Interview Date: November, 2015
Interviewed by John F. Gallwas, Founder of Striker Securities, Inc.
Donald Pendergast Jr: As I became interested in silver investing in 1979, I would keep a journal in which I would write about what I believed to be happening with the emerging price breakout; my knowledge of how markets worked was extremely limited, but the more I watched price action, read financial publications and asked questions of others and began to write about what I was learning, what seemed like utter chaos began to become a bit more predictable and actionable. As my understanding of markets became much more advanced, I applied the same principles of ‘watch, question, write’ as I penned system development and technical analysis articles starting in 2008, and my ability to develop profitable systems just kept improving. Another huge leap forward in my system development career came about as a result of my having the privilege of writing nearly a dozen trading/analysis software review articles for Technical Analysis of Stocks and Commodities magazine, starting in 2010. Normally I would have access to a fully-operational demo version of such software for 3 to 4 weeks and it allowed me to explore countless types of studies, indicators and pre-installed trading systems. Since I am a non-stop tinkerer and a statistics addict, working with all of these tools helped me get a very good grasp on what generally works – and what doesn’t – when trading the financial markets.
John Gallwas: With all your experience in writing about technical analysis, what are the pros and cons of using technical indicators for trading the futures markets?
Donald Pendergast Jr: Context is everything; for example, a simple channel breakout system will make money as a major trend reversal asserts itself and it will also make money on continuation moves within the recently established trend, but as the trend matures taking new channel breakouts becomes progressively more risky – more akin to gambling. A wise trader knows when to turn a mechanical system OFF at that point and to rely on other discretionary methods such as time cycles, volume profile and key support/resistance areas instead. Having some practical Elliott Wave and Fibonacci knowledge can also be invaluable at such times. New traders naively believe that there is a ‘magic’ oscillator or trading system that can simply be turned on to deliver daily profits, but when they use such indicators or systems in the wrong context (such as relying on oscillators in strongly trending, runaway markets or trying to use a channel breakout system in the face of a strong support/resistance zone) they generally give all of their hard-won profits back and sometimes a whole lot more.
John Gallwas: Tell us about your ES Bueno swing trading system and how you expect it to improve long-term performance.
Donald Pendergast Jr: ES Bueno seeks to capture strong swing moves (long or short) during the daily CME e-mini S&P 500 session, almost always carrying positions overnight. I designed it to stay out of overly choppy, sideways intraday periods as much as is technically/humanly feasible so that the losses during such periods are modest in relation to the potential profits that can be attained during strong multi-day swing moves. The system can be traded with one contract without issue, but for those who can trade multiple contracts the system can scale out on half the position to better protect open gains.
John Gallwas: What are your expectations for the ES Bueno system drawdown as well as profitability?
Donald Pendergast Jr: Closed trade system draw downs at times will be around 15-25% but because the system rarely loses on more than three trades in a row (and will sometimes win 3-4 times in a row) I expect ES Bueno to be a profitable, long-term survivor in the futures trading battlefield because it relies on proven time cycle, support/resistance and momentum dynamics that have been present in all freely traded commodities/indexes for as long as modern markets have existed (100-plus years or so) and because I also know when to override its signals and rely on my time cycle, support/resistance, money flow, Fibonacci/Elliott Wave and volume profile studies instead; this might mean skipping a trade signal completely or it might mean taking a signal but booking profits more quickly as a key multicycle high/low area is reached. Essentially, this combination of mechanical system + developer experience means that ES Bueno offers many of the benefits of both an automated system and a discretionary system that should work well today, tomorrow and for as long as the markets exist in their current form, all else being equal, and to do so profitably and with modest draw down.
John Gallwas: Do you have anything you can share with us in the “What’s New” section?
Donald Pendergast Jr: I continue to apply more Elliott Wave, Fibonacci and Time/Price cycle techniques in my market and system development work and daily utilize three highly specialized trading/analysis platforms that I also used to develop ES Bueno as well as my highly profitable VXX trading system for my Trendzetterz.com newsletter subscribers. I also plan to introduce a emini S&P 500 option trading system that will take full advantage of my time/price cycle and support resistance studies; this system will only be in the market approximately one-third of the time of a typical swing trading system and might be well-suited for traders who feel more comfortable trading volatility/time decay rather than price direction.