Updated: May 25, 2021

How retail traders apply their trading strategies



Today we look at the book Millionaire Traders, and how everyday people are beating wall street at its own game.

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Unlike other millionaire traders, the 12 traders covered in this book are not backed by huge hedge funds, but by their own funds, some with as little as $1000.

Each of the traders have a quite different trading style, some even conflicting with each other, proving there are many paths to success.

There are however commonalities with each of them, they are disciplined, they stick with their strategy, and they always cut their losses.

The other trait they all had in common was that none of them were successful straight away, many of them blowing up at least one trading account before eventually mastering their craft. Persistence was an obvious common denominator.

Let us look at some of these millionaire traders individually to see what we can learn.

Dana ‘Dan’ Allen known as the man who buys crashes.

From the age of 9 Dan would read the wall street journal, and by 21 he opened his own commodity trading account.

Dans approach was to look for deep value, making trades when others were running for the exits, a strategy not for the faint hearted.

He started with a $3000 dollar account and within 6 months whilst still at college, he lost it all. Eventually in 1989 he managed to turn a $2000 account into $40,000 within 6 months, using options against the price of Copper, a speculative method which paid handsomely.

When asked why he stayed in the trade so long when he could have cashed out earlier, he said:-

“Technical Analysis, I was following a chart on it and it still looked healthy and so I held on to it until it started losing momentum.”

A similar selling rule to my own, any meaningful loss of momentum and I look to close a position.

Dan said his best trade was a company called Patriot Scientific, he bought during January 2006 on the basis that the company had no debt, piles of cash and good profits. The trade became a 26 bagger a few months later.

Although Dan does not refer to it, I see another element from this trade which is akin to my strategy, a weekly breakout on increasing volume. Coupled with positive fundamentals this is a solid approach.

To sum up Dans strategy, he recognises that stocks generally have an upward bias over the longer term, referring to the US stock market which has averaged 7 percent over the last 200 years. He therefore looks to buy the drawdowns within this longer-term uptrend, and only with stocks that have no debt.

He offers some words of wisdom when he says:-

“I think my number one trading rule is to not worry about being right, just focus on making money and just deal with being wrong. The purpose of trading is not being right, the purpose is to make money”.

Next, we have Rob Booker, Rob was a former lawyer before turning into a full-time trader. He describes himself as a back tester first and trader second, suggesting: -

“If I can’t prove that a system works from my testing, then I have no business trading it with real money.”

After thousands of hours of back testing, Rob applied his strategy to the foreign Exchange markets, initially with a trading account of just $2500.

Rob says he made lots of mistakes, in particular making too many trades and risking too much on each trade. He would risk between 5 and 10% of equity per trade, but now understands he should trade with no more than 1% of equity risk per position. He understood that regardless of entry or exits points, trading is a game of survivability, if you can survive in the game for long enough with a statistical edge you will win the game.

Robs favoured timeframe for the forex market is the 1-hour chart, and he aims to achieve a 100 pip profit each week. In theory he looks for short term trend breakouts, often adding to positions going in his favour and cutting short positions going against him.

Rob makes the reference Possum Trading, and says it should always be avoided, in essence he says if a trade turns bad do not just bury your head in the sand and hope it turns around, trade defensively and exit the trade.