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Adam Collins Movement CapitalAdam Collins is the founder of Movement Capital, an investment management and financial planning firm in Mississippi. In addition to his main business, Adam offers a number of online resources for traders. His websites make it easy to visualize trader positioning, historical seasonality and a variety of indicators relevant to the S&P 500. Follow Adam on Twitter at @movement_cap

– Brian Mehta, CMO

What advice would you share with someone starting in trading today?

Adam: Start small, embrace the journey and identify your specialty. Ryan Holiday has a great book called The Obstacle Is The Way. Basically, you have to enjoy the struggle. Don’t think, “If I read these 50 books, then I’ll succeed.” Evolving and growing as a trader never stops. Don’t fall down the trap of thinking you have to pay thousands of dollars to learn how to trade a certain way.

Do experiment with different styles to see what you have an affinity for. Longer term, shorter term, spreading, individual equities, futures, etc. You’ll likely “click” with one style over others. Once you identify that style, solely focus on it for a while. Don’t waste time reading UK economic forecasts if you’re trying to scalp Treasuries.

Also, don’t think you have to trade like everybody else. Tons of people solely focus on equity futures and maybe gold/WTI. The smartest people in the world are trading those markets, and the likelihood of developing an edge as an individual trader in them is low. Explore less common markets. It’s not sexy, but you need to trade for your P&L, not your ego.

Did you have any mentors when you began trading, and can you tell us about them?

Adam: Yeah. I took a year off from college and worked for a small fund. The boss was a talented programmer and was the first person that showed me how systematic models worked. It was a great experience because it showed me just how smart other market participants were.

He looked at me and said, “Make sense of the CoT report.” That led to my first website. It was a great project, exposing me to all the core steps I still follow when creating models. Automating data retrieval, formatting and cleaning data, and then visualizing the most actionable info.

FinTwit has also been a great resource. I frequently talk with a small group of people who are much smarter than me. It’s awesome because I never would have naturally been exposed to them.

You frequently post about trader positioning. How can traders use this information to make better decisions?

Adam: First, it’s important to be aware of the limitations in CoT data. Commodity futures are the primary market for commodities, but 10-year bond and S&P futures are a drop in the bucket compared to the cash markets. So I always give more weight to commodity positioning data.

Second, positioning data needs context. Knowing that speculators are net short 50,000 contracts of corn futures doesn’t tell me anything. I need to know if that amount is high or low relative to the past. I personally use a multi-year percentile to give the net positioning numbers context. Extreme readings in this percentile tell me if a category of traders has a historically extreme position on.

Third, positioning never needs to be the sole reason you execute a trade. You have to layer multiple things together. Positioning, technicals, sentiment, fundamentals, seasonality, optimal trade structure, etc. Positioning is just one piece of the puzzle.

Fourth, you need to understand extreme positioning data can remain extreme. For example, right now, traders are extremely long EUR/USD futures. If you’re a trend follower and long, you have zero reason to exit the trade as long as EUR/USD keeps ripping higher. But, if technicals start to diverge from positioning, you sometimes get a “fire in the theater” situation. Everybody rushes for the exit at the same time.

What part of trading do you think isn’t talked about enough?

Adam: The mental aspect. It’s one thing to design and implement a model, it’s another thing to continue following that model when it’s in a multi-month drawdown.

Being emotionally balanced is also crucial. If you have a crappy diet, don’t exercise or have unresolved personal issues, you’re not going to do anything well, let alone trade well. Get your life in order first so that you’ve got a strong foundation to succeed in trading. You’ll feel better and be able to perform at a higher level.

The analysis you provide seems to have really caught on with traders. Where do you take this project next?

Adam: More websites. I currently cover positioning, seasonality and a bunch of S&P indicators. All for free. I’ll be rolling out five more resources this year. The sites fall into two categories: (1) dashboards that make it easy to visualize a certain type of data and (2) example models.

None of this info will be new to traders with a Bloomberg, but I’m trying to address a void. There are a lot of crappy paid services for retail traders. Heavy on noise, low on signal. I’m trying to fix that.