My trading philosophy

A few weeks ago, through an e-mail exchange, a trader asked me this question, "why don't you write a book on stocks? I am sure you would make a lot of money as most traders, especially American ones, trade stocks".

I draw inspiration from this question to explain my trading philosophy, how I see and have structured the activity of being a trader. This, from the height of my alas now 27 years of work in the financial markets.

Let me say straight away that it is not my intention to tell you how to trade. No one, not even I can teach you how to trade. This is simply because we are all different people, with different ideas, emotions, and objectives. At the most, I can teach you how I trade, but there are certain aspects that would put you in difficulty.

I should also point out that I have not written my books and I am updating, improving, and translating them into other languages with the aim of earning a profit, also because practically all the royalties I earn are destined for various "projects" and I have only a few coins left in my pocket.

If I had been driven by mere profit, I would have organised courses to sell at a high price, as I have people asking for them every week, or I would have agreed to work for one of the three Banks that contacted me.

No, the reason is different and it is what has completely changed my view of trading and made me a successful trader. In my books, limited to the markets I work with, currencies and commodities, I explain the correct way of analysis. It may sound silly, but this is the "secret" of those who make money in the financial markets.

Another question I often receive is, "how does one become a professional trader?" First of all, in order to make trading an activity that allows you and your family to make a living with, you need adequate capital. You cannot expect to earn 30,000 euros in a year with a 1,000 euro account.

Next, becoming a professional means being able to correctly and clearly analyse the market you are working with. This is the basis, the foundation of trading. Knowing for sure whether a currency pair or a commodity is quoted at the right price, or should be worth more or less. Only in this way will you have the current situation clearly in front of your eyes and, if there are no changes in the analysis made, you will know how that market will move in the following weeks/months.

With the addition of proper discipline and ever greater experience gained over time, you get the “formula” to be a professional trader, profitable month after month. This is the answer that often disappoints those asking the question. In fact, many people expect that in order to be profitable in trading it is necessary to have the right strategy, which they do not yet know. It is also the main reason why most traders fail.

It was a bit of a long introduction but I wanted to stress some concepts that I consider very important. Well, why have not I written a book on stocks yet? Actually, I should add "and I never will?"

Twenty-seven years is a long time. During that time, I have done everything from a scalper to swing trader, I have traded stocks, CFDs, ETFs, Forex, commodities, bonds, futures on stock exchanges all over the world (or almost). Apart from Gann, I knew all the technical analysis. Result: I could not close two consecutive months in profit.

One day, chatting with a friend of mine, I expressed my opinion that it was impossible for small traders to make money with trading, the markets were too manipulated (fortunately, I would add today). You had to have a crystal ball to know how they would move. I ignored it at the time but that would become the day that would change my life as a trader.

Having a crystal ball... I thought then if there was a way to know and exploit the price imbalances of a market compared to its real value by investing in its realignment. From there, my activity as a trader has developed up to the present day.

I soon realised that the markets best suited for this type of trading were currencies and commodities. However, in the short term, the manipulation component persisted, so I opted for medium-term trading, from a few weeks to a few months.

I completely changed my type of analysis, abandoning the increasingly disappointing technical analysis and starting to study the fundamentals. I started reading reports, Statements, Minutes... After only one year I had turned my trading style upside down and the results were not long in coming. I realised that it was impossible for me to earn consistently with the type of trading I had done in the past, without proper market analysis. It was as if I had removed a blindfold that I had been wearing until then.

I have been trading in Forex ever since because when I analyse a currency pair, I know exactly whether it is at the right level or whether it will go down or up (and I know what to do about it). Because in the medium term it is the central banks that manipulate a currency, not hedge funds.

I do spread trading because with my type of analysis I know if there are anomalies in the price, also due to strong speculation, that I can exploit. Because there are events like floods, droughts, epidemics that cannot be manipulated. Because with multi-leg spreads, I can limit a lot the volatility of certain markets such as natural gas.

Ultimately, I trade when my analysis gives me an incorrect level of a market. That is the kind of ideal condition for me, my crystal ball because I know that the market will have to make a certain movement to get back to the right price. So, based on my experience, I look for a level that I think has the highest probability of success to open my position.

This is not possible with stocks, which is why I do not consider them. Manipulation is almost constant; there are stocks that have been overpriced for years but do not fall in price. You cannot use the same trading method; the conditions are different.

And that is why you will never see me write a book on stocks; they do not fit into my trading philosophy.