Interview Central: Rick Swope and AJ Monte, Part II
December 7, 2007
Rick Swope has presented in many seminars across the U.S. and around the world for some of the world''s top financial firms. Specializing in the areas of Technical Analysis and Risk Management, his topics have continually stayed in demand.
Rick was the managing partner of a trading firm in Cincinnati for several years, providing technical analysis, trading strategy and software training to the firm''s traders. His well rounded business background has also helped him create and develop premier consultant teams across America, as some may call him a consultant''s-consultant. Rick created the first market technical analysis consulting team for a financial firm with $1 trillion in client assets.
AJ Monte teaches professionals specialized techniques on how to accumulate and protect wealth through innovative market techniques. He has over 23 years in the business, ten of which were spent as a trader on the floor of the NY Commodity Exchange where he specialized in Gold & Silver Options.
During his time on the trading floor he served for two years as the Chairman of the Option Floor Trading Committee for Comex. He left the floor in 1992 to trade NASDAQ stocks for Mayer & Schwitzer & Nash Weiss, which is now part of Bank of America. Several years later AJ pioneered the Trading Analytics Group for Charles Schwab & Co., which is a collection of team professionals who educate both clients and high profile brokers in the areas of Technical and Fundamental Analysis.
AJ also appeared in the movie “Trading Places,” starring Dan Ackroyd and Eddie Murphy while consulting with Director John Landis and the stars to prepare them for their realistic roles in the film. He is a Chartered Market Technician and member of the Market Technicians Association.
It was a genuine pleasure to talk with Rick and AJ about how they manage risk, as well as getting a feel for how they both approach the markets. This is the second part of that interview.
Optionetics: What are some of the key rules or factors that your trading systems evaluate it before selecting any potential trading opportunity?
Rick: We’re often asked if we look at news or fundamentals before we enter a trade. For the most part, the answer is “no.” The one exception to that is that we like to be aware of earnings dates. As every trader knows, earnings are a wild card in stock pricing and we want to be sure we’re not caught off guard.
AJ: Our motto is; put your money where the money is going, so, we want to first make sure we are clear about direction. If it takes you more than three seconds to figure out the trend of a stock then you should abandon that idea and move on to the next candidate. If we are thinking about taking a long position in a stock we like to make sure the 50 day simple moving average is above the 200 day simple moving average and if the price is above both of those averages it’s safe to say the buyers are controlling the price. This puts the odds in our favor when we take the long position. Then, all we have to do after that is manage the downside risk which is where our 1% Rule comes into play.
Optionetics: What are your favorite markets that you like to trade and track with your analysis tools?
Rick: Of course, we have choices and liquidity in the US markets but every trader should be aware of the changes beyond our shores. New products such as Contracts for Difference [CFDs], Turbo Certificates and more are increasing in popularity in many international markets.
AJ: We love the US Equity markets for three main reasons. One, they offer the best liquidity, next, commissions are very reasonable, and finally, these markets are easy to exploit. The fundamentalist always argue that technical analysis is nothing more that self fulfilling prophecy and my response to them has always been, “Who cares?” If I can make a lot of money because I have the ability to recognize a buy signal before three million people figure out that it’s a buy signal, I don’t care what you call it, I’m going to make money. Isn’t that the point? By looking at simple price and simple volume I don’t need any fancy programs to tell me what to do.
Optionetics: What is your most memorable trade?
Rick: Well, my most memorable trade was a losing trade since it taught me the importance of risk management very early in my trading career. I had spent many hours developing a candlestick trading system that worked great in backtesting and in the first few trades. The first time it failed, I relied on the system rather than sound risk management and it cost me both money and peace of mind that day.
AJ: My most memorable trade was a reverse conversion I did in the silver markets back in 1987. It wasn’t my most profitable trade but it was, by far, the fastest profit I had ever made. With two swipes of my hands I locked in a $65,000 profit in less than three seconds. While on the trading floor I bought calls with one hand, sold puts with the other, and then gave the signal to my clerk to sell the underlying silver contract to lock in the profit. The markets we so out of whack that morning that it allowed me to lock in a very nice profit through an arbitrage opportunity. I was in heaven that day.
Optionetics: With all the different technical as well as fundamental analysis tools out there how does a new trader avoid information overload or "analysis paralysis"?
Rick: Every trader’s challenge is figuring out what is important information and what is mere distraction. Engineers refer to this as the signal to noise ratio. The best approach sometimes is to wipe the chart clean and simply look at price and volume. Then you can add indicators as necessary.
AJ: We have built in to The Market Guys brand the idea that simplicity is perfection in the world of trading. Keeping it super simple (The K.I.S.S. principle) is how we like it. Believe us when we say that we can teach you everything you wanted to know about Fibonacci sequences, Gann Theory and beyond, but what we have found is that when we look at simple price and volume on a chart a very clear picture emerges. We agree that the advancement in technology has helped us save a lot of time in researching companies but the technology has not made us more profitable traders, it’s simply made us more efficient traders.
Optionetics: Thanks, Rick and AJ (“The Market Guys”), for speaking about how you teach as well as providing insight about your trading approach with our Optionetics reading audience.
To read previous installments of this interview, please click here.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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