An interview with well known author and trader Kel Butcher

In this weeks blog I interview author, trader and traders mentor Kel Butcher. Kel started his trading journey way back in 1989 and has been involved in the markets for just on 20 years. Kel is the author of A Step-by-step guide to buying and selling shares Online and 20 Most Common Trading Mistakes and how you can avoid them. He also writes for Your Trading Edge magazine. Kel trades a variety of markets but what is most interesting is that all his trading is mechanical – from short term auto-trade intraday systems on the major world equity indexes, end of day position trades in the futures and commodity markets, to use of SPA3 for his and his family’s superannuation funds that he manages. Kel’s journey and story is an interesting one and I hope you enjoy reading it.

My trading journey began quite early in life as I learned early from my Dad that everything could be bought and sold at a price. He was a farmer but also specialised in trading sheep and cattle, constantly buying and selling stock rather than holding on to any particular breed or line of stock. His favourite saying was ‘never fall in love with your stock”. After completing a degree in Ag Science (with merit) I fairly quickly determined that working for someone else and grinding out my life to someone else’s drum beat didn’t really suit my personality or dreams and ambitions.

My first trades in the ASX were based on gut feel and stuff I read in the newspaper. I bought Westpac bank and Western Mining and paid some stodgy old broker about 2.5% commission for the privilege of having him tell me that I didn’t know what I was doing and that investing with a long term view was the only way to make money in the share market. Being a fairly independent kind of a dude, this raised my shackles somewhat and I set out on a course of learning and discovery that continues to this day. Originally a discretionary trader by default I guess, my scientific mind lead me to mechanical and systems based trading based on probabilities, money management and the need for a slight ‘edge’ over the market. My first exposure to this came from attending original Turtle Trader Russell Sands workshop in Sydney in about 1992. I then began my own voyage of discovery about mechanical trading through books, seminars and anything I could get my hands on. Some of my other mentors include Louise Bedford and Chris Tate, and I have worked extensively with Larry Williams. I learned money management concepts and their application from Ryan Jones.

I am now a 100% mechanical trader and have been for many, many years before the term became well recognised. It seems as though the retail component of the financial markets are beginning to more fully understand the importance of system based mechanical trading as opposed to discretionary trading and even pseudo technical trading using personal interpretations of indicators and patterns. For me, a mechanical approach allows me to crunch the numbers on the system to determine if it works. If it does, I then implement the system and trade it according to the rules. In this way, my job becomes one of managing the various systems, rather than managing individual trades. I run equity curve drawdown and volatility filters over all my systems and switch them on and off as these filters require me to do so. Some of my systems are auto-trade which means the computer fires the orders into the market electronically when the orders are triggered. Some still require me to place the orders into the markets manually at predetermined price points for both entry and exit. This I do with no emotional attachment what-so-ever. If I have an entry to buy or sell according to the rules of the system, I just do it. Similarly, if a stop price is reached, I simply exit the trade as specified by the system – no debate.

I trade the major equity indices including the SPI, E-mini S&P, DAX, and others, commodity futures, commodity options, ASX shares and CFDs at times. I use the SPA3 system for my Super Fund and my Mum’s Super Fund.

The biggest downfall I see for the majority of private traders and investors is a lack of belief in themselves and their own abilities. Most are constantly looking for someone else’s opinion and support to backup their view. Instead of either developing their own system, or buying one that has a proven track record, they are constantly searching for other people’s opinions and continue to trade in an ad-hoc way with no systematic approach to their trading. They are constantly jumping from one idea to the next, from one guru to the next, or one market to the next. They are inconsistent, undisciplined and impatient, and as a result unprofitable over the long term.

My number one trading rule is “discipline, consistency and patience”. This is a life long journey of endeavour, not a sprint. Those that can trade with an edge over the long term will be the survivors and the profitable traders. In my role as traders coach and mentor I tend to concentrate on this rule and teaching people the importance of money management and risk management. I also help them focus on what they want to achieve in their trading and aligning their goals with their time and lifestyle commitments and requirements. Kel can be contacted at kel@tradingwisdom.com.au