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Building better trading indicators from experience

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Associating only with top-quality people and firms, Ralph Vince picked up trading ideas that he programmed as indicators for profitable trading systems for individuals to the largest hedge funds.

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Tim:

My guest today is Ralph Vince. He's got a tremendous amount of experience in risk management and position size, and we're going to talk to him today about his background in trading and his indicators in TradeShark. Ralph, talk about how you got started in the trading business.

Ralph:

I grew up in an Italian and Jewish neighborhood, and the whole idea of gambling and risk taking and all of this was very pervasive to the whole environment. One day, maybe I was an adolescent or something, a friend of mine ... We went to his father's place of employment, and it was a brokerage. It was an old-style brokerage firm with the Electrolux tape. Shortly after that, when I was about 19 years old, I'm looking for a job, I'm in downtown Cleveland. I have a rust-colored sport coat, which was about the only formal clothing I had to my name, and I walk in off the street. A woman says, "Are you here for the margin position?" I said, "Yeah. That's what I'm here for." She goes, "Well, can you start Monday?" I'm like, "No, I can start today." "Monday's fine." At the time, they needed someone to do the margins for short option accounts by hand. They weren't yet computerized. It was a great baptism by fire, both into margins, options, and the whole concept of risk as it applies to capital markets in a real-time, fast-paced environment. It was a great experience for me, and I started then trading some options on my own with the paltry income I was making. The oil market heated up, and I made what, to me, was a lot of money at the time.

Tim:

All right. Early on, too, you had some experience where you got into trading with some people that were getting their start, too. Larry Williams one of them. Talk about that.

Ralph:

I had a computerized platform for testing out trading ideas that I had cobbled together, and that's where guys like Lou Mendelsohn, who had been doing this for a while ... They were like the gods of this arcane little niche of guys who knew how to do this, and had the resources to do it. I was contacted by a fellow named Bruce Babcock to come and program trading ideas for him. It was while working for him and through the introduction of a mutual friend of Larry's, Tom DeMark, that I had met Larry at a hotel, up by Chicago ... by O'Hare Airport, I think, one day, and that was very transformative for me. I can honestly say, had I not met Larry Williams, I probably, right about now, would be punching the clock at the Ford engine plant in Cleveland. It was really that transformative for me to have met that guy.

Tim:

What kind of things did Larry introduce to you and start you thinking about in terms of ideas about computerizing and programming to make good trading decisions?

Ralph:

Oh, he was, at the time, he was very rigorous, not only in trading absolutely per the system, but also rigorous and comprehensive in what he was looking at. His idea was to leave absolutely no stone unturned, and that's ... Again, was a very good experience for me, and being with him through 1987, the championship at Robins and the stock market crash in October of that year and what happened in the credit markets was all a very, very good experience for me, and the kind of thing you can stick around the markets a long time and never get that kind of experience.

Tim:

What goes into a good indicator, what kind of things do you look at when you start to program something that will help you make a trading decision?

Ralph:

Usually, it's off of an idea. Either an idea or something that I've noticed in the marketplace, something that someone's mentioned to me, or maybe an after the fact analyzing what happened. Usually, these things have a way of percolating over time, and you just go, "You know, I think there's a lot to timing, let's say, a high-pass filter to the cycles that we see in the marketplace." These type of ideas usually take some thought as to how the actual formulation of it should be. How do I want this indicator to look? Do I want this to be bound between 0 and 100 or -100 and 100? Is this something that would be overlain on a chart? What's the best implementation of this type of indicator, and what is it showing me? Most importantly, it needs to be something that's non-redundant to other stuff out there. There's so many indicators out there, so many really good indicators out there, and a lot of them, I still use. If I come up with something, I want it to be something that's non-redundant to other things out there, or at least a better manifestation of things that are out there.

Tim:

It sounds like there's a lot of complex thought that goes into indicators that you've programmed. Talk about why you decided to work with TradeShark and focus exclusively on TradeShark.

Ralph:

Like I say, I was aware of Lou early on, and then I had the good fortune, through Larry, of meeting Lou, and Lou's a top-shelf guy. Early on, I made the conscious effort that I only want to associate myself with top-shelf guys, top-shelf organizations, whether it was Larry Williams, whether it was John Wiley & Sons, whether it was the Market Technicians Association, whether it was the Abu Dhabi Investment Authority, whether it was Dow Jones Indexes. At every turn, I've said, "I need to be around top-shelf guys." Association makes for assimilation. That's why, knowing the Mendelsohn’s as long as I have, seeing how long they've had their product out there and what a quality product it is, and, most importantly, what quality people they are, why would I not want to be aligned exactly with them?

Tim:

It sounds like you choose the best and decided to go with that.

Ralph:

Absolutely.

Tim:

So Ralph, with so many years of experience in the trading business, how did you distill down all that knowledge into these indicators into Trade Shark?

Ralph:

Well, I've seen just about everything that has come and gone in the past 30, 35 years. Maybe a little longer, I'm afraid to admit. I like to keep things that stand the test of time through all different kinds of markets. The crash of '87 really affected me, in a very profound way, and it affected me for years afterwards. The indicators that I keep, that I use for myself, the ones that have stood the test of time, and all kinds of different market conditions.

Tim:

All right, and you've been using these for your own trading for a long time, made money with them in your own trading accounts, why release them now with Trade Shark?

Ralph:

Well, you know if I go back to 1989, 1990 I was totally burnt out on promoting trading ideas with Larry and I was really obsessed with the money management ideas. And this went on until about 2009 and I'd really just pursued that tooth and nail, I'd always had these indicators, always looked at them, and actually, always used them but I was very focused on the money management aspect. Subsequent to 2009, in my own personal trading, I got a lot more involved in ... Okay, I've proven out the money management side, to myself, to my own satisfaction, okay. The weight of that, now I need to go back and I need to go full circle here, to bring in the technical indicators. If what I have works on it's own, then if I can bring back those technical indicators that I have witnessed stand the test of time up to this point. It should manifest itself in some really great trading, and for me, personally, it has. Why would I want to release them? Well, I'm releasing them across the board. If someone wants them, they have to do them through Trade Shark and for reasons we discussed earlier, given the top shelf nature of the Mendelson’s. I find myself, because everyone is going to use them a little differently and on different markets and because these markets are so liquid, I'm not afraid of someone else using the same indicator, in the same way, on the same market, on the same time period, on the same date that I am getting in the way of my trade. I'd like to share this, and show other people, here's how you put together some non-redundant indicators and use them, real time in the markets going forward and markets that I haven't yet seen.

Tim:

Talk about the indicators that you do have with TradeShark. What are some of the things that they look at?

Ralph:

One of the things that came out of working with Larry back in the 1980s, and was one thing I was working on the side, was what is a robust way of taking a cloud of data and determining what type of cyclical components are in there in broad, rough, robust ways? That word "robust" is critical. To me, that's critical in any kind of indicator. It's got to be something that works in all kinds of environments, not a delicate mathematical construct, and then coming out with a way to project this cyclical data forward.

Tim:

What is cyclical in the markets? Can you give us an example?

Ralph:

Recently, let's say in the broader indexes, we've been working a very, very strong seven-to-nine day cycle in the data of roughly the last ten weeks. Then I want to project that out so I know, where am I in this short-term cycle, number one. Number two, cycles change with respect to time. The way they change with respect to time, at least just in my having observed it through the peephole of my existence of the last several decades, they can change slowly, and they can change very abruptly, too. These different changes, the way they change, tell us a lot about the character what's going on. What's the character of the environment that we're in at the moment?

Tim:

One of the key things you said early on is that you've made money with these indicators. You've traded them yourself, which kind of sets you apart from a lot of people that put indicators out there, that maybe have only done backtesting and that's it.

Ralph:

I trade full time. I do a lot of other stuff, but trading is my focus, and it has been for a very long time. Yeah, I use these indicators in what I do. I wouldn't trade my results with anybody else's.

Tim:

TradeShark, I know that's complex behind the scenes of what goes on with these indicators, but talk about how easy it is to use them with the TradeShark software.

Ralph:

Well, originally, I started out as a programmer. I still do a lot of programming. I thank God I don't have to program these up and display them the way they display in TradeShark, that there's people who do this full time. As far as ease of use, for me, it's simple. I only spend a few minutes a day looking at it, because that's all it takes with this. All of the data collection is done automatically. Everything happens automatically. I just turn it on and load up my portfolio, and I can immediately start seeing the results of the analysis that I want to see.

Tim:

Ralph, thanks for your time today.

Ralph:

Thank you, Tim.

Tim:

We've been talking with Ralph Vince about his indicators available exclusively on TradeShark.

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