The Art of Trading: Art Collins Joins TradingMarkets 2008!

Art Collins has been a successful developer and trader of mechanical systems since 1986 and a Chicago Board of Trade member for almost as long.

He is one of the few experts to actually walk the walk - the bulk of his income is derived from his own personal trading. In 1997, Art recruited a professional computer programmer-friend to be a trading partner. Between then and the partner's untimely death in March 2007, the account enjoyed an 800 percent-plus increase trading the stock market index futures.

As Art explains below, the market indices have been his specialty. He successfully trades them by exploiting their tendency to revert to the mean; that is, come back off overextended high or low levels. In such markets, pure momentum following doesn't work well since the markets too often swing in wide, psychologically prohibitive arcs. A degree of momentum-following, however, is a component to Art's methodologies in that the prices have to start reversing in an opposite direction off the extreme highs or lows before he enters in the new direction.

I spoke with Art Collins about trading, psychology and his presentation at TradingMarkets 2008 last week by telephone. Here is a transcript of my brief visit with Mr. Collins.

David Penn: Thank you for giving us some of your time. Let me ask you how long you've been trading.

Art Collins: I've been trading about 30 years - 20 years full time.

Penn: And what is it that you enjoy most about trading after all these years?

Collins: Everything! I enjoy everything about it. First of all, I develop systems and my method of trading is mechanical only. I have no sense of how to react to
markets that are in progress, so a lot of my activity is spent devising trading systems, preferably in the off-market hours, a relative calm, non-emotional time. And I love that. I love working with numbers. I'll do stuff that's mundane like cutting and pasting spreadsheets - I find that fulfilling.

I like everything about trading. I like the lifestyle. I like not having to work FOR somebody or have somebody work FOR me or have to partner with anybody. I like following my own agenda, my own schedule. I work a lot. but if I decide to not be working for some particular reason, I like the fact that I can do that.

I like the fact that it's the one business that's actually creative. I'm a creative person. I write music. I've written books and features. And the idea of analyzing
markets also exercises that part of the brain.

There's one thing I don't like. (As a trader) you're going to have sustained losing periods that go on longer and deeper than you would hope for - but virtually
everything else about it I like.

Penn: You mentioned the idea of independence. I think a lot of the traders coming to TradingMarkets 2008 in November are thinking that maybe one day they will be able to achieve a level of success and independence that is similar to yours. Do you think that's an achievable goal for people to have?

Collins: They need two things: they need an adequate bankroll because the short run is just so unpredictable. And they need the determination to follow whatever (trading method) they know is going to work. And that's a lot easier said than done. Even with what I've been able to demonstrate to myself, I have deviated radically from my system - and almost inevitably I pay for it.

You've got to be determined and you've got to have a bankroll. Just like with any business. If you're not bankrolled properly, then realistically your chances aren't that good.

Penn: What is the most interesting thing you've learned about your trading, trading in general or the markets in general over the past year and a half or so?

Collins: In the last year and a half, I'm not sure. But something that is re-emphasized and reinforced over and over again is this: the trades that you are the most afraid of tend to be the ones that work. The ones that you are most comfortable with tend to be your problem areas.

I think that summarizes why I can't trade based on "market feel" or spontaneous reaction. But I think that's the case of most people. The markets, it almost seems like their job is to fool you.

Penn: Can you give our readers a peek into what you are going to be showing and discussing in November at TradingMarkets 2008?

Collins: I think I'm going to limit it to the index markets: the S&P, the Nasdaq and the Russell (2000) - which are what I trade exclusively anyway, so it is my area of expertise. I never say anything - or try not to - that I can't document in research. So I'll be showing a lot of charts, TradeStation charts, about results of certain ideas, mechanical ideas. And I'll break them down into their simplest components.

The indices have two major tendencies. One is they are mean reverting. They will not trend in a "screaming" fashion like some of the currencies will, like the yen for example. They tend to back and fill before their ultimate moves manifest themselves. They also spend a lot of time in trading ranges, sometimes huge trading ranges, but they are not the kind of markets that "take off" like some of the other ones.

The second thing is that they are amazingly seasonal. And I'll outline several approaches that you can use to profit of those tendencies.

Penn: Interesting! Let me ask you this. What is it that a trader like yourself gets out of presenting at events like TradingMarkets 2008?

Collins: I get inspired to look at a lot of different areas from people that I hear talking. My love of the markets extends to people's opinions, people's experiences.

Some of the books I've written haven't been about systems per se, but about people's experiences with the markets. So that's basically what I take out of it. New sources of inspiration, new fields to plough.

Penn: By way of wrapping up, let me ask this last question. More than 21 speakers in 3 days. How can traders who come to TradingMarkets 2008 avoid being overwhelmed by all of the good trading information that's going to be available?

Collins: It would help if you have an idea going in of what facets of the market interest you, what your trading time horizon is going to be, whether you are sold on the idea of being a mechanical trader, or whether you think you are one of the minority that can gleam something spontaneously out of the markets. Maybe that's a bad example because I'm very pessimistic about that one. Everybody thinks they can, everybody hopes they can, but almost nobody can ...

You're going to have to face the fact that throughout your trading journey so much of what you're going to be doing is weeding and discounting what you hear, what you think you know. So you've got to just start broad - that's how I approached systems development and trading. Start broad and narrow in. Which field do you like better than the other? Try to get more information on that and just get narrower and narrower in your focus.

Penn: Sounds like good advice. Is there anything else you'd like to let our readers know about your presentation at TradingMarkets 2008 this November?

Collins: (The systems I'll show) are going to be actual systems that they can use. There's not going to have to be any tweaking they'll have to do beyond them. That's something I always appreciated (at these conferences) when I was an attendee.

Penn: Excellent. Thank you again for your time and I look forward to seeing you at TradingMarkets 2008.

Collins: Thank you. You're welcome.