Tim Mulholland: Passion For The Markets

Tim Mulholland: I got into the business probably like thousands of others. I studied finance in college (in an industrial town in Ohio) and made a field trip to the Chicago Board of Trade with the finance club. It was my first trip to Chicago and I fell in love with the city. When I saw the exchange floor with all of the colored jackets and the energy that I felt, it magnetized me, I guess. I made up my mind at that point, when I was 22 years old, that this was what I wanted to do. When I graduated from college, I moved up here (to Chicago) and took a job -- any one that I could get in the industry. Actually, I took a lesser-paying job because I had a job offer from a bank that was higher paying -- but I took a job at the Chicago Board of Trade for lower money. My father wondered if I had rocks in my head. I started from the back office. That was 22 years ago.

Wightman: OK. What all do you trade these days?

Mulholland: Primarily the financials. I concentrate primarily on the interest rate products, the eurodollars, bonds... that's actually where my real background came from. I didn't start trading S&Ps until six or seven years ago. At one point I traded as a local on the bond pit. That wasn't real successful but out of that failure...maybe we should come back to that. Failure in the bond pit was really what launched me into what I ended up doing. So I think that's one message in this business. Failure is not the end all. In fact, it should be viewed as a learning experience and the more you can do that, the more success you'll have.

Wightman: Let's talk about that experience in the bond pit and what happened.

Mulholland: Basically, it was 1986 and I remember saving up all the money that I could to realize my dream of being a local on the bond pit. You know, I was going to be the next Charlie D. That was just when Tom Baldwin became the big figure in bonds, but the late Charlie D. was probably the real perennial bond trader at the time. So I was going to be like that.

I went into the bond pit and I remember that I would try to guess where the market was going. That's not the way the guys in the pit trade. It may sound counterintuitive but basically what the guys in the pit do is they provide the function of liquidity and they facilitate trade. What you want is the edge. So the more opinion you have, the more it hurts you in a pit mentality. My problem in the pit is I was trying to speculate. I remember one of my sponsors was looking at my cards one day and he said, "You bought 5 and you mean you couldn't get out until even?" (Which means I lost 5 ticks.) He said, "You don't need a membership to speculate." (Laughs) Those were true words.

Anyway, what happened in the pits is that I was on limited means and I lost money. In fact, I was in debt more money than I had ever made in a single year. That actually told me I had to do something different -- still in the business, no matter how bad things got, I never doubted that this business was really my calling, so to speak. Nonetheless, I ended up getting with an institutional brokerage firm, and became an institutional broker. I learned hedging techniques, learned a lot about options and the basic inner workings of the futures and cash markets, which was very valuable. I started building a book of institutional customers. And that's really where I think I made my mark thus far in my career, as an institutional broker. Which actually ended up bringing me to Leo Melamed when his firm Dellsher Investment Corp. had a joint venture with the Sakura Bank. He recruited me in 1994 and brought me over to Sakura to start his institutional third party desk.

I will say this, though: From the ashes of that bond market -- defeat, if you will -- I actually ended up building a career that lasted and brings me to where I am today. I remember my sponsor telling me that it was the best thing that ever happened to me. It didn't make sense then, but actually it was, because (laughs) then I just had to learn and do something different and in the meantime, enhance my skills and overall knowledge of the business. Also, I ended up paying him back in about a year and a half. I remember he wasn't even going to take it from me, but he said I was one of the few guys who ever did pay him back.

Wightman: Let's talk about trading the S&Ps. I think that's probably an area many of our members would be interested in hearing about. What I'd like to do is go through your day in terms of what you do to prepare for the day, what you look at, the levels, etc., and really how you get into a trade, how you exit a trade. Let's take it from the beginning: You wake up in the morning and to go work. What are you looking at before you put on the first trade?

Mulholland: First it starts on the weekend. I write a market commentary. Up until now, I just distribute this to customers and ex-customers of mine. It's a way I do my game plan. I look at that data that's going to be coming out and evaluate what's expected. So I'm prepared as far as what news is going to come out. Then I do a technical overview to give me a weekly view, technically. What trend is the market in? I try to find if it's in a ranging trend. Is it breaking out? You know, just important levels that I want to keep in mind.

Then I do a macro analysis, just what thoughts I have. I usually finish that on Sunday after having read the papers. I actually start when the markets open on Sunday night because, given the fact that we're pretty much a 24-hour markets, it's usually not worth waiting until the next day. I trade more during the day but at night time, I'm still involved with the market. I think news is important to watch. I try to get a read as to overbought, oversoldness... That's probably the hardest part: when a scalp turns into a position trade, or a position trade turns into a scalp. I think that's the dangerous part of trading, because when a position becomes a scalp, you never get the position back on and then when a scalp becomes a position, it's usually a losing position. (Laughs) So it's the discipline factor that's probably most important. So there's numerous ways to prepare. I have to get the fundamental data and the technical data and kind of like the general tone of the market and then try and stay disciplined and following a plan.

Wightman: You mention Sunday...what's different about trading Globex on Sunday night vs. when the market's open? Obviously you have less data to work with, right?

Mulholland: This is something I have discussions with colleagues about. I find it better to trade at night and the reason is because there are fewer programs at night. Also, if you think about it, all these basket traders and all these guys who are doing various ECNs and the different type of players that encompass the market, to me it seems like a better trade. It's not as liquid, arguably, but liquid enough for what I trade. I always find myself waking up when Europe opens up every morning, as well. In the middle of the night -- strange patterns -- but I find it's a better trade, for me at least.

Wightman: So what would get you into a trade? Explain your entry setups.

Mulholland: I look at some moving averages. First, I have a view of the market which is good or bad, but let's say if I'm bearish, through some averages I look at and technicals, I happen to have a short position. And I might have a scale-in level where I say OK, my strategy is I want to start here but then I want to scale up to a certain level. And then of course define where your stop loss level is as well. But sometimes it doesn't work like that... the market goes before you scale. In which case I try to get a reaction back to add on to the unit size that I like to have. It's really just determined by where the market is in relation to the averages and levels that I'm looking at.

Wightman: What time frame charts do you use?

Mulholland: I actually use 5-minute to weekly charts. Today I used 5-minute and 30-minute charts.

Wightman: OK, describe the moving averages you are using to get in.

Mulholland: A good friend of mine that I've actually worked with for a number of years, Richard Suttmeier, has a service - Level Market Consultants - and I've been looking at his work. He's very good at bond treasuries and he's done some work now with stocks as well. So he has modified five-day, five-week and five-month moving averages and then pivots which he has daily and weekly, which I don't look at too much, but quarterly, annual, semi-annual, those type of things... big levels that I'll watch. But pretty much I take my cue from if the market is short-term negative, short-term neutral, intermediate and long term. So I assess the market from those areas.

Wightman: Do you use floor traders' pivots, Fib levels, things like that, also?

Mulholland: Fibs, I think, are great. I don't know if you can say they are floor trader levels any more because of the way electronic markets have supplanted that to a certain degree. For some reason, Fib levels work well. They are good reference points. At least to me, they are better points to take profits or a point where you are waiting for a reaction to get back in the market. So I think they work out very well. Percentage movements are also something to watch because of all the money managers now. I think everything is measured in percent, oftentimes.

Wightman: The percentage move that you just mentioned, how does that work? In other words, from a base level, has it moved, say, X%?

Mulholland: Yes, let's say for the day or for the month we are up 4%. Sometimes there are some magic numbers that people use, such as, what is it, the 4% take-profit level? But when you have all the hedge funds in the market now -- and everyone is operating on, "OK, what percent am I up this month or this day?" -- that's where it plays much more of an important role in the market.

Let me give you an example of that because it's something I've been looking at. For the first quarter, for instance, we were up 6% and we were down 10%, so a 16% range... I think we ended up down 2%. So quarter over quarter, or week over week, month over month, you might see the market settlement price doesn't change a lot but in between, there's a lot of noise. I think that's indicative of the number of participants, the different strategies, the back-and-forth noise. People look at the ($VIX.X | Quote | Chart | News | PowerRating) and say, "Gee, the VIX at 31 or 35 is kind of expensive." I don't think it is, given the daily ranges are huge but settlement to settlement isn't. But there's a lot in between that happens. Does that make sense?

Wightman: Yeah. Let me ask you this: When you get to a level that you're interested in, whether it be Fib or another level, how do you exactly time your entry -- what are you looking at?

Mulholland: Usually what you have to do, like I said, when you're insistent on a price, and sometimes it doesn't go there and you miss it, I think it's just kind of a feel type thing, a general area that you want to be at. In the Minis, I could put a bid in in front of the number I'm looking at. Sometimes this is where the 5-minute chart comes in because if I can see a formation where it looks like it's bottoming, well, so I have to pay a point more or whatever, to get just in the general vicinity. But I find that's probably very key -- I think it's your inaction -- what you don't do, or if you wait. One of the rules in the pit used to be: "You're never ask when you're getting out of a trade." You never demand. You get out when you want out. When you get in, you can be a little more patient. But getting out of a trade, you don't usually negotiate.

Wightman: What's your average holding period on a trade?

Mulholland: In these markets, right now, probably, it depends... I have short-term, intermediate-term, average indicators pointing negative, I could have a trade on for as long as a week. But typically, like even today the holding period is probably half hour to an hour, depending on what kind of movement you get. Right now, when you get 2 or 3 points, you have to take them. This is an environment where you have to take your profits or they'll disappear.

Wightman: Well, that's an interesting point. A lot of guys, I think, who trade the S&Ps, I mean half an hour to them would be an eternity. These guys are in a trade for a couple minutes, maybe. What advice would you give to someone like that?

Mulholland: Well, in a couple minutes, you're taking a point. When your time frame's small, you can't expect big rewards. Your reward is commensurate with the time frame. In a couple of minutes you're not going to get the spike, but generally, that's a pit scalp there, for sure. For the guys in the pit, it's maybe a "passing the hot potato" type of game. That's where your transaction costs have to be low to do that type of trading. That's where the guys in the pit, or the members, have the edge because their transaction costs are lower. But when your holding period is reduced, then your profit expectations have to be commensurate with that time frame. But a half hour, to me, is a long-term trade here, in this market. (Laughs)

Wightman: Let's talk about your risk management. What kind of stop placement do you use on your trades?

Mulholland: If I'm in a scalping mode and the market trades 2 points -- definitely 3 points -- I'm in it too long. And if I'm in more of a position-type, I'm looking for a bigger move... It depends where your entry point is. If you miss your ideal point to get in and you have to kind of chase it, then I think the trick there is you have to do a very small position first. That's when you work on your scale back, you know? Because what happens sometimes -- and what's very costly to traders -- is when you take the plunge either out of frustration, or you miss one, and you get too big of a position on and then you kind of lose your rationale. Then your risk management overtakes you. You lose sight of what your objective is. That's why it seems like at certain levels and in this market, and someone said this once: "The hardest trade to make is usually the best trade." (Laughs) And when you're trading countertrend or against some of the levels like the market's forcing you to right now, the easiest is the worst.

Wightman: Coming down to a support level, is it going to break through it or do you buy right there right after the stops are taken out...

Mulholland: Or if it feels just awful and it's like "Oh my God, this is so bad," or "This is so great. This market's going to the moon." These types of emotional spikes you get in the market. Sometimes you know you're supposed to do something and I know every trader's had this happen. "I was going to sell 'em up here and why didn't I?" (Laughs) And then frustration takes over. You can't get frustrated either.

Wightman: Is it fair to say that you're trading positions in different time frames? That sometimes you're scalping and at other times, by design, you're going to have a trade held longer term?

Mulholland: Yes, just depending on what I'm looking at. Right now, I'm definitely in scalp mode in this market. If you can take 2 or 3 points out, I think that's wonderful. That's great. When I try and stretch it... right now I don't really have much to lean on and take a big short position, let's say, and hold it. Because I might be hoping more. I don't have real... I'm not really leaning on anything right now. That's the problem. When you don't have anything to lean on, and you're just trading the volatility in the market, I think you have to take what it gives you. The other thing that happens to a lot of people in this market is that you're up money in the morning and you give all it back during the day.

Wightman: Isn't that the truth? (Laughs) How many trades, on average, do you make per day?

Mulholland: Oh, probably 10-15, I'd say, on average.

Wightman: What's your favorite type of trade?

Mulholland: My favorite type of trade is the yield curve trade.

Wightman: Can you explain that one?

Mulholland: Well, in fact, I'll do the 5-year / 30-year, or the FOB spread. I'll yield weight it, which is how I think you should do it. Right now, for one unit would be like five 5-years to two bonds. Typically, it's been pretty much a directional trade, but if I think the Fed is done easing... it can be a number of combinations. Right now, it's more a negative expression of the interest-rate market.

Wightman: What about your favorite trade on the S&Ps?

Mulholland: Oh, my favorite trade on the S&Ps is when they do a 38.2% retracement of a big move.

Wightman: On what time frame?

Mulholland: Let's say we get a big Fibbo, or a halfway back or a 38.2 Fibbo after a big move -- we've had a huge spike down and the retracement back up. Usually you don't get much more than a halfway back or a 38.2 in these things. To put a small position on, and have it start going your way and then start slicing through some of the averages that I like. Then you can start building a more meaningful position but you're building a position from strength.

So I guess my favorite trade is when you can get into a position of strength to build a position. That means you have to start out right. Usually, starting out right means you have to be aware of levels and you can never say when they're going to hit 'em. But when they do, it's got to be in your mind to react and take action at those levels. I think that's the key. My favorite trade is when you can get a lead like that because then everything becomes much clearer to you. I get in better sync with the market. For myself, also, the worst days are the Monday down days. (Laughs) Once you have a lot of conviction -- or a ton of conviction -- that you're right, it's usually time to get out.

Wightman: Do you play what some people call the 10 a.m. ET reversal? How do you deal with that?

Mulholland: I don't usually pay much attention to that. I know there's a lot of people that do. Also, someone told me that 80% of Mondays are up days. That's probably why I hate Monday down days. (Laughs) Those types of things -- I consider them more random than mechanical.

Wightman: Any other indicators that you are looking at? Again, this would be for scalps: Are you looking at the TICK at all, or is that way too short term?

Mulholland: The TICK... I know the guys on the floor instilled that, but I think up volume/down volume is better.

Wightman: Are you looking at the TRIN?

Mulholland: Just shares up/shares down. I imagine there are more refined ways of doing it. It's not my specialty but I think that's kind of important because it reinforces -- if you're bearish and there's more up volume than down volume, well then you know what? You might be early. The other one I look at is stochastics. Those are a favorite for a lot of traders. Sometimes they're misleading but I think when stochastics work best, is when you're in a trend. You're in a downtrend and then there's a reaction and then the stochastic gets to an overbought level but the price hasn't come close to where...Maybe you're near a Fib at this point. That to me is usually a very good time to put a trade on.

Wightman: That's a good one, yes.

Mulholland: But it's amazing. It's like a science how people use these indicators and how you interpret them. I guess there's no one way, no one size fits all type of thing. But I did have one of the smartest customers, one of the most successful traders that I ever dealt with in years of covering accounts, who told me, "It's best to have a system -- even if it's a bad system." Because at least it's a system that you have and it's a discipline. Sometimes that might make some sense. Then some other very good people that I've talked to, who told me that having a system ('m not saying have a bad system) or some sort of method that you use that is good for you, gets you through drawdowns. It gets you through... to know that if you stay the course, you're going to come out OK. So in other words, a lot of people trade -- and I used to do this a lot and sometimes I am still guilty of it -- you try to trade off a feel for the market. That sometimes is good, sometimes it's not so good. But the most consistent way to do it is to have some sort of indicators that you use, some sort of systematic way that you know if you stick to it, that you're going to come out in the long run.

Wightman: What's the best advice you can give a newer E-mini trader?

Mulholland: To trade very small, and to do homework; to look at charts and indicators and find what you understand and makes sense to you. Find what works for you and what you're comfortable with. You know how they say you can't teach old dogs new tricks? Well, a lot of young traders get hired these days by companies because they don't have bad habits and they can be trained. There's something to be said for that. I say the best thing to have is an open mind when you trade. I'm no Market Wizard but I also believe that a passion for the market is important. To have that real love for why things are happening, too. Every day is a new day.

Wightman: Indeed. Tim, this has been great. Thanks a lot.

Mulholland: My pleasure Brice. Thank you.