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For Part 1 of this interview between our VP, Customer Success Kara Grygotis and Linda Raschke, see Breaking Through: Linda Raschke, Part 1.

Kara: Is there any particular advice you’d give to a woman who’s looking for a career in trading or in futures?

Linda: We need to eliminate the word “career” for several reasons. It is true, if you want to trade and be successful, you need to do it full time, 100%, and eliminate all other distractions. It has to be the number-one priority in your life in all regards. But with that said, trading futures or stocks, or technical analysis, can also be your hobby. It doesn’t mean that you have to make a living doing it; you can certainly enjoy the markets. I see a lot of people study and learn and enjoy getting the essence of the game even though they may not be able to devote all their time to it. Once you take away that pressure of saying it has to be a career, you’re either going to love it or you’re going to hate it. You’re likely going to enjoy it if you like games and the mathematical appeal of it. Or if you can tolerate understanding that there’s losses and get the statistical essence of, “Look, I only have to be right 50% of the time. I just need to have winners bigger than the losers.” For some people, that kind of thinking won’t work—they’ll always have a problem with it. Because you can’t put the markets in a black box and peg it to an algorithmic, algebraic equation. It doesn’t work that way. The thing to keep in mind is it’s a bottom-line business. Nobody really cares if you’re female or male. They’ll care if you can contribute something to the bottom line, either by trading and managing money or being part of the team.

I think that the biggest barrier to entry for anybody is getting initial capital. And for that, I think the most common avenue has been friends and family. I’ve also seen a lot of people who sell their businesses when they’re in their 40s and have some trading capital, and they decide to see if they can make a go of it.

Kara: What have you enjoyed most about your career?

Linda: I like the fact that I learn something new every day. I feel like I am getting a life PhD. Every day, there’s a new product, a new market, a new twist. I like that constant change.

Kara: What’s up next for you?

Linda: What’s up next for me? I have a hard time pulling myself away from the screens. I actually closed down my hedge funds and thought I was going to retire two or three years ago. I shut down everything. But I still seem to be trading full time. For ten years, I’ve wanted to write a book, and I’ve not written one page. Maybe I just need to get over that hump and take a little bit of time off. I have about six books I’d love to write, but I’m not an author, so it’s really hard for me to write.

Kara: Talk to me a little bit about how you did your initial research and modeling.

Linda: When I first started trading, my background was in math—I worked like a mathematician, and I would log numbers every day. That was part of the ritual and routine—keeping track of the market statistics. We didn’t have computers then, and everything was done by hand. When I first started doing my initial modeling, on some ideas I had, it was by hand. Writing down all the prices for two years back, seeing what the standard deviation was and looking for relationships. Deductive logic, if you will.

In 1992 and ’93, I had the benefit of a partnership with Steve Moore from Moore Research Center. That was wonderful because he had a programmer who could program all my ideas. It would take a couple days to get the runs, and it would be a lot of paper that would get faxed over to me when we finally had fax machines. That was really beneficial—having somebody there to do my modeling and research for me. I have to say, though, my best ideas ended up coming from doing all the research by hand.

Kara: I was going to ask you about that.

Linda: Nowadays, when somebody wants to model something, you run a bucket of data, and you lose the little nuances in that data while it’s generating. I mean, you can throw out biggest wins and biggest losers, look at standard deviation and all kinds of statistics. But you’re missing the aberrations, which can add a little bit of a skew. You’re also missing the chance to study the times that it doesn’t work, which are very insightful. I learned a lot just by doing it by hand instead of, let’s say, randomly lumping ten years’ worth of data together for a trend-following system. That’s just a very generic example. What happens is that the chop and the noise environments are going to be sustainable for a long period of time. You’ll see the trends maybe only happen 15% of the time, so what you’re really trying to model is, “What does it look like when those trends start?” That would be a better way to do it. I feel that people who do the modeling nowadays are much more sophisticated. You can use artificial intelligence to put things in a state.

That was another lesson that I learned. I actually started doing neural networks in the early ‘90s because I had a good friend who had a friend who worked for NASA and had all the resources. We developed some neural networks, and through that, I learned that type of artificial intelligence is really what’s known as a pattern classifier, which helps you identify patterns. It’s not going to give you an output that’s a forecasting type of answer. It’s going to be part of a larger equation. At that time, I came to the conclusion that linear modeling was fine. The things that worked best for me were trying to keep it down to just two variables. That would make sure that it would be durable and robust. But on the other hand, it’s not going to be a mechanical system. I never really traded 100% mechanically, ever.

Kara: Who do you look up to and why? People you know or historical figures.

Linda: Well, I can say some people whose research I respect. Perry Kaufman had a big influence on me. We did some traveling together for Dow Jones Telerate—a series of lectures over in Singapore and Australia. At the time, I think Perry’s work was some of the finest that I had seen. He was the one who espoused this tendency towards an increase in noise and of efficiency of trends.

I can’t really say that there’s one individual trader that influenced me. I tried to keep myself distanced from most traders. I didn’t really know what happened much in the managed-money industry because I was pretty isolated. I had built my own office, and I worked out of there. We didn’t have the internet like we do now.

I’ll tell you a good little story. I had joined the MTA early on just because I wanted some more networking with peers, and Hank Pruden gave a lecture at one of their annual conferences out in California that made a big impression on me. Actually, I think the lecture was stolen from Wycoff’s work. The topic was how to be your own best client—basically, to do your own work in a room with no doors and no windows, the gist being to eliminate outside influences. Eliminate distractions, eliminate other people’s opinions. You have to be self-sufficient and have your own ideas and your own systems and your own modeling in order to have longevity in this business. That’s why you see the people that have made it and are successful at the top. Pretty much all of them have some uniqueness to their style or their strategies that they have developed.

Kara: After that talk, was that a pivotal moment? Where you took that to heart and practiced trusting yourself and—

Linda: No, it’s like all the things I’ve learned or heard of: I always remember it ten years later. Now I understand what he’s talking about, now that we have the internet and TVs. Yes, this is really important. And I could see where it was pulling other people off track. I’m not a particularly social person when it comes to my work and trading environment. I tend to prefer to crawl under a rock and hide. It wasn’t until later that I could see a lot of people getting pulled in different directions. Especially nowadays with tweets and blogs. You have to get rid of all that.

Kara: Tell me a little about one of the toughest calls you’ve had to make with a trade.

Linda: Should I quit now? Every year. Should I just pack it in now? Seriously, I just have to emphasize that I’ve been on the wrong side of every outlier there could be. I bought hogs and cows and significant positions in agriculture right before the swine flu—the day before, practically. I’m walking through the airport on Sunday night, trying to catch a flight back home after seeing my daughter at University of Miami, and there’s a newspaper with a pig and a hypodermic needle in its mouth, and I’m like, “Oh gosh, of course everything opens limit down.” That was one of them. There’s just been so many bad trades.

I have to say the best trade in the worldor the best feeling in the worldis making back a loss. Because if you’ve done it once, you know you can do it again. And that persistency is going to keep you in the business. When I had my hedge fund and I was a CTA, I had one of the best peak-to-valley drawdown recovery times. Every trader has losing months, losing years, bad periods, whatever. I think the sign of a good trader is how quickly you can get back to making new equity highs. And if you’ve done it once, you can do it again.

Kara: Does your daughter have any interest in this space?

Linda: It’s funny because she went to school to become an opera singer. Vocal performance. She got her Master’s at Indiana University, and I was on this wonderful moral goodness feeling, like, “Go out there and make everybody’s life nice. Make them forget about the markets and the financial data and the world, and take them out of their element for two hours and sing to them.” Right? And then she comes to Chicago. She’s like, “Mommy, I think I want to get into the financial markets.” And I’m like, “No you don’t, honey, no you don’t.” So she’s actually a wealth manager with UBS now. A certified financial planner and so forth, and she loves it. She’ll never be a trader, but she’s one of those people who can hold people’s hands when they need it in their financial life.

Kara: Sing to them when needed.

Linda: Yeah, there you go. I told her she should start a blog called, “My Mother: A Case Study.” I’m one of those people whose money’s always been at risk in the market, right? People don’t understand—I don’t want to invest. I want to keep it all in cash because I know it’s there, and there’s no risk being in cash. I take enough risk during the day. And she’s like, “Mommy, you’re not earning any return.” And I’m like, “I know that, that’s on purpose!” Earning a good return involves risk. I’m giving her some money to put in CDs or something harmless.

Kara: Maybe she can write the book.

Linda: There we go.

Kara: Are there any particular habits or rituals that you think have contributed to your success?

Linda: Aside from cooking my eggs in the morning? I have to say, you are so right—it does take routine and rituals in this business to get some type of consistency. I don’t have anything too eccentric or quirky that I do. I used to be a little bit more disciplined about certain rituals that I don’t do any more, such as logging my numbers at the end of every day, and preparing endless strategies before I went to the gym or did something to get my mind off of things. What people don’t realize is that when you are running a hedge fund and trading some significant sums, it’s a 70-hour, 80-hour-a-week business. Weekends are used for research, studying, strategizing and developing things. In the evening, we’re dealing with the financial markets over in Asia. It goes on and on, and it doesn’t shut down. At this point in my life, I’m trying to reclaim some of my life again, and I have stepped back a little bit of the intensity of the trading that I used to do. I wouldn’t have been able to do the type of intensity of trading that I used to do without those rituals and routines. I would say that in the very beginning, it was extremely important. It’s a lifestyle, is what it is. All my friends were in the business. My ex was in the business. My current husband is in the business. It’s really a very consuming lifestyle. And with that, I have to say, “Eat healthy and exercise. It’s an endurance game.”

Thank you to Linda—and Margie Teller and Brynne Kelly—for spending some time with us and sharing their trading stories. We hope you have enjoyed this series.