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.

I really enjoyed my recent conversation with Brad Matheny about how he manages his trading business. This is the second part of that interview.

Optionetics: Are your trading systems geared more toward long-term strategies or short-term strategies?

Brad:  I have both. The shortest term systems I have are running on 1 minute charts – but have some advanced filtering features that prevent the “rotation price action” from interfering with the trading logic.

The longest term systems I have are run on Daily and Weekly charts.

I believe all aspects of trading are valid – it’s just a matter of perspective. Some people like the shorter term perspective because they see more opportunity. I like the longer term perspective because I see it as an easier target.

For example, if you are standing 3 feet away from a train track and the train is rolling past you at 65 mph, it’s pretty easy to tell which direction that train is going and about how fast – right? But your perspective is SO SHORT that you can only really determine the direction for the next few hundred feet – not miles.

Now, if you were sitting back about 1.5 miles and watching that same train roll past, you could judge the speed and direction and quite possibly view enough track/train to see where it might be going for a few miles.

If you were in an airplane flying above the train, you could accurately locate the target of that train many miles ahead and somewhat accurately identify the speed of the train.

See how important perspective becomes?

Optionetics: What are some of the key rules or factors that you consider before selecting any potential trading opportunity?

Brad:   Momentum, Overall market direction (from Daily and Weekly charts), and often the “last three bars trading activity”. I believe price tells you just about everything you need to know about the markets actions. I believe that momentum is one of the key factors in determining any trading action as well as the overall market direction. From these, I’m able to first determine “which way the train is moving” and “about how fast”, then I’m able to determine if I want to “jump on the train” or bet that the train is going to change direction.

Every bullish trend consists of a number of bearish pullbacks – and the opposite is true for any bearish trend. This means you have to adapt to what the market is showing you IT WANTS TO DO. Like I tell my clients, trying to change a market trend is like trying to stand in front of a train going 90 mph and stopping it. You’re just going to get run over. You’re better off standing back and trying to figure out where and how fast that train wants to GO, then decide if you want in or not.

Optionetics: What are your favorite markets to trade and track with your analysis tools?

Brad: Equities and Futures right now. Most of my systems are designed for these types of markets. I have some that I’m developing for the Forex, but these markets have different characteristics that create a “totally different challenge.” I still believe a “mechanical” solution is best and I’m working on developing these types of tools.

Optionetics: What is your most memorable trade?

Brad: In my past, trading WDC in the late 1990s when it had a defined range between $2.75 and $7. You could almost rotate in and out of it at those levels. I made over 500% ROI that year.

There have been others…  Most recently it is working with my systems trading and seeing 13%+ a week for about 7 weeks before it fell off those numbers.

Optionetics: With all the different technical as well as fundamental analysis tools out there how does a new trader avoid information overload or "analysis paralysis"?

Brad: I talk to a lot of people about this and I have a standard answer….

NEVER LOSE TRACK OF THE OVERALL MARKET TRENDS

Most people focus on a 5-minute or 10-minute chart and then, over many days/weeks, they completely forget about the overall market trends. Remember, you can’t stop a train or change its direction by standing in front of it. Before you even think about taking a trade, you have to decide if you are “jumping onto the train” or “trying to change its direction”. If you are trying to “change its direction” (meaning shorting into a bullish trend or buying into a bearish trend), you better plan on a quick and effective trade plan that gets you IN and OUT before the train hits you. Unless you’re lucky and catch a top or bottom, you’re not going to stop that train.

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

To read previous installments of this interview, please click here.

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