Brad Matheny is head of Matheny Enterprises and co-author of the book Trading Application of Japanese Candlestick Charting. His company develops custom software applications for traders. Currently, Mr. Matheny is involved in developing completely automated trading systems for clients and for his own use. With almost 20 years experience developing charting and analysis models, Mr. Matheny has a unique ability to conceptualize and develop some of the most complex automated systems in the world. 

It was a genuine pleasure to get to talk with a long time systems trader such as Brad Matheny. This is the first part of that conversation.

Optionetics: How did you first become interested in trading the markets?      

Brad: In 1988, I was working as a computer consultant for a trading firm in California.  They were introducing me to simple concepts of trading and I had befriended one of the partners in the firm.  In 1989, this partner showed me a book titled The Japanese Chart of Charts, by Seiki Shimizu about Japanese Candlesticks.  He asked me if I could write a computer program to identify the Japanese Candlestick patterns accurately.  I said “Sure, it’s all just math."  That got me started into this field where I quickly learned it’s really more than “just math."  The next 8+ years were spent developing complex computer algorithms and models to make the pattern recognition system I created work better.  So you can say I learned the hard way.

Optionetics: What are the things you like best about the trading business?

Brad: The fact that you don’t have to be a billionaire in order to have a “great idea."  I’ve met and worked with so many people that were “average “Joes” and some of these people have had fantastic concepts for trading.  Plus, seeing something someone has designed in their head for many months/years “come to life” as a completely automated trading system is a real joy – especially when it works well.

Optionetics: How do you treat losses and how to go about establishing their risk tolerance before the trade is entered?

Brad: I believe in “week over week” returns vs. handling everything daily.  In other words, I think consistency on a week over week basis is a much better mechanism of tracking a systems results and determining long-term potential.

I advise my clients that stops should be used in such a way to protect profits more than limiting losses.  I believe a trading system should have an EXIT condition for when it’s wrong after entering a trade and that stops should not really come into play initially.  Stops should be a mechanism that is used to protect and lock in profits after the trade has had the ability to “mature” or “play out.”

Optionetics: Thanks, Brad, for sharing your trading approach with our Optionetics reading audience.

Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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