June 15, 2018
A note to readers: While much of this article’s content is timeless, it is from a past publication and may contain outdated information, missing links or images.
Ken Long loves to trade and to teach. He happens to excel in both of those roles, so we thought we’d ask him to share a little bit about how he thinks and what makes him successful. As an example of Ken’s self-awareness and his sense of service, he emailed us back this note after he’d completed the interview questions:
After reflecting on the questions, a particular theme stood out: network-centric, collaborative learning. I am convinced that this is an edge for individual traders going into a market dominated by institutional money, algorithms, and unprepared lone rangers. This is strongly connected to my doctoral research—how to prepare leaders and managers to thrive in uncertainty and chaos.
Here’s the interview that prompted that response.
Q: You have a lot going on between your position at the U.S Army Staff College, recently obtaining a doctorate, coaching your daughter’s soccer team, and running an online trading chat room. Why do you trade?
I have to trade because of the intellectual and emotional challenge and the satisfaction I get from trading well. I love to trade because I find it interesting, and it challenges me every day to discover who I am and what I can do. I like to trade because it combines my passions for action, research, intellectual challenge and adaptation. Trading directly supports my personal and financial goals and rewards me for the time and effort invested compared to other things I can do with my time.
Q: Where do you get your trading ideas and how do you develop those into trading systems?
Constant working and reworking of my production systems and seeking to understand them better often leads me to new pathways. I review a wide range of literature every week, quickly scanning for ideas that capture my attention at a deep level. Our mastermind chat room is filled with so many excellent traders and deep thinkers who freely share their ideas that I would need 10 lifetimes to explore all the ideas I get just from their sharing.
Our live trading chat room, our collaborative learning environments in the Tortoise Mastermind and our periodic live trading workshops and research weekends are a testimony to the power of creative and critical thinking that can occur when a group of collaborative learners get together and share.
Based on how closely the beliefs of a new trading system prototype match my current set, I am often willing to start forward trading the system at very low levels of risk to quickly find out if the new style or system is suited for my psychology. The further the systems are from my current belief sets, the more carefully I study previous patterns and back test results before committing to forward testing. Once I’m satisfied with the basic idea and have conducted forward prototype testing, I scale up risk levels until they reach production levels.
Q: We’ve heard you enjoy flying to North Carolina to teach workshops. Why is that?
In the month before I come to teach workshops in North Carolina, I make an extra effort to more carefully define and refine my systems, review my results and reflect on my material. I read as much as I can and think about it on long walks at night with my dogs. I re-read one of Van’s books before every workshop and carry one with me on the plane. By the time I actually get on the plane, I am so mentally saturated that I quickly fall into a dream state that quite often generates some of my best new trading ideas. I’ve learned to keep a notebook and voice recorder handy to describe my stream of consciousness and dreaming for later analysis. It happens even more so on the return trip because the workshops are a fertile learning laboratory for me, even though I’m teaching material that is familiar to me. The plane rides are becoming my favorite part of the workshops.
Q: What does your big picture look like right now?
I believe that the big picture must be related to the particular system you are trading. For an intraday trader, the big picture might be the average daily volatility of the last 10 days and where the price is within the 10-day price channel. For a long-term retirement account that seeks to adapt on a monthly basis, the big picture might include an estimate of the secular trend, the three-year trend, the relative strength of the last six months and the target’s performance relative to the population of available targets.
I host a weekly webinar where I update my intermediate and short-term market big picture to frame my trading plan for the next week. My market classification system has the market, defined as the SPY, in a bullish quiet condition this week (Feb 19, 2012). It is at the high end of fair value on a weekly RSI basis, and over significantly on a 10-day basis as of this writing (again, the week of Feb 19). The last 30 days have been in a 3% easing bullish channel with an improving regression line slope. Within the last 90 days, the market (SPY) has been in a trading range of 137 to 124.
Under these conditions, I’m prepared to make short-term trades on the long side with upward momentum, particularly when the open gaps down less than 1% and finds support to reverse within the first 60 minutes. I am prepared to go short instantly upon failure of the previous day’s low with the weakest of the ETFs or the VXX. I will carry any short-term trades overnight only to the long side because of the decreased volatility, the bull quiet condition, and the strongly trending market (ADX is 37 and rising). I have favored targets for both the long and short side in large-cap stocks and broad ETF indexes. However, with ADX > 35, strong resistance at 137, and the 10% gain in the last 40 days, the market is approaching price levels where owners are becoming concerned with preserving profits more than adding new positions. New money for buying pressure could come from treasuries, which are faltering after a generationally large move last year. Latin America and Brazil are still stealthily leading the way ahead of the rest of the global sectors. The risk on trade is working in the U.S., with tech and small caps better than the large caps, and the defensive SPDRs lagging the growth sectors.
Q: Should newer traders avoid trading in these market conditions?
Traders should trade in markets whose conditions are favorable for their systems and their psychology. If a new trader has a system that is suited for current market conditions, a good read on market action and has done the necessary self-work to operate the system, they can trade this kind of market at a risk level appropriate for their objectives. You can always find an infinite number of reasons not to trade any market. It takes an effective intersection of system, self, and market to create the conditions for good results.
Q: Given the recent volatility, are you trading different systems or are you trading your systems differently?
I am focusing more on shorter-term systems to take advantage of the increased volatility because that’s when they perform best. My longer-term systems move to cash during periods of increased volatility simply because I designed the rules to preserve capital in unfavorable conditions. In periods of increased volatility, I tend to reduce my span of control to just a couple of my more favorable targets and pay close attention to them in order to not be distracted or overcome by sharp changes of direction.
Q: How are your systems performing?
All of my systems are performing as intended and designed in their respective long-term, intermediate-term and short-term time frames.
Q:What are your insights about the performance of your various systems—longer-term, short-term, intraday—in volatile conditions?
Except for intraday trading, my research has shown that increasing volatility is inversely related to long-side profits. In a volatile market, my longer-term systems are protected with trailing stops, my swing trade systems tend to take profits more quickly when they are in hand, and my short-term systems actually do better when volatility is rising.
Q: You have a mix of experienced, intermediate and beginner traders in your chat room. Have they had noticeable reactions to the recent market conditions?
I would say that most of their experiences echo my own: increased volatility favors shorter-term systems and rewards simplicity, discipline and risk management above all else.
Q: What level of market experience is needed for someone to trade your systems?
Sometimes, market experience can get in the way of trading new systems, while other times, it can help us find ways to make them our own. I am constantly trying to find ways of simplifying the rule sets and making them more specific and concrete so that new traders can quickly pick up the rules and begin making them their own. A recent experiment with my wife and a group of local soccer moms showed me that some of my systems for intraday trading can be applied after as little as 30 minutes of instruction and only two or three days of supervision. It really comes down to ones’ ability to master oneself, trust the systems and apply those systems in markets that are favorable.
Q: What has surprised you recently about trading, your systems, or yourself?
I was very surprised at how easily my wife and her friends were able to successfully trade futures on an intraday basis during some of the most volatile days of the past 20 years. They had no ego involvement in the results—their job was simply to execute the rule sets I had given. All of the pressure to be right or wrong was offloaded onto the rules and was not internalized as part of their self-concept, which freed them to focus purely on execution. That was a very powerful insight for everyone who witnessed it during our live trading workshop.
I have also been pleasantly surprised at how effectively the monthly rebalancing and weekly rebalancing systems protected capital when the volatility conditions changed.
I’m very pleased with a research project prompted by a request to automate my systems at the last set of VTI workshops. We hired one of the best platform programmers in the world to code a dozen of my swing trade systems and a dozen specialty market indicators into two bundles. I usually use Excel to develop my ideas because I’m comfortable in that environment. Adding automated technology to the mix allows us to study numerous variations of parameter combinations quickly and back test across multiple market conditions and trading targets. I was really amazed by the power and flexibility of these ideas and the ease with which they adapt to individual preferences. I was especially surprised by how easily these trading strategies adapt to futures and Forex markets.
Ken Long: Ken started his collaboration with Van Tharp in the late 90’s. Ken, a professional trader and systems developer, has a large offering of workshops, trader groups and hundreds of free resources.
Tortoise Capital Management takes a descriptive statistics-based approach to global equity market analysis, focusing on low risk, high reward systems that provide individual traders a robust edge. Tortoise Capital develops complex trading systems and regularly conducts workshops and seminars on stock markets with a focus on short- and intermediate-term trading systems that use Exchange Traded Funds, large-cap stocks and futures contracts. Connect with Ken HERE.