to work for them, are interested in the end, always in one thing, understanding when there is high volatility, how to defend yourself. The essence of systematic trading is all there, meaning you have to be able to manage the machine during a period where a person's emotions could somehow influence their operations. And that's where machines are much better than us at operating in periods of high volatility. And sure, they enter, take their stops, go into profit, but statistically, volatility is very important fuel for algorithmic trading.

Very interesting. But in the last period, let's say in the last five, six years, have you seen a deterioration in algorithm performance? And if so, in your opinion, what is it due to? Is it also the increasing competitiveness, the race to inefficiency? More?

But in general, I think that in the stock market, informational advantage somehow diminishes, right? Those who have information in any field can make more money than others. When this information becomes somewhat public knowledge, let's call it that, I believe the advantage fades a bit. So I don't know. Let me give you a fairly banal example. The breakout of the previous day's daily high.

If it worked without any filter in the 2000s, from 2018 onwards, there have been false signals. I don't know if they are intentional or not, but exactly, let's say it doesn't work as well as it used to, perhaps.

Sure, I understand. And in your opinion, is the main advantage of a discretionary trader over an algorithmic trader or a trading system? Precisely. The discretion. I mean, I've always seen it as. It's difficult to quantify all those things that you learn through experience, which become implicit learning and therefore difficult to code. That's why for me, this has always been the point. I mean, if as a discretionary trader, I manage to identify things like macro trends, which maybe, I mean, can be quantified, but it's a very important task, in my opinion, to try and quantify sentiment, which is something you also learn through experience in the markets. That's the hard part. As far As I understood as an outsider of algorithmic trading, what do you think instead? I mean, could this be the advantage of discretion or is there something else?

But the main problem with, with discretionary trading, in my opinion, is that the discretionary trader thinks they never make mistakes. So they try to put together all the conditions to reach the perfect condition, where you should have a perfect trade, so not hitting a stop, seeing the position go against you slightly, which is the exact opposite of a system. The system, on the other hand, does it. Every time it repeats it, it couldn't care less. Instead, the limitation of discretion is precisely waiting for the magical situation where everything aligns. Right, which is what you're telling me. It's about putting together different experiences, different contexts, and maximizing the probability. In my opinion, this is a bit of a mistake. As individuals, you should always try the trade if you know you have an advantage and stops a part of trading. So it's not like we're invincible. So everyone has periods in their career where they hit stops, periods where everything goes well. And that's part of the trading game. I mean, there's risk, return. It's clear that a person can have much more knowledge than an algorithm. For example, the macro, which I think is quite fundamental, understanding what's underneath, what the true dynamics of the market are. I always tell my students this too. It's clear that if you understand how the market reasons underneath, it's easy to align yourself and understand a bit how everyone reasons so as not to be on the wrong side. The other part, the volumes, surely, from my point of view, is what counts in the end, because we can't define areas where we think the price is fair. But what counts is when everyone buys, you can't sell. I mean, the push that a group of operators give in the market, also very large ones, because we absolutely count for nothing when everyone buys. It's difficult for you to try to go against the market, because statistically the price will go up, vice versa, when they sell. So I always come up with the example. How much is a painting worth? Is in fact a piece of paper. But why is this painting worth something? Because there's so much demand, or so many people who think it could be worth more. So in my opinion, volumes are the fundamental part, in the sense that when there's a lot of demand and everyone buys, the price goes up. But when there's no one buying, the price can go down. It can also be fair, it can be at a discount, but the price will never rise. And this always comes to Mind, when everyone tries to buy only on the fundamental side, stocks that are falling, but if they're falling, it means someone is selling them.

Sure. And you say this is only understood through volumes. Or let me ask you, could it also be understood just through price action? Or do you say volume gives you something more? Because the interaction between buyers and sellers. Anyway, at the end of the candle, you see it more or less.

No, in my opinion, it's also necessary to contextualize where you are in the price area, let's call it that. So there are historical areas that the market prefers more and others less, and going to observe what they do at crucial points to possibly break into other areas. There you just need to observe what everyone is doing, if they're buying, if they're selling. And you can certainly understand whether the price is going up or down.

Exactly. So in discretionary trading, you've chosen volumes and macros as your main tools, right?

Yes. And a bit of probability, because underneath it all, there are always certain phases where the market tends to, I think of the days of the week, some days of the week. Whether you like it or not, operators are more inclined to do certain things and more inclined on other days. So, for example, I think it's difficult to see the market skyrocket on Mondays because maybe we've already had a bullish week. Perhaps they think about it more on Tuesdays. They start buying on Tuesdays, but not on Mondays.

Sure. Okay. So to a novice discretionary trader who wants to engage in manual trading, let's say, in terms of where to seek an edge, what would you recommend?

Certainly volumes. Starting with volumes. That's fundamental if one wants to trade manually. However, I'd advise against it. I work with systematic trading, but I believe it can also lead to significant disappointments. One could start with the systematic side because it mentally prepares you for the probabilities that might be in your favor. However, what actually happens is that the patterns you see in the past don't necessarily predict future conditions that will give you an edge. Secondly, I think it's essential to analyze market difficulties thoroughly, not the phases where everything is simple and everything is rising. It's during the challenging phases that the strong traders truly emerge. Because in 2023 or 2024, if everyone was buying, they all seemed skilled. But what about in 2022? In my opinion, this is where the difference lies. So analyzing the difficult phases is crucial. All the systems I use are focused on challenging phases.

Okay, so you use a hybrid approach, let's say, both systematic and discretionary. How do you integrate them?

Say I have underlying positions that are always long by default. Plus I have these systems that come into play when there are difficult phases. So essentially I can exploit both scenarios if the market goes up or if the position makes a profit. And if the market goes down, I have all the systems that compensate for the negatives of my long position with these systems. That's the basic approach. Then it's a different story when I do intraday trading operations by hand. Maybe scalping, which has nothing to do with a long term position, but in my opinion, it's important to set it.

Up properly as a time horizon. In terms of volumes, do you use them more for intraday or even for very quick scalping?

No, I have two approaches. I have static volumes that I look at in the morning, which give me a sort of map of where the market could play out, which is what I provide every morning to the students. I also have an intervention that I do on a YouTube channel where I discuss these levels that are static, but they are not always respected because dynamic volumes also matter. That is, if buyers don't show up at that point, it's clear that the price there will struggle to hold. Maybe it holds for about 10 or 30 minutes, but if selling pressure arrives, it won't hold anymore.

How is your typical trading day routine structured? Start from the analysis of the most likely response zones.

Yes, exactly. I start by analyzing what happened yesterday, what were the macroeconomic data, how did the market react to the data? So understanding what narrative lies behind the traders, whether it's bad news is good news, whether interest rates bring the market down or vice versa. This is the basic setup to see what the volume areas are, understand if the market is already angry or if it's calm, and then understand if it's more likely that we'll go down or up. What are the areas to buy? That's what I do every day. And then I trade in the afternoon.

Okay, so mainly during the cash session. So when?

No, no, not necessarily also in the morning.

Well, this year, the Last one in 2023, has been a quite bullish year. It has been, moreover, challenging for many investors, as I've seen online, because many couldn't position themselves or did so belatedly on a macroeconomic level. Many say, okay, there was a lot of uncertainty. The market seems to have positioned itself for a soft landing. Where are we now in the macro situation? And in your opinion, can this strong market rally continue for how much longer? Anyway? How do you see it in terms of outlook, at least for The American stock market.

But the situation is very complicated. There are many variables pushing for a downturn and some pushing for an upturn. Let's do the analysis. I always do. Economic growth still strong in the United States for now. Inflation still strong on wages. So this could keep rates up and volatility is at a minimum. I usually look at these four variables today in America, where we are with very strong growth, which is what surprised everyone last year and led fortunes to grow more than expected. And in the last part of the year, November and December, it was also helped by a decrease in rates, which in my opinion was also a bit surprising. No one expected that suddenly there would be six rate cuts priced in when the Fed had announced three. So today where we are, the market is just repricing six cuts. So the market tends to rise when rate cuts are priced in, of course. But I ask myself a why is it appreciating these six cuts? Because in my opinion, in the second part of the year.

There will be an economic slowdown, which doesn't mean that maybe we'll go negative on US economic growth, but maybe closer to zero.

Of course.

And there, how will the markets respond? Certainly they will appreciate further cuts. So we will return to the 2010, 2020 decade with zero rates. I think it's impossible. We won't go back there. We won't see zero rates again. You're saying in America. No, you're saying what could happen to push us further up announcements of further fiscal stimuli? Because we have elections this year. So if Trump wins, Trump will push for more fiscal stimuli. This means that profits for shareholders will tend to grow more. Sure. So we are in a really risky phase, in my opinion.

Do you expect good financial and economic volatility in the next two, three years?

But in my opinion, if it's not the end of 2024, 2025 will be a mess. Because if this, let's call it, recession really comes, I don't know if it will. But even if it's a soft landing, there will still be a mess of variables that will come back into play. Unemployment will rise, inflation will fall. So volatility, in my opinion, will return. And it may be that at a specific moment, everyone realizes that we've run too far and everyone sells.

Of course.

So we haven't been seeing volatility spikes for a while now.

Yes, let's say the VIX is dead. Flat as a pancake.

Ah, yes, okay. And in terms of expectations regarding interest rates, which is a topic I've had to get passionate about over the past two years because I've seen how they literally drive all the markets. What do you use to read the expectations? Do you really on things like interest rate futures or do you use the bond market?

But let's say the long term maturities don't lie that much.

There's a short part that can provide expectations for the long term. So understanding what will happen in the next six months, if they will cut rates, that's enough to check.

The Fed. CME Tool Watch makes it clear quickly. But the real counterpart, in my opinion, is the long end of the maturities. That's where the game is played.

Of course. And we've talked about a soft landing or hard landing. A no landing scenario doesn't seem to be on the table. Meaning inflation rising. Could be.

But let's step back and look at some history. Maybe we'll move out of the COVID era with a lot of savings that have piled up in the United States. So I think this boost over the last three or four years has been due to two things. Fiscal stimulus from Trump that lowered taxes for companies. Monetary stimulus from the Fed, of course. And both of these things have ended. So why are we still going up? Because American growth is still strong. So when 4% without inflation means it's a growth that maybe you see after a war, how much longer can this growth go on? I don't know, but it can still keep going.

Of course, there's a trade in your journey that you consider one of the most memorable or among the most memorable. And if so, tell us a bit about it, how it went.

Sure. I have two. One negative and one positive. Lets start with the positive one, which perhaps also arose by mistake. And of these I have two memorable trades, one on the DAX and one on the Hang Seng. The DAX I remember was the weekend before Easter 2000.

Perhaps around 2016, 2017. I had a system that required holding positions overnight, but somehow I don't know what happened. I found out that the stock market was closed on Monday. So I ended up having a very long weekend of four days with three full days of trading, the dax. And fortunately the American stock market, which was open on Monday, rose and I found myself. Now the figure is significant. Oh, and on the positive side, the same thing happened, but much longer because I found myself during the Chinese New Year, which lasts a week.

Damn.

With a Hang Seng plus long positions on Hang Seng with a week ahead where I couldn't close them. So total blindness for a week. And I tried to see if I Could hedge on other instruments there too. It went well, but truly luxurious.

It could have gone wrong too.

It could have gone very wrong. I have some deep scars. February 6, 2018. We were coming from a year in 2017 where any retracement was bought. So I had a series of systems that bought any retracement.

Heavy buying the dip.

Buy the dip of all kinds. And unfortunately, perhaps the lightness of not diversifying. I found myself with all the systems doing the same thing. Down 6%. Caught everything in the face.

Bed. Bed.

Yeah. Okay, cool. Have you ever witnessed a black swan event in the market?

Ah, yes, that black swan. By definition, no one expected it. Also because it happened in 15 minutes. I remember it. I think I'll remember it as long as I Live. From 9:15 on Monday night, the market was down by 1% and in 45 minutes it dropped by 5%. Like a sort of flash crash? No, there was no price that held up.

Yeah, yeah, but let's say we got out of it.

It's not like during COVID How did you experience it?

I would like 20,000 Covid in my life.

Look, I kick myself because unfortunately, during COVID I hadn't delved deeply into the macro side. I was still kind of dabbling with price action with modest results. But I think that if I had had good macro knowledge during COVID anyone would, with even a minimal understanding of macroeconomics. A trend following strategy Pre Covid, post Covid.

I've done it intraday. Well, I have several strategies that I mentioned to you. These strategies during difficult periods have performed exceptionally well. Like in 2022. Well, let me give you two numbers. 70% in 2020, 100% in 2022.

Well, I'd say I'm fundamentally a bearish trader on the systematic side. However, on the discretionary personal side, I'm much more balanced. I mean, I don't really care if the market goes up or down, but I perform very well when the market goes down.

Certainly. Was there something that clicked for you in terms of trading results, either in the early part of your studies or during your initial approach to traditional trading? Did you start off strong right away with systematic trading, or did you have a period and then there was a click that led you to greater success?

Great question, because it touches on how I came to be a trader. I'd say the first challenge came in 2015. August 2015. For those who didn't follow the markets or weren't around then, in the summer, in August, I remember China had some problems there too. A scary weekend. Minus 6%. At that time, I was trading with the Vix and I realized how sensitive my trading was to this mindset of thinking that the market always went up. So from there I started studying all these periods of difficulty. And I have to thank God, because then in all subsequent phases where there was great difficulty, I always did well.

So I believe. This is why I say that one must study the difficult phases, because it's too easy. When everything goes up, everyone's capable, but when it goes down, it hurts.

Certainly when a novice starts primarily approaching discretionary trading, they usually end up in CFDs, discretionary forex, crypto, and they immediately find themselves with. With clear problems, not necessarily at the level of edge or strategy, but at a psychological level. What advice would you give to a novice in terms of how to manage the psychological aspect of discretionary trading, which seems to be the most problematic?

Don't risk a loss greater than 0.5% daily. A trader always faces psychological difficulty when they start experiencing significant losses in a day, because then they immediately think about retaliation, about how to make up for that money, and they increase the risk even more. It's typical. You look at all the stories, even those I've heard of averaging positions, all things that lead to increasing risk rather than decreasing it.

And then, in my opinion, not getting fixated on your idea, meaning being ready to change your mind if the market goes down, you sell. You shouldn't dwell on the idea that it will bounce back and everything will be fine. Therefore, not setting up a fixed game plan, but rather saying, up to here, I accept it. Limited risk. These are rules that, in my opinion, benefit everyone.

Sure. In terms of journaling, do you do anything in terms of how you track or monitor your trading? If you do.

I mostly look at the equity lines. For most systems, that's the easy part. For intraday, I monitor the account. It takes less time.

Okay, okay, okay. You just look at the P and L. Got it. Okay. And in terms of approaching, let's say, various cognitive biases that may exist in discretionary trading, do you feel that the algorithm has given you an imprinting, so to speak? Do you think it has helped you then manage discretionary trading in a cooler way?

No, I would say the opposite. Meaning that sometimes I feel like the systems are wrong and I really want to turn them off, but I don't turn off some accounts and let them do their thing because you have to go. I mean, either you have an approach where you always let them run, otherwise turning them on and off becomes a Mess. But in my discretionary trading, I try to help the systems. So many times I might make a trade that I feel discretionarily should go in that direction. So I make it and then let the systems do their thing. Their.

Do your systems work? I mean, are they also intraday swing, multi day systems or are they also scalping?

No, no, almost all swing, almost all intraday. I let some long ones go overnight, it depends. I exploit specific edges, always the same ones. Some things only work overnight, some things only work intraday, it depends. But positions never last more than two, three days.

Okay, and in approaching the World Trading championships both in 2017 and then the rest of the times you participated, what approach did you use in trading? More discretionary or algorithmic.

But in the first one it was all systematic. In 2017, in 2022, where I came in second by a hair. No, there instead I had also approached it in a more, let's call it macro way because I had already set up systems that I thought could work well. I mean, if I had to look only at the equity line, I would never have attached them. But knowing that they could perform well in a challenging context, I chose those and did well. And this year instead, much more macro and discretionary, fewer systems.

Okay, so everyone at home cheering Please root for both him and me. Even though you are now on the futures side, I am on the forex side, so it's okay. By the way, eh? Let's start with some rapid fire questions. You can choose to answer yes or no, or agree, disagree, like, don't like, and then elaborate a little.

CFDs or futures?

Which one?

No to CFDs, yes to futures.

Perfect. Why?

CFDs have the only advantage that they are granular. Meaning for a small trader, they can allow you to enter with small sizes, but they are not regulated per se. The price can be anything even different from the futures they refer to and the costs are significantly higher.

Does a trader have a good chance of beating the market?

No.

Okay.

Okay. If when you talk about any trader, sure.

Very few in my opinion beat the market. But of those I've seen who often beat the market, they all use volume.

Sure. In your opinion, does the random walk theory hold or not? Meaning do markets move mainly randomly?

No.

Okay, okay. Can you elaborate?

And in fact, I believe they are even predictable in the sense that it wouldn't explain how some funds always make profits.

In my opinion, the world is divided between those who make long term investments and don't care about what happens in intraday. But those who sit in front of the screen need to make a profit, otherwise they won't stay in that business. So in my opinion, the market knows exactly those who work in this world, the only thing that catches them off guard is macro news. It's no coincidence that liquidity, if you notice, disappears right under the news.

Sure. Market makers pull back shore.

Exactly. But there are types of trading that maybe are not for everyone in the sense that the commission impact weighs heavily. I'm referring perhaps to high frequency. High frequency loses very little. And so you can't say that trading doesn't work. It depends on what level you do it, with what size and with what costs. Sure.

Sure. With a good path, a good mentor. Do you think anyone can succeed in trading?

Yes, let's say if they have a certain propensity to learn. Because if someone says, yes, I want to learn, but then doesn't put in the effort. No, but if someone says, okay, maybe it's my passion, I trust someone, I think they can do it. And I have some evidence of some students.

Who do you say that with? I don't know. In good academies or in good training schools, the percentage of non profitable traders is higher than in self taught individuals.

Sure.

Okay. In terms of the education market in Italy, or in the Italian speaking market, what do you think about the battlefield of education? What do you do or what do you bring differently to improve or to have a positive impact on new traders who want to learn?

Well, perhaps I don't have a unique approach in the sense that out there, those who provide education do something specific. Some focus on systematic trading, some on options, some on this, some on that, but few have the complete vision. In my opinion, there are forces of all kinds at play in the market. From the option side it's important, from the macro side it's important. From the volume side it's important. And all three, if someone understands a bit about how they all work together, that definitely adds extra experience for a trader.

Sure. Can a person starting from scratch, with the right education, let's say, make a living from trading in the first year?

No, no, because most traders are undercapitalized. So at the beginning it must be a passion. And there must also be an awareness of how to manage one's wealth for the long term. Because in my opinion, many underestimate how important the effect of compound interest is in the long term.

So let's say here too there are different factions between those who say, I don't care about trading, I'll just leave everything there. And in my opinion, that's not quite Right. I mean, even long positions need to be managed. You can't just leave them there. Thinking about 2008.

You say, yes, yes, I leave them there, I make a nice 50, and then it takes 10 years to recover that money, which is true for the United States, for example. The Nikki took 30 years to recover its highs.

So even there, in my opinion, it should be managed a bit better, a bit more actively. Basically, the trader cannot expect to make stratospheric returns on low capital and then say, okay, I'll quit my job. And one can only do that if they already have some wealth or if they already have a great understanding of the market.

According to you, what is the minimum capital? One should have to live off trading.

But let's do the math. If one makes 20% a year, which I think is already a great trader with a fixed capital, not leveraged. So if you make 20%, because you guess well, 20% of the S and P.

If you do it with fixed leverage, so leverage one, it means you're already a great trader. Sure.

So it means that to live in Italy, you need.

Let'S say, 2,000. I don't know, because I don't live in Italy.

€2,000 per month, you need €100,000 a year. €100,000 for 20% is 20,000.

You're a phenomenon. You take bigger risks. Maybe you can even manage with 50,000. And moreover, you can make 50,000 back with work if something goes wrong. But above certain amounts, in my opinion, using too much leverage leads to problems.

Sure. Okay. Leverage. Yes or no?

Yes, why not?

I mean, if you're aware of what you're doing, you can even say, today I'll risk 1% of my wealth to make maybe 2.

And you really have to be aware, though, in my opinion, I would never say leverage 10, but up to 3, 4. It can work.

Okay. Agree or disagree?

The banks are against retail traders.

False.

Banks hunt down the stop losses of retail traders.

False.

Okay. There's a single algorithm governing every market movement.

False.

Okay, those were easy.

In discretionary trading, there are methods that are much, well, radically better than others.

You've got me thinking. Huh? Radically better.

I'd say no.

Okay. Can you elaborate?

I mean, I'd be inclined to say that volumes give you a bit of an advantage, but there are also other factors to consider. So the word radically implies that only that matters. And I wouldn't say only that matters.

So just like probability isn't the only thing that matters, just like macro isn't the only thing that matters, I Think you need to have a bit of an idea of what could happen during the day.

Of course. Can a trader make money just with support and resistance? True or false?

Generally true, but with a multi day swing perspective.

Of course.

I mean buy low, sell high. It was generally true in the last two years. One would have made a lot of money with this strategy, for example, let's give an example like this. Let's even give away a strategy. But buying the low of the last four days on the S and P, if you look at it in certain market phases, it works very well. In the last two years it has worked very well. And it's clear that if you find yourself in front of 2008, it's a problem because you buy the low and the low goes down further.

However, generally some strategies.

So I'm evaluating in my mind the equity line of this thing. In the end it makes a profit. So your question was, do support and resistance make money? Yes.

Prop firms for capitalizing at the beginning, yes or no? The modern ones, clearly.

To me they seem very much like a scam.

Okay, elaborate.

In the sense that everything is based on subscriptions, not actually on the real capital they have. In fact, I have some doubts that the capital is really traded. But let's say the prop firms I've done, which are the real ones, are not public. You don't get in with a challenge, but with a real statement. With proven sharps, the first thing they ask you in.

Sharpe ratio.

Yes, Which I think is also a flawed measure.

Why is that?

Because the Sharpe ratio measures all volatility, even the positive one. So it if someone is a very volatile trader who makes a lot of profit, they can be penalized. For those with a low Sharpe ratio, I think it's better to use the Sortino ratio. I mean, I'm interested in how much you lose when you lose.

Okay, yes. About prop firms, obviously there it's a bit like with brokers in the sense that they've become a model for data analysis, trying to understand as soon as possible whether you're profitable or not. So after maybe a period of two to three months, they understand whether to really mirror or hedge. However, primarily the real financing comes from the people who lose the challenges that go on to finance those who with a bit of luck manage to reach the first payout.

I'll tell you this anecdote about those who won the world championship and in the year after they became advisors, they all lost. So what's the evaluation time for a skilled trader?

This is also interesting.

In My opinion, this is the problem with prop firms, meaning I'm good for three months. And this tells me that in the next three months, if the market scenario changes, you'll still be good anyway. Yes, it's not guaranteed.

Of course.

Classical technical analysis. Does it have an edge?

Yes, I think so. Because basically.

There are still a lot of operators watching. I can think of some funds. I follow that. Tell me. But look, it's still holding here. So in some way, even those with money. Well, look at the chart with the eyes of a human being who is somehow influenced by these figures. Now.

I don't know which ones work better, but I don't know. A bullish channel might have some effect, in my opinion.

Sure, like a 200 period moving average.

Exactly. So, in a straightforward answer, does technical analysis work in your opinion? In my opinion, yes.

It can work. In the right hands, yes.

There we go. Maybe not to rely entirely on it, I wouldn't be a zealot. Let's say only that works, but in my opinion, it can work.

What about the narrative of the trader who travels a lot? Does that make sense to you?

Completely false. I thought I'd do this job, something I could move around with, but instead it became.

I won't say a nightmare, because it's my passion, so it's what I like to do. But in my opinion, the dream of saying, okay, I'm traveling the world, I can do it. No, if you do it as a profession, in the end you're in an office. Besides, you can have smart working, so you can do it from anywhere. But the trader on the beach, in my opinion, is a very wrong view to have.

So even from the couch, you're saying it's not really the best place to do it?

I didn't say it.

I completely agree, because there was a bit of a legend about the trader who travels a lot. But last year, I mean, I understood very clearly right from the start that it requires a certain amount of focus anyway, both in the analysis phase and in the execution phase, etc, etc, that you can't afford to be on the beach, traveling around, I mean, even traveling for me, now that I'm taking some trips for these podcasts, etc. It's hard to find the time and really trade with the right mindset and focus. So in my opinion, it's a complete colossal lie.

But, oh well, it depends on the style, because systematic trading, for example, solves this problem. Exactly. But it has its pros and cons. You're not in front of the monitor. Anything can happen. And typically I remember that the days when I didn't follow anything were the days when things went better. Because you don't touch anything, you don't do anything and you let the systems run. But then they loose when they lose the context. I mean, if you're in front of the monitor and you see everything going up, you understand that maybe it's a system that's short, maybe maybe it's going to take a hit.

Sure.

And last question. If you could go back 15 years, what would be the three general pieces of advice, not just about trading, that you would give yourself?

Let's go in order. Diversify in the sense of systems as well. One of the mistakes that led me into the first drawdowns was maybe focusing on the ones that were doing better.

Now I've completely changed my mindset. I mean, I don't care if they perform poorly in a context where everything's rising, but I want them ready when things get mess. So maybe keeping things running that float is never a bad idea. Avoid reversals. The first thing one learns as a trader is to focus on buying all these dips. Be careful because sooner or later you'll pay the price.

Right? And on that note, adjusting leverage. I mean don't go all in because it's always worked. These are the three pieces of advice I would give. So avoid always buying the dips. Diversify and reduce leverage.

In terms of greed and avarice if we want to. Eh. Ultimately, what attracts many people to trading is the idea that it's somehow a glitch in the system that you can still make money from trading. Not necessarily easily, but still.

So you have to click, you have to buy, you have to sell. So in a way it attracts and then disappoints precisely because of this. However, at a certain level it may also be that the idea of being financially well off helps you stay consistent over time. So there's this dichotomy of greed that on one hand needs to be kept under control while trading, but at the same time can also be somewhat the fuel for maintaining motivation. How do you see it?

Well, in my opinion, you always start with very high expectations. Then you realize that these expectations lead you to scenarios where you never wanted to be.

No doubt, perhaps it's the experience of all traders. So what I was telling you before, reducing leverage goes exactly in this direction. One should be content with a good return, which in my opinion, as I mentioned before, is between 15 and 20% per year. If you can achieve it every year, it's Great, Especially with low leverage. So it's clear that it always pushes you to aim for 30%, but that 1.1 risk reward ratio is always lurking around the corner. So you might end up with a 30%. I don't know. Everyone says yes in words, but when you find yourself in that situation, in my opinion, you have psychological problems that become unmanageable and the first thing you do is turn off the computer and maybe for two, three months, you don't even want to think about it anymore.

If someone, let's say many, approach trading, unfortunately precisely with trading signals, copy trading, little systems, let's say from the neighborhood gurus, how do you see this in this world? How?

It's always a risk. You're never sure if this person really has an edge. I remember one who is always long, always long, writes to you every day, go long, go long, go long, go long. And then when the market goes down, he says, well, it's part of the market. So in my opinion, and vice versa. So in my opinion, before relying on someone, you need to investigate very well and understand what this person really knows how to do.

And what parameters would you investigate or how would you suggest a person to do a thorough due diligence on these types of services.

What they have done, where they have worked, if they have experiences, if there are any many things. In my opinion, the P L is not enough either.

And looking at how they do marketing, in your opinion, is it another important aspect?

It could be, but I wouldn't know if someone who is aggressive is also good or if someone who is not aggressive is not good. I couldn't tell you. Related to marketing, in my opinion, I don't know.

There's no direct correlation. Like if you're aggressive, you're not strong, or if you're not aggressive, you're not strong.

No, let's say we could define it like that. Perhaps those who do less marketing are more skilled and mind their own business. But it doesn't seem too generalistic as a concept.

Sure, yes, in my opinion at least. So a person who is aware of what they are doing and what they are promoting at least does not make exaggerated claims like guaranteed earnings or using leverage as a lifestyle or photos with a Lamborghini, etc. Etc. I mean, in my opinion those are clear red flags to stay away from, let's say.

Exactly. But I always give it to my students a bit tough. I mean, this job, if you want to do it well, you have to spend time on it. And you can't think that in three seconds from the couch, from the bathroom, you can trade. You have to be focused. You have to follow what happens in the market. You can even take an approach where one does it as a worker. So maybe you set up trades in the morning, but let's say it's already. You have to do it much more cautiously. Of course, it's easier to do it if you're in front of the monitor. Jamo.

Fantastic. Fantastic. Thank you very much.

You're welcome. Thank you.