RichardLieisaSIClicensed,thefounderofthehedge

fundCrusaderCapitalmanagementandthestockadvisory service independentalternativetofundamentalanalysis.Between

1987 and1996,theUkofficeofDowJonesTelerate employedhimasproductmanager–technicalanalysis, overseeingtraininganddevelopment.Therehedeveloped auniquetechnicalanalysis“informandeducate”systemto empoweritsclients.Thishassincebeenrecognisedasone

ofthemosteffectivetechnicalanalysiseducationmodelsin theworldtoday.

1.Howandwhendid youfirstbecome interestedinthemarkets?

Iwasabout21years old,prettywetbehind theears,andworkingattheAustralianBullion Company.I hadthisgruffboss,a trader calledNevilleDavies,andheusedfutures tohedge theovernightgoldexposure.He wasthemoneyman,andIguessIwanted tobelikehim.As histradingassistantIsaw all hisaccounts,howhe didit,andI was surprisedtolearn thatheusedchartsand priceanalysisalonetomakedecisionsinthe market.Iwas hooked.

2.Andthenwhathappened?

Myboss promoted meto ‘futures trader’. He sawsomethinginme,Isuppose;he respondedtomystronginterestanddesire tolearnmoreaboutcharting.Itradedfutures for the Australian Bullion Company for aboutfouryears.Weformedviewsbased oncharts,andsome clientslistened,some didn’t.Mostofour privateclientswere hardcorespeculators.Ourchartinghelpeda lotofthem.Itwas averyexcitingtime.

3. How were youable to learn and educate yourselfaboutthemarkets? Onthejob,initiallyatAustralian Bullion Company and later at the Melbourne- based stockbroker A.C. Goode, where I

traded futures under a boss who traded very successfully.HisnamewasGeoff Ashelfordandhe wasanothergruff,nocrap kind of guy.Heusedahighlysystematic approach,alsousingchartsanalysis. He usedtohand-draw afive-minutecharton theSPI–computers didn’t reallyexiston tradingdesksinthosedays.All ourquotes werepickedoffourReutersscreen.Hewas a‘scalper’, ashort-term break-out trader, inandoutofthemarket20-30timesa day. Themarket was alot lesstransparent in thosedays. Front-runningbigorderswas common,forexample.Andthelinebetween sales trading and prop trading was less welldefined.Clientswouldgiveusa pretty freereign.

4.Didyoumakemistakes whenfirst startingout?

Hellyes.Ifyoudon’t makemistakesyou don’tlearn. There'snothinglikethepainof financial losstohardwireyour pain-pleasure receptorstobemorealert in thefuture.If you’resmartyouwon’t letthosemistakes costyoutoomuchintheearlyyears.I’ve hadmyfairshare. Oneinparticularstands out.Irecallaterriblesleepless nightin London,backin1993,averagingdownon an overnightgoldpositionthatwentthe wrongway.(Asayoungermanyou’realso

There'snothinglikethepainof financiallosstohardwireyourpain- pleasurereceptorstobemorealert.

TraDer'SSTory

moreinclinedtotakeonbiggerrisks.)Iwas workingforDowJones,educatingclientson technicalanalysis andmoneymanagement rules,soIshouldhave knownbetter.Idid knowbetter.Ithurt.Itwas thetextbook‘ego trade’.Rule numberoneintrading– never everaveragealoser!

uncannyabilitytosniffouta ‘frothy’market. We mightthinkweunderstandwhatgreed lookslike,buteven thebestofuscanget caught upintheemotionsofcallingtops andgettinginvolved in marketbubbles.It’s alsowhyit’simportanttohaveasystemthat alertsyoutotheseproblemsearly.Myold

10. What advice would you offer to peoplegettingstartedastradersonthe relativemeritsorotherwiseofeach? Buildyourtradingsystemonaprovenedge. Protect yourself by using basic money managementprinciples.Andperhapsthemost challengingruleofall:implementyoursystem!

Touseafamiliartradingadage:Iridethewinnersandcut theheadsoffthelosersquickly.ThemoreI'velearnt,the simplermyapproachhasbecome.

5.Wouldyou defineyourselfasa discretionary or mechanical trader, oracombinationofboth?

Mechanicalwitha smalldiscretionary component.

6.Canyou giveusabriefoverviewof yourtradingstyle?

Firstofall,Ineveruseleverage. There are plentyofopportunitiestomake money; no needtotakeonmorerisk.Iuseasystematic market timing approach that givesmean edgeinbuyinglowandselling high.There arethreebasiccomponentstothissystem. I onlybuystockswithemerginguptrends.I only tradeweekly, whichreducesthenoise, as wellas thenumberoftradesandcost. AndIuse apredeterminedtrailingstop-loss to exit allmypositions. Touseafamiliar trading adage:Iridethewinnersandcut theheadsoffthelosersquickly.The more I’velearnt, thesimplermyapproachhas become.There isnoendtotheamountof researchyoucandowhenanalysingstocks. There arehundredsoftechnicalindicators, forinstance, anddozens ofchartpatterns. Andeachtraderwillhave aslightlydifferent takeoneachandeveryoneofthem.Bestto focusonwhatactuallyworks.

7.Isthereanyonetrade(winor loss) thathadaprofoundeffecton your development asatrader?Ifso, what didyoulearnfromthetrade?

Yes,itwasactuallyatrademyfatherhad inRIOand NWS.Hehasalwayshad an

manistherarekindwhohasthissystemin- built.HesoldNWSatamajortopinMarch

2000,andmorerecentlyRIO,at$125,before thecrash.The lesson:dowhatyouthinkis rightandignorethenoise.It’swhatgaveme theconfidencetoadvisemyclientstoexit

95%ofstockspre-GFC, whichwasn’ta popularmove atthetime,butprovedtobe therightone.

8.Canyoutellus aboutyourbestand worsttrades?

GOODONE:BoughtJBHin2004andsold itin2007,fora400%rise.Boughtitagain in2008,andsolditin2009,fora run-upof around100%.Rideyourwinners!Mytrailing stop-loss rulewaskey;itkeptmeinthese bigwinningpositionsforfar longerthana discretionaryapproachwouldhave. It’sthe difference between large portfolio returns andaverageones.

BADONE: Alongovernightgoldposition thatwentunderwaterquickly.Ithenaveraged down–‘theegotrade’–anditwentfrombad toworse.Itwaspsychologicallydamaging. I waslivinginLondonatthetime,younger andmorefoolish.Cutthoselosses quickly usingacold-hearted systematicapproach. Trustme,theshort-termpainwillbereplaced by long-term psychological strength andsatisfaction.

9. Would youclassify yourself as a short-termorlong-term trader?

Midtolong-term.

11. What markets doyoutrade and whichmarketsdoyou prefer?Doyou haveafavouriteandwhy?

Australianequities.Iliketotakeadvantage ofthelong-termuptrendinequities,which isanimportant edgeto have.Currencies, forinstance, donotdisplaythisone-way component.Idon’tshort stocksforthesame reason,astheoddsarelessadvantageousin thelongrun. Besttositonyour hands, and keepyourpowderdryforbetteropportunities downtheroad.ManyAustralian companies alsopaygreatdividends.

Youshouldalsosticktowhatyouknow

–if you can’t get it right whereyou are, diversifyingintoother markets,such as currencies and commodities, won’t help. Yourtradingprincipleshavetoberight.

12.Whatmakesyour tradingstyle different fromothers?Whatsetsyou apartfromothertraders?

I followa systemthatworks.I don’tthinkI know better. The human component can bedamagingandhurtyourbottomline. My motto is:focus, discipline andconfidence in your plan, and having clients looking over yourshouldermakingsure youdon’t strayfromit.Youmustbeaccountable to someone, beityour boss,your clients,or your wife.

13.Doyouhaveafavouriterule?

Myexitrules.When you’rewrong,because yoursystemtellsyouare, getout!It’smy singlegreatestmoneysaver.Itknowsbetter.

ThemarketchallengesmetobebetterthanIam–asa traderandasahumanbeing.Doingwhatisrightinthe longrunandnotnecessarilywhatIwanttodoatthetime.

14.EdSeykotasays,"Everybodygets what they want from the markets." Whatdoyougetfromthemarkets? Thestockmarketdoesn’t stopchallenging me.It’saninnergame,aswellasanouter one.Themarketchallenges metobebetter thanIam–asatraderandasahuman being.Doingwhatisrightinthelongrunand notnecessarilywhatIwanttodoatthetime. That’sthebiggie.

15.Has tradingaffectedyourlifestyle? It’sallowedmetobemyownboss,which hasbeen hugelyrewarding. I liveby the beachinMelbourne.Iwalktowork,often inshortsanda T-shirt.It’salsotaughtme contentment,tobehappywithwhatyou’ve

got.Theneedtohavemore,toriskmore,to beGeorge Soros,nolongerholdsme.My smaller andsafergameisenough.Don’tlet greed derailyour reallong-termgoals.

16.Whatbooks,seminarsto courses have you read and attended and whichwouldyourecommend?

Nicholas Darvas’s autobiographical book from1961,HowImade$200,000inthestock market.Arghtheinspiration!Thesimplicity!

17.Whatdoesthefutureholdof you? Security,becauseinvestorsdon’tneedtobe exposed to GFC events. Theyare easily avoidable.YTE