This interview is something a little different. Today we focus on financial freedom through what might be seen as an unusual route – using robots to automate forex trading. I started trading this year in the forex markets and absolutely love it.
It is for me a very real test of the supposed mental clarity and control of emotions that we talk about in meditation. But now it gets tested.
The big banks have used automated methods for a long time but for us the retail traders it is not often seen as a stand alone method.
I am always looking for ways to minimize emotion in trading and bring clarity so when I discovered this podcast conversation between Scott Heywood and Rob Booker I took notice.
Please enjoy this interview and remember if you want to do similar yourself, digest all the information Scott gives and start living the dream…oh and get his book 😉
DOT: Welcome to DawnOfTruth and a massive thank you for spending time answering these questions.
I am a new trader having just started this year so seeing this progression you have made from manual trading to robot trading is intriguing to say the least.
Could you explain a little about your past trading experience and how you progressed to the idea of using Robots.
Scott Heywood: Robots were more a happy accident than a progression. The robot I use was based on a setup which I traded manually for some time but the consistency was not there.
When the setup was available in an Expert Advisor (robot) I tried several configurations before I made money consistently. When I did I never really looked back. But there was no long term plan to move to running a robot over time.
But a robot’s ability to never miss a trade 24×7 was what made the system so profitable. Doing it manually would be a hard slog and most likely impossible.
I have traded other instruments (shares/futures) over the years, but never very seriously or successfully. FX was a whole new world to me 4 years ago. The ability to learn online for nothing or very little cost, the tiny trade sizes you can start with and free trading platforms available make it possible for anyone.
DOT: I have found in my small experience as a trader that I am often the weak link, regularly I will close early if in profit or panic if it goes against me.
Would you say this is one of the many benefits of using a Robot to trade in that they are not fazed by the markets or false moves, their psychology doesn’t get in the way?
Scott Heywood:Very much so! I still do those things when I sit in front of my computer to check the charts. I still feel the emotions from and very good trading week or perhaps a challenging drawdown, but I turn the robots on at the start of each week and they just trade the setup no matter what.
Obviously you need intimate knowledge of and complete faith in your robot to leave it run to do its work. You achieve this with your preparatory testing which I detail extensively in my book. Once you complete that process you have to let the robot run and do its job.
I should add at this point that I do not leave the robot unchecked for weeks or days. I could do, but I need regular confirmation that things are under control. For the most part I do this from my phone so I’m not tied to a desk.
There is also a discretionary element of my trading for a very small number of my trades.
DOT: Now after listening to your podcasts with Rob Booker I know you are using the Finch. Was this choice of the Finch based upon your previous trading in that its method modeled your own approach or simply that this was the most recent Robot released?
Scott Heywood: Finch was an automation of a way of trading I had enjoyed doing manually.
I started using the Finch robot as a testing tool to see how the trading method would perform historically. That revealed the number of trades which were possible if you didn’t need to be watching the charts to catch them.
For that reason I had only traded 15 minute and higher time frames to that stage. Finch allowed me to consider 5 minute charts which is what I trade now.
DOT: That original Finch has progressed to your very own Plutus Robot, now without giving away anything from the book, can you share what differs with the Plutus and why these changes were made?
Following this knowing that the Finch is based on Divergence have you ever tried a robot based on entirely different rules?
Scott Heywood: Plutus is my personal security blanket. Everyone needs one so they are comfortable to trade the way they do.
I am comfortable trading without a stop loss, in fact I didn’t make money consistently until I stopped using one. But I still needed something to help me accept that my robot could take trades at any time and hold them through a move against the position.
So I had Plutus coded to simply add a hedging trade at a certain point. To me it is a failsafe stop to limit the amount of money I could add to my drawdown and I can go to sleep unconcerned.
Since starting my live trading with Finch in June 2015 and putting Plutus live in November 2015, I have not tried any other robot. I get asked about my opinion or given robots to run all the time.
I don’t understand it but perhaps some people think I just like testing and assessing robots. I have no interest. I will be very interested if I stop making money with Plutus. Until then, I will continue doing what I’m doing.
DOT: What guidance can you give to those starting out with Robot Trading (Other than getting the book here) in dealing with the dreaded drawdown?
When is it time to interfere and when should we take a deep breath and leave the Robot to trade its way out of trouble?
Scott Heywood: Almost always leave the robot trade out of trouble. The obvious caveat is that you’ve proven your robot through extensive testing and live trading. But once proven its important to trust your system.
To those starting out in robot trading, move quickly to the point where you know your robot is viable. The easiest way to do that is to get it from someone who has proven it over a long period.
Once you are at that point remember it is all in the preparation. Do your testing slowly and thoroughly. 99% of your work is done up front. That is very important. I include initial live trading (at a very small size) as part of testing.
DOT: These occasions where you have had to take action shows that this is not an alternative for knowing how to trade.
The manager still needs to know what is going on and manage the system.
If you ever returned to manual trading do you think the time spent observing the Robot will have made you a better trader?
Scott Heywood: Undoubtedly. That is another unexpected advantage of running a robot. It teaches you to trade. You can see the huge benefits of consistency.
You learn about price action when you observe the charts while the robot trades. In my system I need to take over in a small number of trades.
By definition price has moved significantly away from the mean at that point and I have learned a great deal about price movement when an instrument is extended.
Personally I think a retail trader’s quest to find an automated strategy which needs no intervention at all is why most people do not find one.
Look for a system which enters consistently and exits almost all trades without intervention. Accept there will be some situations you need to help out and deal with that. The perfect system is not out there.
DOT: Now one question I have not wanted to focus too much on is the profit.
We know now you are doing over $1000 per day and we can see the financials on your site, but when did the profit become something you expected to see in the morning?
When did you start trusting this method as being consistent?
Scott Heywood: Profit is important. It’s the reason I do this. I started trading live with this automated system in June 2015. I was surprised at the consistency and soon decided I would run it live for one year and assess the results. The consistency continued.
I felt very fortunate to see the consistency, but looking back, the consistency came from the work I did at the beginning. Back testing, simulation testing, demo trading. I don’t do a lot of work now because I did it up front. I think I started trusting the system around Christmas 2015.
That was when I talked about it with some friends. Until then I had spoken about my trading only with my wife. But I stayed out of the market over Christmas/New Year and I had some time to think about it objectively.
In February 2016 I started trading a size which made enough money to live on. I finished my day job in May 2016.
Your question about Trust is very pertinent. Your trust in your system develops over time and strengthens only when you successfully fight through a challenge, either poor performance or a large drawdown.
I would love to say that I now completely trust my ability to make money everyday, but the fact is that there are always doubts and there are always new experiences in the market just waiting for you. My trust increases all the time as does my experience.
DOT: Lets now move to what I think (I could be wrong…) is one of the keys behind team Scott and Plutus.
How much of where you are now is down to the testing you did?
What steps did you take before contemplating going live?
Scott Heywood: It’s all down to the testing I did. You simply cannot have any basis for trust in any system unless you have proven its performance through all testing phases.
That’s one of the reasons you cannot take someone else’s system and run it live and expect to get their results.
Your experience and knowledge gained through testing gives you a fighting chance to allow your system to run when you are under pressure. If you don’t do the work you will fold under pressure and keep taking losses.
I will point out that I value my live trading data over all else now because that is real rather than historic data but you have to put in the work to give you the confidence in your chosen system.
I detail this in the book, but back testing, simulation testing, demo testing and testing in the live market are all part of the preparation needed so that your live trading experience can succeed. It cannot be rushed.
DOT: Now that you have been running this system for over a year, what kind of upkeep does it require on a weekly basis?
Are you still testing new pairs or Robots?
Scott Heywood: Generally I do very little on a weekly basis apart from resetting the robots each weekend (unless they have a trade open), withdrawing my profit and initializing the robots 1 hour after the market opens.
1% of my trades need some management from me and that could mean checking the trades 3 times a day or maybe less. At times it becomes demanding.
I don’t tinker with other robots and I’m happy with the pairs I run at the moment.
What I have begun testing recently is the 1 minute charts using the same robot/configuration/pairs as I do for 5 minute charts. Because there is such similarity with what I have done live for more than 18 months, I am trading live with small trade size in parallel with my testing.
The results are promising but I really don’t want to draw any conclusions until I have traded live for 6 months or more.
I don’t think any shorter period gives meaningful data. But any change I make will be done for one reason only – risk reduction. That’s all that matters if you are profitable.
DOT: Now lets get to your book, this sounds like a Christmas present to myself! Can you give a description of the book and who it is aimed at?
Scott Heywood: The book started as something I felt would have some value to aspiring traders given the journey I undertook and succeeded with.
In August 2016, Rob Booker interviewed me and I took the opportunity to ask his audience what they wanted to read about.
Overwhelmingly they asked for 2 things – How do you trust robots with your money and How do you scale to earn sufficient money to live on. That surprised me and it was not what I had written about, so I started again and wrote the book they requested.
The book addresses a lot of topics and questions about robots, details how to approach your testing and tracks month by month my first year trading robots live.
This includes trade sizing, capital, emotions, setbacks and stupid things I did. I also tried to gather some information to help traders avoid some things I did while learning which wasted my time.
DOT: Now that you have managed the Forex dream of being CONSISTENTLY profitable I imagine you have a lot more free time. Can you share a little about what life is like now you have financial and time freedom?
Scott Heywood: Time is what I am blessed with now. When I was working full time it meant that most of the first 12 hours of my day was dedicated to the company I worked for.
I got the rest of the day (if I was lucky) and maybe my weekends to spend how I wished. Having time gives you so many advantages and I wish I had been able to stop working full time sooner.
I now have time to explore things which would have remained on a to do list in the past. Every morning I wake early and can’t wait for the work I have planned.
I used to feel my free time was dominated by stuff I HAD to do. Sure some of those things still have to be done, but the time it takes is minor compared to doing what I want to do.
Having time to me means being able to do things properly and in a well considered way. One of my frustrations in the corporate world was the insistence on getting things done quickly often at the expense of doing them properly.
Conversely getting decisions made was often a very long process due to bureaucracy and other reasons. Now I enjoy being able to consider a given task fully and properly and I make decisions without unnecessary delay.
I have a feeling of being infinitely more productive and I seem to achieve tasks with much less effort.
My time away from trading and related activities is taken up with golf, bush walking trying to spend more time with friends.
But I also find a great deal of time is spent exploring new ideas and business opportunities and because it is invariably to do with something which holds my interest, it is a very enjoyable process.
Free time is great but so is the ability to work anywhere. I love to travel and I will do so more in 2017. I have about 12 trips planned – at least 8 of those will happen. I also enjoy being able to decide on a trip at the last minute and just jump on a plane.
DOT: Lastly is there any other important points you would like to make that I have missed?
Scott Heywood:I just want to assure anyone reading this I went through many years of dreaming about achieving financial freedom through trading and even now have doubt in my mind that it is possible – even though I am living it! I read about and listened to many people talking about making money trading and I tried and gave up several times.
It is very hard to see the big picture when you are going through these times, but everything you do is teaching you something and shaping your approach to trading (or whatever your pursuit).
I’m still not certain what it was I did this time which meant I succeeded. I’m sure luck played a part (no-one ever seems to admit this), but equally don’t think you can wander along aimlessly and eventually succeed.
I spent a long time doing a lot of work before I became consistently profitable. However, I did two things which made a huge difference even though I didn’t know it at the time.
First I decided to give myself time to learn FX trading. Not 2 years or 5 – I gave myself whatever time it took. Second I decided to enjoy the learning experience so that I focused on that rather than the end goal. Once I made those determinations, I had an enjoyable few years and realized my ambitions.