GabrielEditor’s Note: Gabriel is a successful full-time trader, a VTI workshop instructor, and a dedicated coach to traders who use his systems. Since his graduation from Van’s Super Trader program in 2010, he has mainly traded Forex and futures markets. He will share his extensive experience and trading knowledge at the two upcoming Futures Trading workshops in March at the Van Tharp Institute in Cary, North Carolina. We talked with Gabriel about what drew him to trading, his style of trading and about trading futures contracts in particular.
Q. Tell us a little background about yourself and your trading

Quite some time ago in 1985, as a youngster, I got into trading. My interest in capital markets and charts “caught fire” during a school project designed to find out how news influenced the stock prices. Back then, I grabbed at everything related to capital markets. At that time, price charts were not available, so I started plotting share prices on graph paper to be able to analyze price action development over time.<

I got involved in trading options and because I was underaged, my parents had to sign a paper to the bank that allowed me to trade. After some beginners luck in the years since, I have continued to develop as a trader and investor. After swing trading stocks and options at age 15, I moved to position-trading equities and commodities during my university years. After a couple of years as a management consultant, I joined the asset management industry and worked for PIMCO & Allianz Global Investors. I was very lucky to have been in business contact with Bill Gross (the authority in bonds) and Mohamed El-Erian (thought leader in finance). Those experiences broadened my perspectives on the capital markets in many ways.

Q. What kind of trading have you done? What seems to work for you?

For about 10 years now, I have been following my passion in life by trading full time. My focus is on Futures, Forex as well as the Cryptocurrency markets. As a visual person, I really enjoy basing my decisions on price action patterns that I find analyzing the charts. Unfortunately, the nature of the markets is to trap the majority of participants on the wrong foot. Human nature is wired to fall into market traps that makes most market participants lose not only their money, but also their nerves. All of my trading systems are based on human psychological biases — which the price patterns reflect. The best low-risk trading opportunities emerge whenever buyers and sellers are trapped. These situations can be identified visually by the footprints in the charts that market actors leave behind.

My way of trading is to enter in the direction of the trend at key decision points  — typically at an important price level where the dynamics of many buyers and sellers come to a culmination. Many times, these happen after a price consolidation during which volatility has decreased (multi-bar patterns with a price failure are an example). These chart patterns offer great reward-to-risk ratios when I can identify a tight and “well-protected” stop. Most of these visual patterns remain hidden to the untrained eye — largely because they seem so counter-intuitive. They seemed so intuitive to me in my early days too — and they seem this way to students in my workshops — until we explore the psychology of the buyers and sellers to understand the most likely direction of price after such patterns.

Q. Do you think your trading style is unique compared to other traders?

Yes, I would say so.

At first glance my systems trade patterns that appear counter-intuitive, but this is the exact reason why they work! All three of my futures systems are based on breakout failures of price after a strong test against a prior trend occurred. I absolutely love to trade market traps that set off stop runs in the primary trend direction. I have come to think of it as “hunting for other peoples’ stops”. When stops are taken out in rapid succession, this almost “forces” the price in your trade direction. Thus the holders of the other side of your trade tend to panic as they need to cover their positions. Typically these stops are set by inexperienced countertrend traders that are trapped into a bad trade that suddenly turns against them. Capitalizing on these situations can be very, very profitable as the moves generate strong momentum and often start extended trends from these critical points.

Once I understood the logic of these market traps, trading them became a very relaxed activity full of fun. Using only a limited number of indicators, my focus remains on price action and the psychological dynamic the footprints leave in the charts.

Also, I believe my style to be unique in that I collect as many edges as I can. In fact, I believe I am an “edge collector”. During my system development process, I build one edge upon others in a meaningful way. Thus, the advantage my systems have is that they include a number of edges that enable low-risk trading.

Q. I understand from our conversations that you only trade contracts listed on the CME Global platform. Why only those futures?

They are highly liquid and they trade nearly 24 hours a day. Apart from the big advantages of high liquidity (low transaction costs and low slippage), these global contracts can be traded electronically from anywhere in the world. Due to the 24-hour-charts, the price activity is smooth and flowing (there are no opening gaps during the week); even my stops can remain in the market while I sleep without running a gap risk.

Q. What are the advantages & drawbacks of trading Futures?

First, I mentioned the biggest advantage — the CME contracts are great because they can be traded electronically from anywhere in the world at any time and they are very liquid.

Second, this allows me to trade them on multiple timeframes from as low as 1min charts to as high as the 240min charts — and even higher in some cases. As a trader this allows me to capture an additional edge which is not available in other markets (that have a closing bell every day). With futures positions, I can transition a day-trade to a swing trade by running a core portion of the short-term trade into a longer-term swing trade position (which in the strongest trends, can last weeks or even months).

Third, the CME is a regulated exchange which means I don’t have to worry much about counter-party risk. The price is settled at a centralized exchange which offers traders full transparency into the order flow. Over the last twenty years, the CME’s global platform has become more and more popular so that its volume now far outweighs the volume of the traditional trading pits — nearly all of the floor volume has migrated to the screen. The most important futures exchanges are now bundled under the global platform such as NYMEX and CBOT.

Q. Do you only trade a specific market like the S&P or do you trade any market that fits your setup requirement?

I trade more than 21 different futures contracts from many different asset classes. They range from US equity indexes, to metals, energies, interest rates and other (such as Bitcoin, the USD Index and the VIX).

The futures systems I trade and teach are not specific to any one futures market or even to any category of contracts. My style of trading is specialized on specific trades which benefit from the psychology of market participants – across a variety of timeframes and asset classes. The same basic price patterns show up almost everywhere — over and over again. I make my living on this happening every day.

Q. So is trading futures then really that different from trading Forex? You teach two different workshops.

I have a strong belief that every market needs to be approached somewhat differently. I alter my approach to identifying trade setups, entries, and exits with tailor-made rules for each specific market. As chart characteristics differ from market to market, the edges to collect are either different or they need to be selected from a different angle. Overall, I have based my systems on similar “ingredients” (such as moving averages, e.g. the 21EMA as well as several higher timeframes), but each has a different “recipe” to capture the opportunity inherent in each market.

Forex chart patterns show some fundamental differences compared to futures charts. To use a maritime metaphor, Forex moves are like a big “vacation cruise ship” — once they are on their way, price is going to move along very well for a while. On the other hand, futures are more like ‘speed boats’ that start off in one direction but then shoot off in the other direction, often for an extended period of time. So for futures, a strong and high quality trend is more important and the pattern comes second. Price failures are very common and I capitalize on them. In Forex, I use a bottoms-up approach where the quality of the pattern — with specific Forex criteria – is more important than the trends. On the contrary, a Forex trend that shows a price failure cannot be trusted and leads me to pass on the trade. In the case of both markets, the psychology is basically the same but it shows up differently in the charts between the two asset classes.

Q. How much money does someone need to trade futures?

That really depends on the timeframe you want to trade. To trade lower timeframes such as 5min chart, a smaller trading account, say $10,000 (USD) or less will be sufficient. I recommend, however, that people trade lower timeframes and higher timeframes. Therefore, it’s best to have an account of $25,000 or more. If you are a novice trader who wants to start out trading a very small account, then Forex is probably a better asset class to start trading.

Another note — Non-US residents can reduce the amount needed to trade considerably by trading CFDs on futures. CFDs (or Contract For Difference) are financial instruments that are based on the respective futures price, but with a much smaller nominal value.

Q. What would you tell traders interested in your trading workshop or trading workshops in general?

The experience can be very positive and attendees can leave with a lot of passion and motivation trading the systems. You should be aware, however, that learning to trade a system is not an easy or fast process! It is my experience that every trader goes through certain stages of development. After having internalized the system rules, the trader will need to build extensive experience trading the systems in a simulated environment. In this phase, the trader grows a lot and will uncover the nuances of each setup so to become able to discriminate the individual components of a high quality setup. Once this is achieved, a trader’s individual trading process based on his or her ‘Trading Game’ needs to flawlessly trade the live markets.

This trader development process is usually underestimated as it takes some time and effort — but for those people who work hard going through that process, trading can offer great flexibility for your lifestyle as well as great profits.

Q. How do you help traders learn three systems in three days? How have you structured your Futures workshop?

I start the workshop with the most important background information people need to know to trade futures. Then I go into the systems’ rules and other components such as the exit algorithm. For each system, the group reviews a good number of screenshots so people can learn the rulesets by practically applying them to a chart.

Looking at a screenshot of a ‘frozen’ chart is very different from watching price bars build into chart formations — and this is why simulated trading is so important. Simulations allow new traders to see and understand how patterns form and how a system trades them. Using historic price data to build a chart has a live feel to it  — only we can speed up the process in a simulator. I have the group watch the price bars develop into patterns on the main screen and talk them through applying the system rules to the formation. Students get a feel for many ways that setups, entries, and exits form on ‘moving’ price charts. When they go home, they already have experience with a good number of trades performed in a relatively short time. I believe this is critical to be able to start trading at home with confidence after the workshop — while the material is still fresh and sinking in.

Q. Do you recommend that students start trading when they return home?

Actually, I strongly recommend that they keep using a trading simulator to practice until they become proficient at executing the systems’ rules. Using a simulator, they can ride down the learning curve to flawless execution of the systems much faster, more efficiently, and with more fun than if they were to start trading the live markets right away. It is much like how skydivers now use wind tunnels for extensive drill training sessions and in just a few hours, train a comparable amount to many days of real airplane jumps. The real thing is too time-consuming and so much more expensive. Simulators allow you to work through multiple and even difficult trade situations until they become second nature — before you put your equity at risk in the markets.

Thank you for your time, Gabriel. We look forward to seeing you on soon!

PS from Gabriel — I am teaching the next Futures Trading Systems Workshop in March, Cary/NC. Part of my personal mission is to help others, provide information, and transfer knowledge so that your path of trader development becomes as smooth as possible. As more experienced traders will tell you, everybody needs to transition through certain learning stages and I enjoy helping new and experienced traders make those transitions. With every workshop, I too am learning from you in how to better coach you. I like to stay in touch with attendees once the workshop is over and I offer various degrees of mentoring support after each event.

Below you will find a video of his Big Picture analysis for the FX markets based on the higher timeframes (Monthly/Weekly chart).

These charts show a glimpse of what might happen during the next couple of years.

Important FX pairs have come into alignment for a strengthening of the USD and CHF (against weakness of EUR, AUD and GBP). Market actors might become surprised of the price developments unfolding in the year(s) to come with some strong price moves in trend direction ahead!

Big Picture Analysis
Runtime: 12 min.

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