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Vadym Graifer has been a professional trader for the past nine years. He has also been a Headtrader and Managing Partner of RealityTrader.com, a training company for equity traders offering real-time scanning, trading suggestions and personal mentoring. Vadym is an author of two books, Techniques of Tape Reading (McGraw Hill, 2003) and The Master Profit Plan (Trafford, 2005).

Vadym Graifer has presented his real time trades, with ongoing interpretation and comments, in a unique video course “How To Scalp Any Market.” He is a featured speaker at International Trader's Expos, Financial Forum Conferences and private seminars. He has also published articles and interviews in industry magazines, corporate product newsletters and trading forums.

It was a very enjoyable experience to get to speak with Vadym and tap his trading experiences. This is the first part of our recent conversation.

Optionetics: How did you first become interested in trading the markets?        

Vadym: That was rather a matter of narrowing my choices at the moment almost 10 years ago. Given situation: fresh immigrant, no English, no professional skills recognized in North America, no slightest desire to go to "survival" job or work for someone, no slightest idea of business environment. Conclusion: need a business where I can work without (or with minimal) interaction with other people and learn it at my own pace. The only business of this kind I could think of was trading.

Optionetics: What are the things you like best about being a trader?

Vadym: Best answer to this question is with one word: Freedom. That's very important of course, and it originally played big role in my choice of trading as a profession. As years go by, I realize more and more that one of the most important factors for me is: trading is a profession that constantly keeps me in check. A trader has to be totally and brutally honest with himself all the time. His success is a matter of remaining in a certain mindset, of keeping ego in check, of being an eternal student.

This keeps me on my toes. Another important factor for me: it's always interesting! Any chart is a reflection of collective psychology of traders. Successful trade requires understanding of human reactions. What could be more fascinating than this constant analyzing of human thinking and emotions, trying to be one step ahead in order to foresee and utilize most probable reactions?

Optionetics: How do you treat losses and how do you go about establishing your risk tolerance before the trade is entered?

Vadym: There are two kinds of losses. First kind is a loss caused by market uncertainty. Market is an environment of probabilities, not certainties. No matter how good you are, no matter how correct your actions are, some trades will generate a loss just because that's the market nature. This kind of losses doesn't bother me at all. They are incorporated in my trading plan as a tribute to the very nature of the market. Second kind is a loss caused by a trader's mistake. Situation when I make a trade against my better judgment, going by impulse, ignoring my own rules - that's the kind that makes me step back and re-evaluate my mindset. 

Any losing trade is being evaluated from the point of view: Was it a trade matching my rules, my setups? If yes - no problem, that was a loss of a first kind, next! If no - full stop, pause and hard look into myself: What happened? Why did I do that? If I feel I become sloppy, I will do everything needed to get back in a disciplined state of mind before I continue.

My risk tolerance is low, I hate losing money. I rarely allow myself to lose more than 1% on a single trade, 2% is absolute limit. If a chart dictates a stop wider than that, I will decrease position size or skip a trade altogether

Optionetics: Do you prefer long-term strategies or short-term strategies?

Vadym: Short term. Remember I told you how I got involved in trading? Starting to learn it with no English, I had to find the approach not requiring study of fundamentals. Deciphering company statements is not an easy process even if you speak English and understand business environment. It was all but impossible for me, so my approach had to be more of a short term where impact of fundamentals is not as important

Optionetics: What are some of the key rules that you feel are most important for a trader or an analyst to keep in mind when evaluating any potential trading opportunity?

Vadym:  1.Define your risk/reward ratio. Depending an a trading style and time horizon of a trade risk/reward ratio will be different, from 1:1 for a scalper to 1:2 - 1:4 for a day trader to as much as 1:10 for a long term holder. The lower this ratio is the more winning trades one will need. In practice it means that longer term trader aiming for huge risk/reward ratio can allow himself to be wrong more frequently than a scalper can; taking such small gains as 1: 1, a scalper needs to be right let's say in 65% of his trades, while longer term trader can be right in just 1 out of 3 trades and still make money. 

2. Keep your risk within "it won't kill me" limits. No matter how attractive a trade is, if the risk is bigger than you can handle - trade should not be taken, no matter how little chance in your opinion it has to go against you. Not without irony, the most tempting trades are failing most often.

3. Try to gauge the "obviousness" factor. The more obvious an opportunity looks, the bigger a chance that the crowd sees it too - and the crowd is last to act. Smart money enters when there is little obvious about the trade.

Optionetics: What are your favorite markets that you like to trade and track with your analysis tools?

Vadym: NASDAQ. I like this "everyone against everyone else" environment. It's pure competition that makes the reading of the tape (in broad sense of the term, not just staring at the prints) the easiest. Auction markets (NYSE and AMEX) are not my cup of tea - I dislike the intrusion of a specialist which makes it more of a "this particular person’s reading" vs. "general tape reading". Some make it their specialty though so it's more about personal preferences. I also don't like slower and unsure order fills on listed stocks - with NASDAQ it's pure and simple "if shares are there you get them instantly". Broadening role of ECNs on NYSE makes this difference less significant and I will add listed stocks to my arsenal when they trade as automatically as NASDAQ ones.

Optionetics: Thanks, Vadym, for sharing you’re trading philosophy and experiences with our Optionetics reading audience. Look for Part 2 of this interview to be posted next week.

Jeff Neal
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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