Look Over the Shoulder of a Full-time Trader

Brian Rehler is an accomplished trader who trades several markets.

In this interview, I talk with Brian about the time frames he monitors before entering a trade, the indicators and settings he uses to find good opportunities and how market internals helps him get a solid read on market direction.

You'll learn how a real full-time trader finds great money-making trades on a daily basis.

Listen in now (click the triangle play button below):

Transcript:

Dave: Hello everybody and thanks for joining me for another interview. My guest today is Brian Reyler and we're going to talk to him about how he approaches the markets and ways he finds good opportunities each day as a trader. So first of all, Brian thanks for joining me on Skype today.

Brian: Hey, thanks for inviting me.

Dave: All right. So, two things to start off with that I usually - are always my first questions. What type of trader are you in terms of timeframe and what markets do you trade?

Brian: Number one, definitely a day trader. I like to be in all cash position by the end of the day and I trade the S&P E-Mini Futures as well as the Euro Futures and I am getting ready to gradually move into the crude, which I am finding to match right within my setups and the trade indicators.

Dave: Yeah, I think a lot of them gravitate to the S&P E-Mini. Talk about the timeframes you use on an intraday basis is it - are you like a tick trader or a one, minute, five minute, what do you look at?

Brian: It's going to sound like a lot. I do watch four different levels. So number one is from a higher timeframe chart, we always look at the higher timeframe chart and work my way down. I start with a 30 minute chart and then I've got a five minute chart next to that. So I kind of have what's called an anchor chart, the 30 minute and a trigger chart, which is the five minute. In order to enter my trades that I am using right now, I do use a tick chart but I do use a higher timeframe tick chart ...

Dave: Okay.

Brian: ... and a lower timeframe tick chart and with that I am - I don't mind telling you, I am using a 512 tick chart on my lower timeframe and then you can multiply that by five times or up to seven times then get yourself an anchor chart. So as an anchor chart, or a higher timeframe tick chart, sets up that gives me plenty of time, it gives me kind of a heads up to start looking towards my trigger chart to enter a position.

Dave: And what chart patterns are you looking for on your anchor chart that says a trade is coming let's look at the trigger chart now?

Brian: I use momentum and I use direction. For momentum I use a CCI chart - CCI indicator and then I use a directional indicator. So if my CCI or my momentum indicator is lining up in my favor, then I look for an almost identical type of set up on my trigger chart. Basically I have a type of trend line break on the anchor chart and then when the trend line breaks on the trigger chart, I find myself positioned to enter. And then I do have what's called market internals or confirming indicators such as a sentiment indicator, I want to make sure the sentiment is in our favor and I also want to make sure the directional indicator, or the ADX, make sure that that's in my favor. And that's what gives me confirmation for a continuation of the trade.

Dave: So that seems like there is quite a lot of things that have to line up before a trade presents itself to you. How many trades a day do you take?

Brian: There is a lot that lines up. And throughout the many years that I've traded - I've attended the many different seminars like everybody else has, in excess of $70,000 even $80,000 over the many years and I just got tired of paying for proprietary indicators that were basically nothing more than taking standard indicators, combining them and then they call them proprietary, because I always worried about what if the instructor or the trader went away. Well if he went away, I wouldn't be able to trade my indicators anymore. So I thought I can use momentum and direction and trade that market. So is there a lot to look at? There is. I mean we're looking at an anchor chart and a trigger chart and then we look for confirmation with the directional and sentiment. Now you said how many trades do I take a day, that can range anywhere from zero trades a day up to as many as 10 trades a day and it really depends on - I'm watching kind of the Globex range before the market opens and then I watch - I have an opening range. And depending on how those are, by 9:45 in the morning I have an approximate idea as to are we going to be taking how many trades that day or is the market going to be volatile or is it going to have expanded ranges. I am going to know that by about 9:45 in the morning.

Dave: And what's the typical size for you?

Brian: I'll trade anywhere like, for example today was a relatively flat day. I may only trade one contract. If I've got a really nice day, I may trade anywhere from two, four, or six contracts.

Dave: Let me just go up a little and talk about these things that you want to line up because I think there is a lot in there and I'd like to dive into that a little bit more, if that's okay.

Brian: Sure. I'm actually looking at my charts while I am talking to you. To isolate it right down, I use a higher timeframe tick chart and a lower timeframe tick chart. That's the meat and potatoes of the - of what I trade. I have a sentiment indicator next to it and I've got a directional indicator and that's the primary meat of the trading. When I say I have a 30 minute and a five minute, those are more like confirming. You know, am I in line with the higher timeframe charts and then the five minute chart is more of I use that also as a type of anchor chart but they are not too important, I move those out of the way and that's where I put my Euro charts. And so the Euro charts I do use different timeframe charts. Lower timeframe tick charts if you will and I use the CCI and the ADX also with those. So hopefully that makes sense. So I'm - if I am looking at my screen, on the right hand side I've got my higher timeframe tick chart and my lower timeframe tick chart with the ADX and the sentiment. That's what I am using for a setup on my S&P E-Mini. On the Euro I have the higher timeframe tick chart, the lower timeframe tick chart and the ADX. And that's what I look for.

Dave: And when you say the sentiment indicator, what is it that you use for that?

Brian: The NYSE.

Dave: The tick chart?

Brian: The NYSE tick chart, yes.

Dave: Got it. Okay. Market internals, talk more about that?

Brian: Market internals I have the sentiment, that's my key one, but I will also glance over to the left hand side of the screen. I've got the bank index and I also have the VIX so I watch volatility and - you know, they talk about the bank index. As - so goes the banking industry so goes the market. And so I keep that on there with the standard moving average and when we're above it then I am kind of leaning towards the long side, when we're below the moving average I am leaning towards the short side. The volatility index I use that also to kind of give me a rough idea. Are they in sync? Conflicting indicators equals to SOH, you know, sit on your hands, and you do find yourself sitting on your hands the majority of the day.

Dave: So when you find a trade, will you put in a profit target and stop loss, right away?

Brian: I have - on the trading platform that I use, it automatically projects out the target and the stop loss and then what we'll do is I'll manage that based on other things that I am seeing in the market. So for example I may have - let's go ahead and use a two contract or a two-lot position, I'll enter that position and immediately I'll be at an eight tick stop loss. So I'm risking $200 as soon as I enter that trade. And then I've had people - they'll comment on, well your profit target, your first target, is only ticks. That's correct, my first target is only two ticks and my second target could be anywhere from four, six, or eight ticks depending on what I am seeing in the market. The automated trading platform is going to put me at eight ticks for my second target as long as I am trend trading. And with that, once my first target is hit, then I'll move my stop up to four ticks. And so I get to what's called a reduced risk level. And so I barely risk two ticks if I get stopped. Now will I move that stop, and I know the old adage is, don't move your stops. Well we - again we have to take a step back and see where our price actions moving. Is it moving towards a specific resistance level? Is it moving towards a specific support level? If so, we may very well want to bring our stop back to maybe a prior swing level to help prevent us from search and destroy, right? They are not going to try to search for us stopped out. So I will move my stops occasionally.

Dave: How do you kind of set goals for yourself in terms of success. Is it a dollar amount? Is it a percentage of your account? What do you like to use?

Brian: My goals for success is - what I've done is I have a set annual figure that I want to attain and then I divide that by 12 and then I divide it by four weeks and I have a projected target. So on my trade log, I have in the upper right hand corner what my projected outcome is going to be and what my projected loss limit will be. And once I hit those, I stop trading. So if I hit my loss limit I am done. If I hit my profit target, I am done. And I do trade several different accounts. So on one account once I hit my profit target, I stop and then I go to the next account.

Dave: Interesting, why do you split them up?

Brian: For example, on - I use Trade Station. And on Trade Station I trade the matrix, that's one account. And yet, once that hits its profit target, then that account is on its way to hitting its projected monthly or annual goal and then I have another account with Infinity Futures, which is called Infinity AT and on that one I trade that completely separate. I may be a little more aggressive on that one or conservative depending on how my overall - I have a spreadsheet that shows me where I am for my overall annual target. If I am below that target, then I may not be quite as aggressive. If I am above that target, I may be a little more aggressive in that account.

Dave: Okay. I like that because it's almost a forced way to make you stop trading, not give it - not give back any money then go to a different account with maybe a little bit different strategy.

Brian: Exactly. There is - I'd like to add one more onto that, which is really cool. If you take - because different people, people are going to come in trading a $2,000 trading account, another kind of - others are going to come in wanting to trade a $200,000 account. So their profit targets and objectives are going to be different .Some of them are trading for living. Some of them are trading for supplemental income but I would say this, once you - because in - in my trading manual I go step-by-step as to what your goals are. And when you set - say hey, I want to make $200 a day and you project it out a little spreadsheet, you can make it up on an excel spreadsheet and put a moving average through there. Have the average of 21 days. When your total is above your moving average you continue to live trade. If your total drops below your moving average you go to sim account until you bring your profit back up to above the moving average. It's an awesome way to help control emotions and - because if you're getting too aggressive and you're overtrading and you start losing larger than what you're making, then it almost forces you to go to the sim account.

Dave: So you to a sim account until you are back on track and then you go back into the real account and put it back on track?

Brian: Yes.

Dave: With the real money.

Brian: It's an awesome way to help control your own emotions.

Dave: You kind of approach your trading too very technically with all the things we've been talking about but you approach it kind of with the mental - the psychological side of it too because you've got some unique background. Can you talk about that a little big?

Brian: I'm a trained life coach. And with that, I view things a little bit differently. In other words, a lot of the people will place a trade and if they lose money, what's the first question they ask themselves, man I am a terrible trader. Or, man what did I do wrong? Well these brains of ours are computers so if we ask ourself that question what did I do wrong. We're going to get that answer throughout the rest of the afternoon, right. And it's going to - it's almost like carrying negative baggage with you. So I propose this that, ask yourself a different question and the quality of our lives is equal to the quality of the questions we ask ourselves, which we do that throughout the day. So how about something like this, if you take a losing trade and just say, how about this, what could I do differently next time to make it a profitable trade and just ask your - just while you're listening to this, ask yourself that same question and just how does that make you feel? Like oh man I don't want to - I can't believe I took a loss in that trade what did I do wrong? Your mind starts actually taking you to a negative perspective, right. So whereas if we go what could I do differently next time, you'll take a - you'll look at that trade entry a little bit different than you would let's say a profitable trade. Now why don't you ask yourself the same question on a profitable trade? On a negative trade, I would say something like well, next time you know what, I just simply didn't see that support line. I tried to short into a support line or I tried to go long into a resistance line. I just answered my question as to how am I going to handle the next two. So when I am looking at a profitable trade what did I do great this time that I can duplicate next time. And so that's what - how I put it in a journal; even after doing what 20 plus years, I still have a daily journal. And I'll write down things and - and I have losing days just like everybody else. I will write down what - and I don't usually say wrong, I say what could I do differently on these trades? I don't even say the word wrong.

Dave: But there is sometimes right, when you follow all of your rules and you still lose money just because that's the nature of the market. So you -

Brian: Absolutely.

Dave: What about - do we need - or how do you get yourself to do better if sometimes the market is just not doing what - you know your rules are right, you took -you were good, disciplined but it just didn't work out.

Brian: If the market is just not giving us what we're looking for that day, some people will have a rule, you know if I take three stops then I'm done trading for the day or I'm done trading that vehicle or certain days certain indicators just simply won't work and you have to accept that for what it is. If they're not working that day I'll still go back at the end of the day and review how those contracts set up and say, oh this is just this - the bottom line answer, this is just the day that those did not work; that's as best a solution. Now would we go back and say maybe I should go back and readjust my settings. I'll go back and review or I'll put in a back test to see, are those settings gradually starting to change. For example where I have my stop loss, if my stop loss moves to minus for ticks and the market continues to come down and take me out then we need to look at that, maybe back test it out three to four months and say maybe we should move it to five ticks. And so I am constantly reevaluating and I hope that answers that question for you.

Dave: Yes, so are you trading full time now?

Brian: I do trade full time, yes. I've been doing it about three years and was trading pretty much full time for about the last 12. I was a mortgage broker for 20 years and the wonderful Dodd-Frank Act came out and with that they started to do additional licensing and I was pretty much burned out from doing mortgages. So I said - I got up in the middle of the licensing class and I said you know I think I'm just going to resign my license as a mortgage broker, that's my - that's the way I make a living right now.

Dave: What are some things that you did during that kind of education that you went from mortgage broker to trader full time - what are some of the things you did that really took your trading to the next level that maybe listeners could kind of try to replicate and do for themselves?

Brian: I'll tell you one of the things was I said, I really had a passion for trading and how can I trade and - because you want to make a transition right, a lot of these people out there are having jobs that they are caught in dead end jobs or they want to change their jobs, well how do you do both? You've got to manage to maybe adjust your work schedule. So as a mortgage broker I tried to determine - I said the best time to trade for me I'm on the east coast. So Eastern Standard Time would be from 9:30 to 11:30 and that's when most of that volume and that's the activities going on then. So what I did is, I literally would close my door at the office, productivity breeds anonymity, so if I'm - it was okay for me to close my door and at 12 noon then the door is back open and I become a mortgage broker again and put my hat on. And so I'd be a mortgage broker from 12:00 noon until about 6:00 or 7:00 at night and I'd be trading full time. So I was actually trading - it depends what you determine as a full time day. To me 9:30 to 11:30 and I like to step back in, in the afternoon 3:30 to 4 o'clock, to me that's the full time. So that's number one. Number two, always simulation trade before you go to live money. And I think that's what helps most people and that's the one thing that they dread the most. They don't want to be doing sim trading. Nobody wants to do sim trading. But I'll give you one really cool - how do you - you have to leverage yourself. Sim trading is not exciting. Sim trading is not putting money into your account. How about this? Depending on your income level, if you've got a 2,000 account or a $200,000 account you may want to adjust this number but I'd say take ten $10 bills and put them on your desk or put them on the shelf or maybe twenty $10 whatever you like, put them on the shelf. And every time you lose a trade in simulation trading, you have to give one of those $10 bills to a significant other or to somebody that you may not want to give the money to. You can't give it to your child, because you're going to give the money to your child anyways. You've got to give it somebody so you feel a little bit of the pain that will force you to be a better trader during the sim trading and you're still keeping the money within your family. Kind of a cool approach I think.

Dave: So I guess the main argument against sim trading is that people would say look, the execution is not real because it's harder to get executions than with real money. But you still feel like there is a value there in perfecting your system. I do believe that there is value in sim trading if nothing else learn how your trading platform works.

Brian: So for example on the Trade Station matrix - you know there is pluses and minuses to every system out there. On the matrix it's first in first out. So it's first touch, it's out. That's not realistic way to sim trade if you can't travel through price in order to get filled. So to me sim trading with that particular platform is a disservice to yourself. However on my Infinity Futures platform price action has to travel through price in order for me to get filled on my profit targets. To me that makes a better trade.

Dave: Yes, that's makes sense and that's probably more like the market anyway. What do you feel like in your trading you still need to improve on? What are you still working on to get better at?

Brian: I can tell you one of my weaknesses. I would like to be able to trade 10 or 20 contracts. I've been approached to trade hedge funds and I am very cautious because I feel one or two contracts or four contracts I can manage and if I get a full stop out I can manage it and it doesn't make me lose sleep at night. If I start bumping that to 10 or 20 or 40 contracts it a completely different physiology feel. If you can handle a $400 loss, can you handle a $4,000 loss? And so I would like to learn how to trade higher volume of contracts.

Dave: And what do you think that's going to take in terms of being able to go from a $400 loss to a $4,000. I mean that seems like it has a lot to do with account size.

Brian: Sure. It does. It also has to do with your psychology. You know, you want to be winning 60%, 70% of your trades and that 30% to 40% that you do lose that could be quite painful if you can't handle it in your account size. I would like to be able to trade - I think crude oil and gold for futures markets are much more lucrative. Also can be much more dangerous, but much more lucrative in the form of bringing in higher volume to the - your P&L. So is there any other ways that I would look to try to improve that or to increase the number of contract size, I am currently working on trying to do longer term trades. Longer term trades meaning holding throughout the day. So if I can manage that, you can tend to put on a few more contracts when you have your limits expanded. But you're going to take on - with your higher profits, you have to be able to weather the higher risk and the higher losses.

Dave: One other question here about the traders kind of that are kind in that place where you were maybe 20 years ago and trying to make the jump here. Maybe - at least just to be consistently profitable and then at some point maybe go full time as a trader. Was there a point where you said, if my account size gets this big or some kind of milestone that you've reached that said I am ready for full time and it's time to take the leap. Was there some incident or measurement that you had in your mind that you said it was time to be a full time trader?

Brian: Well from a mortgage broker's perspective, it's a position of - I am an extrovert by nature and I was doing - I had a pretty high volume of loans and I felt like I was always having to rely on title companies, realtors appraisal companies, surveyors, and there was a lot of uncontrolled stress. And so the transition into trading was - when I was trading from 9:30 to 11:30 in the morning I found the potential to be financially independent as well as the potential to financial devastate myself. And I thought if I could harness that, that was the way to go because you then control your own destiny, you don't have to rely on other entities to be successful. You were either successful on your own or you would fail on your own. And I hate to use the word failure, I want to use the word challenge. So I can either be successful, or I can have a lot of challenges on that road to success. And while sim trading - a lot of people discourage the idea of sim trading, that only made me stronger and want to be successful at trading this for a living and then I thought wasn't that great? You've got a great computer system, you've got a great system, you've got great trading software and what you do is you wake up in the morning, have a cup of coffee and you are in control of your own destiny at your desk, whether you're wearing shorts and T-shirt or whatever you want to be wearing, it's your business.

Dave: Talk about Trader Shark, what do you do there?

Brian: Trader Shark is a room where I - people come in and they watch me trade. They see all my setups they see all my active settings and the idea is proprietary indicators are not required and it's not one of those rooms where you have to pay $1,500 or $3,000 or anything like that. It's basically a very low cost way to be able to begin your trading, learn how to do it. You can take what you learn and you can go off and trade on your own or you can subscribe and join us in the Shark Den and learn with us. And so we've got a group of traders where they help each other. I've got a - I've got three trading manuals that I wrote as well as a Euro trading manual that are like a $129 for all four of them, which you can't beat that and the Shark Den itself is like $129 a month. So that's it. You can actually get started with less than $300, which is pretty cool.

Dave: Okay listeners we'll link to that, tradershark.com. Brian thanks very much for your time today. Appreciate it.

Brian: Tim, I appreciate your time and questions. Thank you.