Interview with Stuart McPhee
Could you tell us a little about yourself?
I am a graduate of the Royal Military College, Duntroon and enjoyed a fantastic 10 years in the Australian Army. Since then, I have been self employed trading my own accounts, coaching other traders, and traveling the world presenting workshops. I am married with three daughters and live in the Eastern suburbs of Melbourne. I love Australian Rules football, basketball, golf, camping, listening to music, watching movies and playing my PS3 in my theatre, traveling overseas and running.
How did you get started trading?
My wife and I had some money and wanted to do something with it. So we just started seeking information on purchasing shares. The rest is history.
How long have you been trading now?
I have been trading since 1996 however for the first 4-5 years, I had little idea what I was doing.
What do you like best about trading?
There were several things when I started trading that I didn’t like, that is for sure. I like the freedom it gives you, and I just don’t mean geographically or location. I mean the time it takes, and the fact that you don’t answer to anyone else and that you can turn it on and off whenever you please.
What markets do you trade?
I trade ASX shares in my self managed super fund and have since 2002. I also trade foreign exchange using CFDs.
What style of trading do you use?
All trend following.
What have been the biggest influences on your development as a trader?
The first big influence on me was losing all the time and not knowing why. The next big influence on me was losing a ridiculous amount of money in 2000 when the NASDAQ crashed. After that, all the reading I did over a 12 month period had an amazing influence on me.
It was reading the ‘Market Wizards’ book by Jack Schwager (which I still say has had the most influence of anything on my trading life) that made me realise that even the very successful traders all had losing trades. Not every trade was profitable. So, I realised in that sense, I wasn’t any different to them. The difference was how they reacted to those losing trades.
All of the traders interviewed in that book (without exception) emphasized that cutting losses was one of the most important things (if not the most important) they did! The fact that they all said it, despite their vast array of different trading approaches, meant a lot to me and convinced me of the importance of doing it. This was a turning point in my trading.
It was from reading this book and gaining an insight into the minds of some highly successful traders that I realised some vital ingredients to trading well. These were things like cutting losses, managing risk, and following a plan. I knew I had the discipline and organisational skills to make this work so it was this book in combination with some significant losses that made me realise I was going to be a successful trader.
What is the one biggest lesson that you have learnt since starting trading?
Your mindset is the single biggest factor in your trading success. As part of this, discipline is essential – a key separator between successful traders and the rest, is they will act first upon their trading plan and not what they feel like doing.
About Your Trading Coaching
How did you get interested in coaching other traders?
I had to do something. Once I had established my methodology and routine etc, I found myself with a lot time that I didn’t expect. I had a number of people to start with who contacted me and requested my assistance as they had known me from a traders club I was part of. They insisted I help them – it made a lot of sense at the time to do that.
Do you focus on coaching of one particular area of trading, e.g. risk management / psychology or finding trades?
No I don’t focus on anything in particular – all my sessions are specifically tailored to the client and their experience level.
How do you work together with your clients? E.g. phone / email / screen sharing?
All my sessions are in person. I know technology makes it easier to not have to do this, but I prefer to work with someone in person. There is nothing like telling someone what they are doing right and wrong sitting one metre from them and looking them in the eye.
What sort of results do your clients get after coaching with you?
It is fair to say that not all of my clients have a significant change in performance after seeing me … at the end of the day, the client still needs to make the changes that I suggest and apply themselves. For some people, this is all too hard. I have told a few clients over the years that I would prefer not to see them again as they are wasting our time.
What is the most satisfying part of coaching traders?
I have learnt that it is far more fulfilling to help someone else become successful than it is to just make money. To know you have made a significant impact on someone’s performance is incredibly satisfying.
What is the biggest but most easily fixed mistake that you see traders make?
Setting stops (especially initial stop losses) way too tight or close. Generally people set their stops tight because they don’t want to lose too much money. Of course, they then analyse the chart weeks later only to have seen the price move away strongly frustrating them further and having them questioning why they should bother using them.
A solid position sizing model ensures it doesn’t matter where you set your stop, you still only lose your risk amount.
Do you recommend journals or other record keeping as an important part of trading?
Yes. Trading is like running a business, although it doesn’t take as long. You need to be structured, organised, efficient and on top of things. Having a diary or other similar tool greatly assists this.
What are the most common issues that you see in your clients that prevent them from becoming better traders?
A complete and utter lack of discipline. Trying to complicate their approach way too much, therefore making it far more difficult for them to execute. A lack of motivation once they realise that trading initially will not be as easy as they thought it was going to be.
General Advice
What advice would you give traders who are just starting out?
- Be humble – you are not going to get every trade right
- Be committed – trading is not easy and any half hearted attempts will not get you anywhere
- Educate yourself – there is so much to learn and whilst you can learn from actually trading, you can save yourself a lot of money and stress by learning from someone else who has come before you
- Take it slowly/be patient – trading success is not going to happen overnight. For most people, this is a life long endeavour so does it really matter if it takes you a few years to start trading profitably
- Keep it simple – people have a tendency to over complicate matters and develop intricate and complex solutions to problems. When we accept that trading is not easy, we think only a complex solution (trading plan) will work. In trading, simple does work. It is also makes it much easier for us to follow the plan when it is simple.
- Be realistic – having high expectations of yourself is a good thing however, unrealistic expectations is not. Many traders when presented with the wonderful opportunities that the market offers can be very easily led to setting unrealistic goals for their trading. This can be devastating. It is vital to set yourself goals with your trading but it is equally vital to ensure that those goals are measurable, and realistic.
- Focus on the right things – don’t focus too much on your entry signal, as most people do. Keep it simple and then move onto the more important areas like position sizing, setting exits and preparing your mind for successful, disciplined trading.
- Whatever you do, protect your capital – it goes without saying that if you have no money left, you can’t make money. This is an important issue because any new trader is not focused on protecting their money, they are focused solely on making money!
What 3 books do you recommend traders read?
Market Wizards by Jack Schwager
Secrets For Profiting in Bull and Bear Markets by Stan Weinstein
and of course,
Trading in a Nutshell, 3rd Edition by Stuart McPhee.