DailyForex.com's Huzefa Hamid had the pleasure of interviewing David Katz, a.k.a. TradingFibz. David originally came from a background in teaching and medical sciences. He educated himself in trading, built his own strategy and became a profitable futures trader. Today, in addition to teaching in the medical sciences in Arizona, he runs a trading room for people of all levels to teach them his strategy.
David, thank you for speaking with me today. Let's begin. Tell me a little bit about your background. What was your journey into the markets? What were you doing before you discovered the markets?
The first education I need to be thankful for is to my parents for introducing me to the concept of stocks and bonds from an early age. Every kid wanted a Tonka truck; for me, it was the occasional bond or stock in companies like DeBeers that made me first interested in the market. I grew up in Chicago where I went to school, University of Illinois, for a degree in education. I became a teacher, an instructor, but I also had a passion for the sciences. I was always interested in numbers, business, from the time of high school but education seemed to be my path. I progressed through the years till about I'd say five years ago where I had an opportunity to organize a stock market competition in an economics class that I was teaching here in Arizona to middle school and high school students. Over the course of a year and a half or so, we won many of those simulations. I then spent three years with the Arizona Counsel of Economic Education; I was the state coordinator for the "?international simulation" for stockmarketgame.org. I did workshops one after the other here in Arizona. Let me regress a little bit: some years after college, I decided to return to medical school. I felt a lot of that education I received in med school – the analysis, the critical thinking, and the problem solving – gave me that foundation to look at the markets the way I do today. But prior to all of that stock market simulation stuff, about ten years ago I started with commodities and invested on the probability of pullbacks in the market, for example, what was the likelihood of cotton or soy beans to go up the next day after a pullback in price action the day prior. Alongside that, I was reading the Investor's Business Daily which started a foundation in my trading. Shortly afterwards, I met two individuals who introduced me to free local workshops that met once a month on a Tuesday night in Arizona with about 50-60 people showing up. That's when I got exposed to Fibonacci patterns. I ended up taking a couple of classes being offered on Fibonacci and I implemented what I learned with my students and that led us to those wins in stockmarketgame.org.
I used to cut out a lot of articles from money magazines only to realize that it was month old news and I had to be current with what's going on and that's probably why I got interested in day trading. With the Fibonacci analysis and so much of the classes and workshops I'd attended and even taught, it all started a platform for me to feel comfortable speaking about trading more publicly. My interest was always to promote my knowledge and offer my education. Through the coordinator of stockmarketgame.org I had the opportunity to attend a workshop at the New York Stock Exchange Euroenext and from that moment forward I just knew my passion was to become a day trader. I opened up an account with thinkorswim about five years ago. My background in education said that I need to share what I know with many traders. I started using Twitter. I started using StockTwits. I opened up a YouTube channel. I started a website and I just started sharing what I knew. And, yes, I went on a quest to find the holy grail of trading but the truth was that I had a good foundation in Fibonacci and when I started picking up a couple of things I started to come out with my own trading strategy and eventually opened up my own trading room community. For about three years it was free of charge and now I'm with Marketfy which brought everything together.
[HH] With the move to always be current and day trading, did that make you move towards Technical Analysis over Fundamentals?
[DK] To me, both are just as equal and as important. Technical Analysis became very important to me because if I am going to be an intraday trader, fundamentals I found did not have much basis. I consider myself to be a "?crumb" trader; I'm not moving big lots. For me, it's running off the tails of the big players and for whatever fundamental reasons they believe the price action should move, well I'm just going to follow on that. I do use fundamentals or what you can call value based trading in my long-term investments and I combine that with my technical analysis. When it comes to my day trading, to me it's about technical entries and I leave it as simple as possible. That's where I've found the Fibonacci to really line up including the use of what I've found to be the bread and butter of my trading, the Moving Averages.
[HH] Was there a point where you transitioned from knowing you can make a living from this to being an actual "?paying-your-bills-trader"?
[DK] I do still teach in the classroom but I do that a lot around my trading hours. I like to have physical appearances in front of my students (I'm a trained podiatrist that teaches anatomy and runs a trading room!). However, the point at which I realized that trading can be profitable and can be sustainable was when I had a daily goal of a certain amount (I know some traders will say you shouldn't have a daily goal but a lot of times that daily goal has saved me from getting into any other trades during the day and give it back to the market). I do this a lot with my new traders: I say, if you can make $200 a day, multiply that by five, multiply that by the weeks in the year, and that's either a nice supplemental or that's a nice foundation to say that you can make a living at this and not give money back to the market. The moment I realized that this could be something more than just part-time, I took more time to sit down at nights, learn more about it so I could feel that I had more confidence when the markets opened the next morning.
[HH] When you set your daily goal, did you also have a maximum drawdown goal?
[DK] If your goal is $200 per day, you should as a golden rule shut your trading off if you're down by $500 in that day or if you've had two consecutive losses that day (even if you're account is up by that point). Otherwise that will lead to revenge trading.
[HH] Could you describe how you use Fibonacci and if it is different from the standard Fib retracements or extensions you most people using today.
[DK] I was trained mathematically in the natural order of numbers and that's how I came to appreciate how Fibonacci patterns work in the market. For me, Fibonacci makes total sense when you look at what the series means mathematically outside of trading. When I started applying that to the charts, I found that Fibonacci retracements was the first foundation to understand its application. Now, how do I use it? If I see price action moving in a certain direction and it crosses a moving average and then it pulls back, my first question is how much did it pull back. Did it pull back one of three numbers: 38%, 50% or 61.8%? As long as it hits one of those numbers, I will throw up a Fibonacci extension. I have some very clear rules about the three points that I use to place the Fibonacci extension. Based on my experience, there is an 85% chance that price action will move towards what we call Target 1. While Fibonacci can work very well on a daily chart, I've found that they can work just as well on an intraday chart.
[HH] What are your Fibonacci extension levels?
[DK] 50%, 100%, 127% and then 161.8% and 261.8%.
[HH] With the objective rules for your Fibonacci points, does that mean two people in your trading room should independently of each other arrive at the same Fibonacci points?
[DK] Absolutely.
[HH] Can you talk a little bit about the pivot points you use.
[DK] The most important lines that should be added to a person's chart are the daily gap which is the settlement close of the cash from the day prior and the daily pivot which is the prior day's High + Low + Close all divided by 3. That zone, or gap pivot zone, sets up an area which I can show you on numerous days can be very choppy unless price moves outside of there. It should be avoided. There's another line that I use called the average move up and the average move down. I've been using that for about a year. This has become unique to my room where we see price action for 3.3 days out of the week hit that line, or 79% of the time. That line comes from taking the difference between the open and the high and then the open and the low, and then you take the average of those differences over the course of time and you get those numbers. For example, that line is 75 ticks upside and 91 ticks downside for the Russell index futures. It's an amazing line or target when the trend is in play. That's not to say that's the official line for the day and nothing else counts.
[HH] Did you discover that line yourself?
[DK] I won't lay claim that I have not have seen it anywhere because I really don't remember but I can tell you that I built the spreadsheet for it. I did not take that from anybody. I remember starting to plot it but I can't even tell you where I got it from anymore. I might have adapted it from another source. It's nothing too proprietary, I share with anybody who wants to know. As long as someone has the data, they can easily come up with the lines. Besides those lines, I put up the cam lines, the daily support & resistance lines. I don't use them as targets. I just want to see where the majority of traders are looking to say where price might bounce. If I'm in a trade, I just manage it with a stop anyways and those lines do not matter. I just call it the macro view and I like to see where the big picture is always.
[HH] Do those lines count towards your entry rules?
[DK] For the entry, the most important lines are the daily gap and pivot, I would not enter a trade inside that zone, and I have the 25 minute open range (a lot of people use the 5 minute open range) because momentum tends to move outside of that range. If price doesn't move outside of that range, I will adapt my trading style differently for the day.
[HH] Why do you use Heikin Ashi bars over regular bars?
[DK] They're a trend bar and they remove the emotion of trading and. A Heikin Ashi bar shows you that price action is remaining in a trend. It removes the emotion of the regular candlesticks that will tend to vacillate back and forth and will scream at you, Oh My God, this trade is going south on me! In the meanwhile, the Heikin Ashi bar is still showing you to be in trend and it will keep you in trend. I use the Heikin Ashi once I'm in a trade to stay in a trade. Just to reiterate, I use the Heikin Ashi bars not for price action, but for trend action. I still use a regular candlestick for my entry. But Heikin Ashi bars are to remain in the trend once the trade is in.
[HH] How many different types of setups do you have?
[DK] I have two key types of setups. The first one is for a chop action day where price action is moving sideways. And if I have a trending trade that is setup number 2.
[HH] But you often don't know if the day is going to be a sideways day or a trending day. How do you take that into account?
[DK] I can usually tell if it's a trending day or chop action day within the first thirty minutes.
[HH] Is there a ruleset for you to know that?
[DK] No, it's a visual of price action.
[HH] Once you've made the call that it's, for example, a chop day, would you only then use Setup #1?
[DK] That's correct. Setup #1 is a get-in and get-out type of a trade.
[HH] What kind of performance for your strategy do you try to hit?
[DK] As a daily goal for a starting trader, my specialty being trading the future indices, you get in and get out and make your $100 or $200 for the day. Over time, of course, you can increase the number of contracts you trade and increase your profits. I'm a very patient and disciplined trader so I don't take every single trade. On a typical day, there are two or three setups that work in my favour (and being a trend trader, I'd rather ride the length of that trend of the price action). I always stick to my trading plan. When I waiver, I lose. The entry is very precise and the exit is an automatic setup. I always trade with a stop. It's very rare though that I finish the day in the red. That's not how it all started! Over time I've become a more profitable trader.
[HH] Where do you trade? What are the trading hours you keep?
[DK] I have two monitors (nothing like some of the pictures you see which have four or eight monitors up!). I have a laptop also to make three screens in total. My hours are from the US open (7:30am ET) to the US close (4pm ET). I trade from home. There's no extravagant setup and I don't need to rent space for any of this. I have an audio microphone that I run through my chatroom as well as through my screen share application so people are able to hear me from two different sources. I tend to open up the room anywhere from 15 minutes to an hour before the market open but trading doesn't take place until at least the US volume is in. I tend to sit out the first thirty minutes of trading (you could say that's in addition to the strategy). There are conditions that I will trade in the first thirty minutes but I find the first thirty minutes to be a very volatile time so I tend to remain out of that especially with economic data coming out. I got tired of trading outside of US trading hours and tired of trading in the first thirty minutes where I lost most of my money. So my trading hours are generally from 8am ET to 4pm ET, and just like a regular workday – I'm in here all day for all the traders.
[HH] Let's say a member is trying out your room for the first time, what does their learning curve typically look like (assuming they know how to use their trading platform and execute trades)?
[DK] I'd say anywhere from three days to maybe a week. I also offer one-on-one mentoring to help. And I offer my template for the thinkorswim platform so they just download that and everything will be set up.
[HH] Three days isn't bad at all. That means by the following week, you should find people finding their own trades and feeding that back to you?
[DK] Yes. Plus I always encourage new traders not to trade live until they're making sufficient monetary reward from their simulated trades.
[HH] Tell us about the service you provide?
[DK] I give the transparency of a live trading room. Come on in, let's talk. I'll show you my live trading dome. That to me stands out more than anything I can ever write.
[HH] Have you looked at your strategy in the context of spot Forex?
[DK] I had a webinar recently and right after the webinar I had that question. So I tweeted the EUR/USD chart with a beautiful setup. There was exactly no difference. I used a 10 tick range chart and I found it didn't matter what Forex pairs we looked at – there were setups all around. If you're trading Forex, this strategy works 100% exactly the same.
[HH] Thank you David!