Zak Mir Interviews - Paul Rodriguez
“In Technical Analysis you have a method that works in both bull and bear markets, but which seems to receive greater credibility in bear markets - prime example being the gold market at the moment which looks to be in the early stages of a bear market.” In Technical Analysis you have a method that works in both bull and bear markets, but which seems to receive greater credibility in bear markets — a prime example being the gold market at the moment which looks to be in the early stages of a bear market.
ZM: Going back one step, how did you get into
TA?
pr:
I got into it through empirical study about the correct way to learn and trade the markets. I started out trading with a friend of mine in equities, with very large positions in the early 1990s — hoping they would go up and we could get out, and trying to hold on when they went against us. I learnt the hard way that this was not the way to make money; it was the way to lose. So from there I realised I needed to learn to analyse financial markets. By reading about TA and testing the news flow to see whether these stories / reports on companies actually had any bearing on the share price. I found that in many of these exercises that I could predict price action more successfully from technicals than from reading news stories that seemed created to fit what the markets have done and not the other way around. News stories may be ‘correct’ in their own right, but, as far as trading is concerned, they tend to be reactionary rather than predictive. TA seemed to have a greater precision as far as trading and being predictive was concerned. For instance, with a chart you may be wrong — but at least you know where you are wrong. If you choose to ignore that signal, that is down to you. With fundamentals there are things you cannot know about. For instance, with Enron it was not possible to know what was going on at that company, and I had people coming up to me and saying what a great buy it was. I was looking at the chart and saying I can’t tell you what is wrong with the company, however, what I can say is that it is going down. TA can keep you out of a very dangerous market. We don’t need to know why because sometimes you can’t know what the fundamentals are.
It is from there, off the back of all the studying and research I have done, which revealed to me the framework that TA can provide for successful trading.
ZM:
One of the issues I face and what is evident all around us now is cynicism regarding he who ‘advises’ investors and just what their money making credentials are. How do you address this issue: analysing the markets versus being able to trade the markets successfully? In footballing terms would you judge Alex Ferguson’s likely ability as a manager from his playing abilities, or Wayne Rooney’s potential as a manager from his football skills?
pr:
Any good trader needs to be a combination of a good trader and a good analyst. There are times when you can look at a situation objectively as an analyst and you can feed that to a trader. When I worked for Natwest and Lloyds it was as a technical analyst advising traders. I could look at a chart and say that there was going to be a breakout. The trader would then make the decision as to whether to buy or sell, and they would manage the position from there. Splitting the two roles was useful. You need the analyst to have the objective view and you need the trader to take that position and manage the risk.
“Any good trader needs to be a combination of a good trader and a good analyst.” One of the things I can say, when it comes to trading, is people can be prevented from losing money through education. There is also the aspect of when someone like the Governor of the Bank of England also provides an opinion on the markets, but who also does not necessarily trade. Does that mean he would be good at managing the position? Probably not.
May 2013
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