Editor’s Note: Gabriel is a successful full-time trader, a VTI workshop instructor, and a dedicated coach with a passion to develop traders to a level they become profitable at home. Since his graduation from Van’s Super Trader program in 2010, he trades full-time the Futures and Forex markets – and for the past few years, he also trades Cryptocurrencies. He will share his unique expertise and trading knowledge at the two upcoming Futures Trading workshops in November 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 the Futures markets in particular.
Q. Tell us a little background about yourself and your trading
As a youngster more than 35 years ago, my passion for the capital markets and charting “caught fire” during a school project. In the early 80ties, neither price charts nor the Internet were available so I plotted the daily share prices from the newspaper on graph paper to analyze price action development over time.
Initially I started trading options and as I was underage, my parents had to sign a waiver at the bank that allowed me to trade. After some beginner’s luck, I moved to position-trading stocks and commodities during my university years. After university, I started my professional career as a management consultant at Arthur Andersen. Then a couple of years later, I joined the asset management industry. Here I worked my way up to executive positions within PIMCO & Allianz Global Investors. During this time, business contact with Bill Gross (the authority in bonds) and Mohamed El-Erian (thought leader in finance) broadened my perspectives on the capital markets in many ways.
Q. What do you trade and what is your trading style?
For about 10 years now, I have been following my passion in life by trading full time. My focus is on Futures, Forex and Cryptocurrency markets. Being a visual person, I have specialized on visual pattern recognition which means I look for specific profitable and repeatable price chart patterns. I have a strong belief that the best low-risk trading opportunities emerge when buyers and sellers become trapped in the market – specifically when they both get caught on a “wrong foot” at the same time (a double trap). You can visually identify these market trap situations in the charts by the footprints left behind by market actors. Knowledgeable traders can take advantage of the biases that get people into these market traps and build profitable trading systems around them. My systems seem counter-intuitive at first – but only until you start trading them!
As a trend follower, my trading style is to detect key decision points where the trend has seemed to end, but then resumes shortly thereafter. Such a false break lures in both buyers and sellers who then get trapped into a bad trade which they have to exit as their stops get run over quickly. Most of these visual patterns remain hidden to the untrained eye. With a little instruction, you can learn to detect the footprints yourself.
Q. You have studied, worked with, and trained a number of traders by this point. Would you say your trading style is unique compared to them?
Yes, I think so. I really like to trade patterns that appear counter-intuitive – which is the exact reason why they work so well! All three of my Futures Systems are based on breakout failures that generate an excitable Test Bar, or a Hook, against the primary trend. This allows me to trade great low-risk ideas by using the volatility of big bars (and by placing a well-protected stop). Does this sound counter-intuitive? Don’t worry, it sounds that way for a lot of people.
I absolutely love to hunt for other peoples’ stops while trading in trend direction. From my early years as a trader, I know exactly how it felt when my stops were run over. Before I understood the game, I froze in panic many times as my positions had to be covered quickly. Those were not nice experiences indeed, so why not benefit from that?
My three Futures systems are built to capitalize on specific market traps in order to generate big R gains. The first move after an entry commonly generates strong momentum which may represent the starting point for an extended trend. If all goes well, I can then transition a Day-trade into a Swing trade that can last several days. The strongest trends can last weeks or even months. When this happens, I can scale-into an existing trade to build a Pyramid. As you learn about traps and their footprints, trading can become a very relaxed and fun activity.
Q. You mainly trade the Futures contracts listed on the CME Global platform. Why do you focus on those?
These contracts are highly liquid and they basically trade 24 hours a day. The CME, based in Chicago, is the worlds’ biggest Futures Exchange. And it is the only one that offers global and electronic contracts that can be traded from anywhere in the world at any time. The price activity is smooth and flowing. As the market does not really close ever, there are no opening gaps during the week and even my stops can remain in the market while I sleep.
One big advantage of the liquid global contracts is their very low transaction costs. But not only this, traded through a fully CFTC-regulated clearing house, the centralized price data leaves no place for ambiguity and counter-party risk is effectively eliminated.
For more about these benefits, readers can link to my previous article Top 10 Reasons to trade Futures.
Over the last twenty years, the global platform has become increasingly popular so that by now, nearly all of the floor (trading pits) volume has migrated to the screen. Unsurprisingly, more and more retail traders, professional traders, bank traders and proprietary trading firms are moving into Futures trading.
Q. Which futures markets you trade?
I trade about 25 different futures contracts from a variety of different asset classes. They range from US Equity indexes, to Metals, Energies, Interest rates to Other (such as Bitcoin or the USD Index).
As an example, I trade both Long and Short the Futures on the Dow Jones, S&P, Gold, Copper, Crude Oil, Natural Gas, the 10-year T-Note, Bitcoin and many more. I do not trade Agricultural contracts or Currency contracts though. Agricultural markets trade for only a couple of hours per day and currency Futures are rather illiquid. Spot market trading dominates Forex and it follows a different price action logic than the Futures market.
Q. How about the timeframes you trade?
My Futures systems are not limited to any one specific timeframe. The very same visual price patterns, as they develop, can show up everywhere at any time — over and over again. Therefore, I can look at charts from as short as 5 seconds to as long as Quarterly bars. Overall, I scan 11 different timeframes for trade ideas for 25 different Futures contracts. This opens a huge trading universe to capitalize on. In almost every asset class I scan, the markets setting up something.
Q. You trade Futures, but Forex too – what are the differences?
Overall, Futures price activity and chart patterns show some fundamental differences compared to Forex charts. To use a maritime metaphor, Forex moves like a big “vacation cruise ship” — once it is on its’ way, price is going to move along very well for a while. On the other hand, Futures markets 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.
One of the main differences in trading Futures is that the main edge is to trade big and volatile bars – the so called excitable Test Bar. Trying to apply this very same concept in FX proves very ineffective – if not deadly. Instead, one needs to look out for small bars during volatility contractions. Scans in FX are done bottom-up looking for pronounced and mature consolidation patterns, but scans in Futures go top-down by identifying strong trends first. Due to its’ characteristic of creating false breaks, the trend definition is very specific for Futures. For Futures, the consolidation itself is of minor importance. What happens once a basic consolidation is established is what makes the difference.
It is interesting that I had originally developed an earlier version of the Turtle pattern (my Futures System 2) during the financial crisis in 2009 when I was trading the Forex market. This symmetric and harmonic pattern, however, came up regularly only for about 6 months, then no longer. I later found out that the pattern works very well with Futures by applying a different set of rules.
My Futures and Forex systems have in common a trend following nature based on visual pattern recognition by applying horizontal lines and multi-timeframe analysis. Both markets are trading 24h a day, so swing trade transitioning and building of trade pyramids works well for both. These similarities make it relatively easy to trade both FX and Futures at the same time.
Q. Could equity traders benefit from trading Futures?
Stock traders are basically tied to how the equity indexes perform especially if you trade Long only. If you trade systems that do not match the current market type, then this limits your opportunities. I do trade US Equities as well – both Long and Short. With the introduction of the new Micro E-minis Futures in mid-2019 (available for the Dow, S&P, Nasdaq, and Russell 2000), trading has become very efficient even with a small trading account. Equities is only one asset class I trade and very often there are opportunities with contracts from other asset classes be it Gold, Natural Gas, Bitcoin or any other.
Trading Futures offers a very efficient way of using your trading capital without needing a margin account. The Futures leverage is around 20:1 and no financing costs need to be paid. With Futures being very liquid the transaction costs are low and common issues with trading stocks such as price slippage or partial fills can be avoided.
Finally, US Residents have a distinct tax advantages trading Futures because those gains are taxed at an average rate of 23%. 60% of Futures gains are taxed at 15% (the long-term capital gains rate) while 40% of gains are taxed at the short term capital gains rate of 35%. Compare this to the short-term capital gains on equities for which all of the gains are taxed at 35% – nearly a 50% higher tax rate than Futures.
Q. Do you prefer trading Futures over Forex?
This is a bit like asking if I prefer Jujitsu over Tai-Chi. I like both! You could ask me as well if I prefer driving a “speed boat” over traveling with a “vacation cruise ship” – it is actually two different things. I have learned that having more opportunities than I actually need in a day is a great edge. You can then become really picky on which trades to take and you are much less prone to jump into a trade for fear of missing an opportunity.
Whatever markets provides me better trading signals is what I focus on during my trading day. The market gives and takes and it is better to listen carefully what it wants to provide on any given day.
Q. You have also been trading Cryptos. Why?
Trading Cryptocurrencies is another way to diversify my trading. I believe that the Blockchain technology which underlies Cryptos, is a new, disruptive force that will change the way we live and do business – more so than the Internet did. The Crypto market is still in its infancy and sometimes it appears a bit like the wild-wild west. So if Cryptos are truly a game changer over the next 10-20 years, then I obviously want to be part of it – but Long only.
The biggest and best known Cryptocurrency is Bitcoin, however, there are more than 2,000 other Cryptos. Though Cryptos are a specialized market, they can be traded in a very similar way than other asset classes and they follow charting principles very well.
Somehow the patterns of the Gecko and the Turtle (my Futures System 1 and 2) come up repeatedly in Crypto charts with 60min, 240min, Daily and even Weekly bars. These systems allow for a low-risk entry into a hyper bull market with the goal to keep a core position for the long-term.
Now that the Bakkt Futures Exchange opened (September 23), institutional traders and investors will be able to invest in Cryptos through this US-based bitcoin and cryptocurrency platform. This will improve liquidity and in satisfying institutional demand, should help support the long term bull.
Q. You have been teaching workshops now for several years, what type of person attends your workshops?
There is no such thing as a typical attendee and I always have students from very different levels. The majority of attendees have some trading knowledge and this surely helps. Less experienced traders will need to work just a bit more and longer, but the systems are new to everyone at the workshop. Every student goes through the same learning stages though the Professional completes those astonishingly fast. Based on the feedback I get they achieve consistent profitability probably within 1-2 months. For students with at least some prior trading experience, getting to that stage can realistically take maybe 6-8 months (depending on the time available).
Q. People ask us a lot about the Live Trading Workshop that follows the Futures workshop. Why did you develop this follow-on workshop?
For “hands-on” learning. During the Live workshop, learning continues because some parts of trading can best be experienced practicing trading with the added element of live market realism. Most students are initially a bit overwhelmed by the amount of potential opportunities (11 timeframes for 25 contracts) the three systems present. An efficient scanning process is needed to handle this vast opportunity space to identify the good opportunities as they come up for System 1, 2 or 3. I teach techniques to efficiently detect patterns, what to look out for and what other factors influence the trade decision. In a real-time market environment, this scanning process can initially be a bit confusing so typically students complete the day a bit exhausted – but happy.
On day 2, students eventually master the complexity of the scanning process with repeated practice. We focus on improving scanning efficiency and how to best evaluate trade pattern quality. We enter trades by applying the system rules and manage them according to the exit rules. Students have repeatedly given feedback that they fully understood how the systems work only after attending Live. Many have been surprised by how much their learning continues and how much their understanding deepens.
Some novice traders who have attended the workshop have shied away from Live thinking they don’t know enough yet to benefit – which is unfortunate. Novices actually learn a lot during these two days as do the professionals. For both groups, trading the systems is easier once they go home. Also, it has been very obvious to me in follow-up communications well after the workshop that there is a strong correlation between attendees staying for Live and those who eventually trade the systems on a consistent basis. I am not exactly sure what makes this happen but I think it has to do with the complexity of the Live Trading Process and its application in the live markets. If someone would like more detail, they can read my article: A Good Systems Relies on a Robust Live Trading Process.
Q. Why do you teach other people when you could just make money and stay home or go on a nice vacation somewhere?
I go on nice vacations already!
There are several reasons I teach my systems and trading style to other traders.
- First, your question implies that life’s purpose is all about or mostly about money. That’s not the case for me.
- I know how difficult it is to learn to trade by yourself as I went through that process almost all on my own.
- I know I can save students a lot of time by helping them find systems with an edge that fit them right-away.
- Trader development nowadays progresses astonishingly fast – what took me years back then can be learned within less than a year now.
- Leaving my trading desk to make new friends every so often is a great change of pace for me.
- I take great joy from teaching students and seeing them progress in their trader development.
- Finally, I’m grateful to all the people who helped me so I’m happy to transfer my know-how to others.
- Thank you for your time, Gabriel. We look forward to seeing you in November!
Note from Gabriel — 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.
I am teaching the next Futures Trading Systems Workshop and Live Futures Trading in November in Cary, NC. Also, I am offering a price discount for anyone who stays for the two days of Live Trading. As a bonus, Live attendees will be able to stay (at no extra charge) for a third day on how to trade Cryptos with my systems.