Bill Buchanan – Trader Interview

Q. What’s your name? Bill Buchanan Q. What is you website address? Q. Can you give us a little bit of background about how you got involved in Trading and what led you to become such an expert? I began trading stocks in 1998.  Things were simpler back then, you placed an order, the stock went to the moon, you sold for a profit.  Obviously, this “strategy” didn’t hold up very well during the subsequent bust.  Having an analytical and programming background, I took to system trading very quickly. I’m not sure I could call myself, or anyone, an expert.  It is a constant evolution of both technology and psychology.  The game constantly changes.  Ones risk tolerance and objectives evolve too.  I find myself paying a lot more attention to risk than when I initially started down this path. Q. How long did it take to you to become really become proficient at Trading? If by proficient, you mean profitable, years.  The main problem was that of self discovery and understand what the pitfalls of trading systems were.  It was very easy for me to fool myself by means of ignoring issues like data problems, system shortcomings, execution feasibility and the host of other things that a backtest just can’t describe.  Unfortunately, I had to learn this the hard way.  That means, I had to lose money. Q. What markets do you trade? Is there any reason for choosing them? U.S. equities.  Mostly ease of access and liquidity. Q. Would you view yourself as a fundamental or a technical trader? If both what percent to give to each? I’m evolving a little here.  I was purely technical.  Over the last 2 years, I’ve been introducing light fundamentals into the equation.  This is mainly used as a screening parameter or as a means of culling a watchlist. Q. Are you more a systematic trader or discretionary trader? Mostly systematic.  RightEdge must generate a signal for me to even entertain the idea of trading.  However, based on risk parameters that I define, I may pass up the trade if I feel I’m too heavy.  A good example of this is financials.  My systems are still generating trades, but I’m well exposed at this point and will decline a trade in that sector for the time being. Q. Is there a certain instrument that you like trading? I.e. options, shares, warrants, CFD’s, futures, forex? I am mostly an options trader.  Although I will dabble in stocks from time to time.  The reason why I like options is that I can craft a position that’s in tune with my outlook.  For example, given the recent volatility, I’m much more likely to open a spread position to cap my risk (and decrease my reward).  In less volatile markets, I may be more inclined to accept more risk. Q. Are there any specific strategies that you trade? Can you provide any details of them? I’m a band violation / mean reversion trader.  I also use other technical indicators to confirm the strength or weakness of the violation. Q. Do you or your systems trade every single day? No.  I may get several signals in a day and run dry for a several days. Q. How do you react to the winning and losing streaks? I usually have my risk and reward well defined from the beginning.  The risk I take is acceptable to me upon initiation, so I just let things run their course.  I have good days, weeks, months and bad ones.  Staying detached is always a challenge, but one I’ve spent a lot of time working over the years.  I feel that I’m better than most at this point. Q. What is the most important part of that discipline? What is your golden rule? SWAN.  This is an acronym I stole from a local financial planner.  It stands for “Sleep Well At Night”.  If a position has me nervous, I’m out.  No matter how good or bad the P/L is, sleeping well at night is my golden rule for anything. Q. What charting systems do you use? RightEdge.  Naturally, I’m biased, but being a system trader for so many years, charts were something we spent a lot of time on.  If I couldn’t use them for real trading, they weren’t going to work for our customers. Q. What news/broker services do you use? I don’t trade the news at all. Q. What portfolio management / trade tracking software do you use? Interactive Brokers provides me with sufficient portfolio management.  Risk analysis for live trades is done with Excel on an as needed basis.  Risk analysis for backtesting strategies is done with RightEdge. Q. What kind of risk do you take on a position? When if ever would you increase this risk? Each position is less than 2% of my overall account value.  In a band violation situation, I may increase the position size up to 2 times.  This is rare and is usually only done on indexes or something that has a very low probability of failure.  Couple this with the fact that it’s always a small percentage of my account value, it allows me not to violate the SWAN rule. Q. Do you use stop losses and things like that? No, options really serve as a stop loss.  If I trade a spread, max risk/reward is defined.  I find stop losses severely degrade system performance. Q. How do you handle your position sizing for each trade? Percentage of overall account value. Q. What do you find so good about Trading and the markets? It’s a thinking man’s game.  It forces a lot of discipline, thinking, analyzing and self discovery. Q. Do you remember your very first major trade/win? Yes.  UBID – 1998.  Bought at 40 3/4 (remember when they didn’t quote pennies?), sold at 180 in just a few days. Q. Can you recall your worst trading day? How did you deal with it? It was sometime in 2002.  I had put my first heavily curve fitted trading system into production after a single night of backtesting.  How foolish.  I dealt with it by learning my lesson and never making that mistake again.  The hardest part in this isn’t losing the money, it’s usually letting your spouse know that you were an idiot. Q. What do you consider are the characteristics of a successful trader? Persistence and perseverance. Q. If you had one secret to give about Trading, what would it be? 3 things.  Paper trade, paper trade and paper trade again.  There are so many strategies that backtest well and I would say 1% of them actually trade well.  Also, it’s easy to get confused by the instruments that you’re trading.  I run into so many folks who get into a position, the position goes against them and now they want to understand why and how to get out.  This is precisely the wrong time to understand what you’re trading. I would personally like to thank Bill Buchanan for taking the time to reply and provide some insight into his style of trading. James Ramsay Visit for more interviews and a Free 20 trial of our Stock and Option Portfolio management Software

One thought on “Bill Buchanan – Trader Interview”

  1. This was such an informative, relevant answer. It was exactly what I was looking for. I’m so happy to know I’ll be getting something out of you posts.

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