Online Trading Education

Interview with Tom Busby by Traders Journal

This following interview of DTI’s Tom Busby was done in July of 2007.

Part I : Who is Tom Busby ?
TJ : Please provide a background of yourself ? What were you doing before you become a trader ? When and how did you get into trading ?

I graduated from UGA.  Received a law degree from OCU.  I have been in the stock market business for over 25 years.  Member of Chicago Mercantile Exchange and CBOT and a professional trader.
I was in the US Air Force before I became a trader.  I made my first investment while overseas and have been hooked on investing ever since.

I am one of the pioneers in the trading industry as a world-recognized educator who emerged as one of the industries’s first trading professionals to TRADE LIVE in front of a crowd of his clients and peers at various venues around the country.  I have served as an educator in weekly online webinars for the Chicago Mercantile Exchange, where he has been a member since 2002.  I am also a Member of the Chicago Board of Trade, who has also called on Busby to trade live in CBOT sponsored events at some of the largest trade shows in the industry.

I take a complex subject, the global markets, and put it into an easy-to-understand language for all levels of traders and investors. As the CEO of DTI, a virtual trader’s paradise of information and education, I spend my days teaching my students and trading my own private account in futures, options and equities. SFO Magazine has called Busby’s school DTI “One of the Top 10 Trading Schools in the Country”.

My lifelong career in the markets started as a money manager with some of the world’s largest wire houses. I then moved into the private sector and started training others about the global markets.  With guest speaking spots on Bloomberg and CNBC, I am also the author of two best-selling books, “Winning the Day Trading Game” and “The Markets Never Sleep”. I host a daily online live trading room where traders from all over the globe join me as I cover the daily action in markets like the Emini, the Dow and Dax futures, as well as my personal stock picks.

Part III  : On Trading ?

TJ :  What was it like when you first started trading ?
I was overwhelmed by the vast amounts of approaches to the markets and realized early on that I had to simplify the process, make it understandable, and improve as a trader. I have used every type of theory, method, and technical indicator that’s out there. The bottom line is there is no holy grail, no black box system that will tell you when to buy and when to sell.  I used to trade all day long and at the end of the day I would qualify it as a “good day” if I had a huge stack of order tickets on my desk. It took me many years to figure out that it wasn’t the NUMBER of times that I traded that made me a successful trader – but rather if I was on the right side of the market or not. Over years and years of trading I have learned that less is more – I believe that if you trade more than about 6 times per day you are overtrading.

TJ : How much capital did you start with ? How much capital is required to start trading for a living ?
My first account had $5,000 in it.  We typically recommend our students to open a futures account with $10,000 to get started.  We also recommend that they trade 1-3  contracts until they become profitable.  At that point, it is just a matter of time and increasing contracts to make more money.  The key is to make sure you enable yourself to stay around during the learning phase rather than blowing up your account.

TJ : What instruments do you trade now ?
I primarily trade the Emini S&P, Dow and the German Dax Futures. I trade the stock market but not with the frequency that I trade the futures.  My favorite commodities to trade are the mini-crude contract, gold and corn.

TJ : Do you specialize in any one of these instruments ?
I used to tell everyone that I was an S&P trader, but now I really try to focus on the DAX in the morning from 5:00-7:00am CT and then will switch to the SP and other mini contracts after 8:30am.

TJ : Do you decide what to trade based mainly on the time frame you want to trade ?
Absolutely. For example, the index I trade in the late evening is the S&P Emini, when I wake up I go to the Dax until about 7am CT, then once I get into my office I switch back to the Emini and start looking for opportunities in the stock market.  I turn my attention to the Dow contract at the 1:00pm CT time frame – that is when I find the best opportunity in that particular contract.

TJ : Do you use mainly classical chart setups or are these setups that you’ve devised on your own?
We really emphasize “reading the tape” as opposed to different types of chart setups.  I will look at charts on a 30 minute time period, but more than anything, I read the tape and watch the numbers. I do not look for patterns in the charts. I think the most important parts of the 30 minute bars are simply the Opening Price, the Closing Price, the High and the Low.

TJ : Does the amount time it takes to set up determine your trade length or your holding period ?
I typically let the market determine my holding period.  As long as the trade is paying me, I will stick with it.  I do use what I like to call the “Two minute rule” which is that if the trade is not going in my favor within the first two minutes, I start to look for an exit. I enter every trade with three things in mind: an entry, a profit target and a protective stop price.  I typically scale out of my trades when they start paying me so I can limit my risk and start adjusting my stop.

TJ : Could you tell us about your shorter term or day trading setups ?
I generally use the time of day to determine whether or not I enter a trade and when.  In the morning for instance I look to make a trade between 9:30 – 10:15am cst.  I then use key numbers of support, pivot and resistance and the tape to make the decision of being long, short, or out.  I go back to the market at 12:30pm and start looking for one of two things: higher or lower prices at 1:00pm. If the market moves lower between 12:30pm and 1:00pm then I will anticipate further selling into the afternoon.

TJ : Are you continuing to develop new trade setups ?
Always. For example, I have recently noticed a correlation with the percentage up/down movement in the Asian and European Markets overnight and have been able to transfer that knowledge into pinpointing specific stock trades for the U.S. early morning session. I am constantly observing the markets as they change to show me new ways to make money. The key here is that my method stays the same – I am still using Time of Day, Key Support and Resistance areas, and my indicators to help me decide whether to buy, sell or stay out.

TJ : When you are in a trade and looking to exit, are you looking at other markets for confirmation or non-confirmation ?
I am always looking at other markets, primarily the DAX and then the SP.  I have found over the years that the DAX is an excellent indicator for the US market.  This is especially true during times when news comes out. I also have a couple of indicators I use – the NYSE Tick indicator and an indicator I developed called the TTICK. They help me gauge the sentiment of the market.

TJ : With your exits, is there also a time element involved ?
I will take time into consideration and use the Two minute rule as I mentioned earlier.  I also will not hold positions going into important news announcements.  I NEVER HOLD a leveraged instrument overnight. For example in the Emini, if I am in and the market is about to close I will look to exit the position around 312pm CT – then wait until Globex opens at 330pm CT and decide if I want to get back in.  The risk of holding it during that time frame is too great.

TJ : You’ve been trading for some time. I think one of most difficult things traders are faced is dealing with emotion. How do you avoid falling into the type of trap?
Realize that regardless of how my day goes, at the end of the day look at it from the standpoint of, ‘I did my very best,’ and then I move on.  I have to hit what I call my “Reset” button so I can start the next day in the market with a fresh, positive outlook.  One of my favorite books, “Think and Grow Rich”, is all about having a plan and keeping “PMA”, a Positive Mental Attitude.

TJ : Do you still make the same mistakes that you made in the past after you have been trading so long ?
That’s a good question. I would say “yes”, there are times when I repeat the same mistakes that I made back as a young trader. There are days when I overtrade, there are days when I let emotion rule my decision process, those are mistakes from the past.  The rule here is to always be aware of why you are losing money and eliminate the behaviors that lead you to making those bad decisions. For example, if I have something that throws my day in a tailspin, maybe something in my personal life, maybe something in my business, this is a sign I need to hit the reset button. I will do several things to center myself before making a trade; if I am not right with myself then I will surely lose money.

TJ : How do you handle losing periods and slumps ?
There have been times when I couldn’t buy a winning trade.  And I am not talking about a trade or two in a row, I mean days in a row of loser after loser.  Many traders may take off a day, or two,  but not me. I come back every day and continue with my same strategy – time of day, key numbers, and the indicators that I use.  I know that I have a high accuracy rate and that what I have been doing works – so I continue with my same setups knowing that I will get back on the winning side.

TJ : What about times when a winner become a loser ?
With my money management strategy, I am always worried about the risk of the trade and keep that at the forefront until the risk of the trade is covered by market movement. I like to “finance” my trades by taking partial positions down as it goes in my favor. This helps me to lock in the winners so they do not have a chance to become losers. Within two minutes I can tell if my trade is going to make me any money.

TJ : Is it usually a case of the market not being ideal for your trading methodology ?
With any trading strategy the markets can look like a beautiful sure win, and then go against you very quickly. It could be a news driven change in the trend, it could just be the market itself.  I have been using this method for trading since 1992 and what I was doing then still works today.  That’s because my method includes tape reading, and what Jesse Livermore did over 100 years ago still works in today’s market.

TJ : Why do some traders have difficult time following a trading methodology or system ?
There are a lot of trading methods out there with high accuracy rates, mine included – it isn’t the method that has the flaw – it is the trader.  There are several characteristics you will find in any successful trader. Here are a few that I have seen in my students over the years: discipline, balance, consistency.  No matter how good a method is, it ultimately comes down to executing the trade within the guidelines of whatever strategy you are using.  The biggest fault I find in trader’s I know is indecision.  Think about it this way – you go into a restaurant and you look at the menu – within a couple of minutes you should be able to answer one simple question: Chicken, Fish or Steak.  That same concept is found in the market everyday: long, short or out?  So what I mean here is that if you are an indecisive person in your daily life this will surely translate into your trading.

TJ : How valuable is it for trader to be immersed in his/her own market research and devise his/her own trading setups ?
As a trader I have learned from the best – the market itself. But it was a tough and expensive road from then to now. I think that most any trader who learns from another successful trader will eventually go off on their own and trade different patterns and setups that they see in the market. That is the nature of the beast. I would caution those who are inexperienced in doing something like this though…if I could go back twenty years and learn from a tape reader who was making money in the market I would be pay any price to piggy back on that success while learning to trade on my own.

TJ : How do you define success in trading ?
Success is defined by treating trading like a business. I am continuously educating myself and always making changes to stay in the game.

TJ : Given a chance, what do you like to do differently in trading again ?
I was educated by the market itself – it was very costly.  I was highly exposed during the Crash of 1987 and that almost ruined me as a trader – it took many years to get profitable and regain my confidence after that day.  If I could do it all over I would find a successful trader that used tape reading as a primary method and be mentored by them as much as possible.

TJ :  What do you foresee for the markets in the next few years in term of trading opportunities?
The electronic market is only getting bigger. Trading online is so easily accessible nowadays. As people become thirsty for the knowledge that is out there, the volume will only continue to go up. The marketplace is now open for the global trader, a doctor, a car salesman, a truck driver, it doesn’t matter. Everyone with an internet connection and a trading account has the opportunity to trade. The fact that we can trade the German Dax index on the Eurex right here from DTI in Alabama is proof that this thing is limitless. My favorite markets to trade are the Emini, Dow and Dax on the futures side. I cant really say what opportunities may or may not arise in the next few years, but I believe that we will continue to see a rise in commodity prices in the grains, metals and energy.

Part III : On DTI

TJ :  How was DTI started  ?
After a friend of mine went to a school in the mid-90’s and paid five grand to learn about the S&P, he called me up to tell me about it. He said that it was a rip off and felt the guy who taught him  had probably never traded the S&P. He urged me to start a school – he said it would make me a better trader because I would have to be accountable to my students. IN 1996 I ran a 3 line ad in IBD offering training in the S&P Futures and my phones have been ringing ever since. I have made it my mission to educate individuals who want to manage all or a portion of their portfolio in the market, and help them avoid the risk that is associated with the market.

TJ : Tell me some of your key colleagues in DTI ?
Geof Smith is the head instructor at DTI.  He has a master’s degree in mechanical engineering and he was my first student when he came right out of college.  His dad was one of my clients back when I was a broker in Oklahoma City – he sent Geof and his brother down to my office to learn to trade when Geof was only 18 years older.  In 2000 I convinced him to move his family to Mobile and help me teach.
Ever since then he has been a cornerstone when it comes to helping students become consistent.

TJ : What does DTI focus on ?
DTI is an educational firm that focuses on the world markets.  We started out in the late 90’s focused on the S&P Futures and have grown it to training traders and investors about the global markets, including the Emini, Dow and NQ Mini, and the German Dax Futures. We teach traders to use the futures to manage their stock portfolios as well as how to trade the options market based off of significant situations in the equities.

TJ : What are the principal products of DTI?
Educational packages centered around managing your portfolio in a global economy, in the electronic market, on a daily basis. We also offer assistive software, newsletters, and an online chatroom where traders meet daily to discuss the current market situation.

TJ : How does DTI deal with its competitors?
We try to excel in customer service and help our clients to fully understand that the class and learning doesn’t simply stop upon completion, rather that is where it really begins, and we are there with you every step of the way. We believe that what sets us apart from the others is that we will trade our money in a live market in front of our students – the trades we talk about are trades we are actually making. Our headquarters is a placed that was built by a trader for traders – it truly is a state-of-the-art training facility designed with the trader in mind.

TJ : What are key success DTI has seen in the last two years?
We have been able to shorten the learning curve using the new technology available in the market place. The growth of online trading and the ability to broadcast our software and our trades in an online chatroom venue has helped our students gain success in a shorter amount of time than what we previously saw.

TJ : What are DTI’s long term objectives ?
Our long-term objective is to reach any and every person who is contemplating putting their money into the market. We will continue to grow the online courses to reach the maximum number of people while also hosting classes at our facility in Alabama.

TJ : Any plan of setting office in Asia’s ?
Yes, our long term plan calls for an office in Asia. We have the former CEO of a local public company who travels to some of the most densely populated countries in Asia helping us to gain a better understanding of the potential for reaching that market.

Part IV :  “Winning The Day Trading Game” and “The Markets Never Sleep”.

TJ :  How did your 1st book “ Winning The Day Trading Game ” book come about ?
The market crash in 1987 was a major life changing experience for me.  I lost my financial security, my emotional balance, and my self confidence.  Consequently, for a number of years, on the anniversary of the crash I remembered the events of that day and felt a great deal of sadness.  Then, a few years ago, I realized that the date had come and gone and I did not even remember it.  The date had passed quietly.  I had truly recovered, both financially and emotionally, from my 1987 debacle.  It dawned on me that it would be a good time to write about that catastrophic event and share the many lessons I had learned from it and after it.  I hope that by sharing my mistakes, others will be able to avoid my errors and improve their trading.

TJ : Where did you get the inspiration and ideas for the book ? What spur you to write it ?
I have been trading for more than 25 years.  In this business, that is a very long time.  Few traders experience such longevity.  I took a beating in 1987, but I was not beaten.  I lost a huge battle, but I did not lose the war because I did not give up on myself or our financial markets.  I survived and lived to trade successfully again.  Over the years I have learned a lot and much of it has been learned the hard way.  I wanted to share those experiences and my knowledge with others.  I wanted to teach them the lessons that I had learned so that they could avoid some of the pain that comes with learning to trade.

TJ : What is the central theme of the book ?
Do not quit.  If you have a dream to become a trader, hang in there and persevere.  You will need to master a number of skills and learn a great deal about the markets, but if you pay the price through hard work and untiring dedication to the task, your goal may be reached.

TJ : What make it stand apart from other book ?
I think the thing that makes the book different from other trading books is the real life stories that it contains.  I know a great deal about trading and the markets.  Just like a seasoned fisherman with stories to tell of the sea, I have scads of real life trading lessons that were learned through pain and hard work.  Over the years I have met many colorful traders and gone through bull and bear markets.  I share many of those experiences in the book.  It is personal and that is what separates it from the pack.

TJ : How could a reader get the most out of the book ?
I think the best approach is to read through the book and then use it for reference when needed.  It contains a great deal of information and the novice trader may not be able to absorb everything with one reading. One of the key elements I use as a trader is TIME OF DAY – there are many references to this in the book – these are important pages to mark!

TJ : Have you incorporated any ideas from the books into your trading and analysis ? Which aspects have you incorporated ? How has it improved your trading and analysis ?
The book is a compilation of my trading strategies.  Therefore, I use the ideas in the book every day.  I like to teach because, as every teacher knows, one learns from the experience.  Teaching makes me stick to the basics and follow my own rules.  That is also true for the book.  Writing it reinforced my strategies and kept me focused on the basics.

TJ : Your second book “The Markets Never Sleep” published in March 2007, are the contents considerably different from the 1st book ?
The second book is what I like to call “Part Two”.  If I am asked which book is better I always say they are equally good but if you haven’t read either of them you should start with “Winning the Day Trading Game”.

TJ : What motivated you to write your 2nd book ?
I read a lot. I mean a lot. And I believe there is a lot of good information about there in some of the trading books that are in circulation. In all of my reading though, I have never found a book out there that talks about the 24-hour clock that is the world’s market. One of the biggest concepts I am trying to drive home to traders is to learn that this market is global. So I decided that I could take that message to the public through this book…the title is the heart of the concept, the markets never sleep.

Part V : Recommendations

TJ : What books would you recommend to our readers ?
World’s Greatest Stock Trader – Richard Smitten
Think and Grow Rich  -Napoleon Hill
12 Habitudes of Highly Successful Traders  – Ruth Roosevelt
Trader’s Almanac – Yale and Jeffrey Hirsch

TJ : What advice would you give to someone who is thinking about trading for a living ?
Be sure your financial situation is such that you are able to play the game.  In addition to quality education, tools, data feed, analytical software, you will need to be able to cover losses incurred during the initial learning phase.
Assess your personal disposition and determine whether or not it is suitable for becoming a trader.  You must be able to make rational decisions in a down day, take risks, and put greed and arrogance aside.
You must understand the markets and be willing to invest the time needed to understand the markets.

TJ : What would a business plan for traders include ?
Trading is just like any other business. To be successful you have to plan by getting the right tools, a budget and a plan of attack (short term and long term).  I tell all of my traders to write out their plan before they do a thing.  This plan has to include the cost of trading, the time they want to devote to it, and an overall capital commitment. I tell them to only trade with money they can afford to lose. I make them ask themselves that if they lost all of the money in their trading account would it change their present lifestyle or their ability to do what they want to do? If they can’t answer that question with a “no” then they should not pursue a career in trading.  I actually have a student who give me his business plan for trading and agreed to let me share it with others.  It is a comprehensive plan that is really one of the best I have ever read.

TJ : Do you have any final comments you’d like to share ?
At then end of the day, you need to manage your money to always have cash to stay in the game.
As the famous trader Jesse Livermore said, cash is your inventory; always have cash on hand. The Market Pays the Educated.

For more information on trading or formulating a trading plan, please contact DTI Partners, Inc. at:

DTI Partners, Inc.
1555 University Blvd. S.
Mobile, AL 36609
800.745.7444
251.652.1555
www.dtitrader.com

Tom Busby is the founder, President and Chief Instructor of the Day Trading Institute in Mobile, Alabama. Tom has traded the S&P 500 every day (but six) since its inception in 1982, and is well known throughout the trading community. In 1996, he founded the Day Trading Institute to teach others his unique method of using the S&P 500 as the market leader for trading futures, options, equities and other securities. The Day Trading Institute teaches its students how to approach the market using technical analysis combined with risk management techniques. More information about Tom Busby and the educational and informational services of the Day Trading Institute may be obtained by calling toll-free 800.745.7444 or by email to info@dtitrader.com. Visit their web site at http://www.dtitrader.com.