Recorded on Friday 9th July this is a webcast between John Piper and myself David Linton. John is the editor of The Technical Trader, a fortnightly newsletter for serious traders as well as being a full time trader himself (specialsing in writing options). For more details click here. Also included is the transcript of the webcast which you can read below.

John: Hello. This is John Piper of The Technical Trader. Today I'm interviewing David Linton, the CEO of Updata PLC who I'm sure needs no introduction. David, it's nice to see you again after some time. I gather you're becoming involved with the t1ps organisation and starting a new website.
David: Yes.
John: Is that something you'd like to say a few words about before going onto -
David: Yes, TipsTracker.com. When Tom (Winnifrith) and I talked about adding value to the existing t1ps stable of products, we were very keen to do something that was different from anything else, so TipsTracker.com is that.
John: And how soon should this be with us now?
David: It's days away. A lot of the content's already populated and I'm actively following now over 300 tips and the essence of the site is that I track all the recent tips given by all of the websites in t1ps.com as well as tips that you'll see in the press generally in the UK, so it will be anything from the Independent, The Times, the Telegraph, the Investor's Chronicle, Shares magazine. Basically, I'm tracking all these tips so that we can firstly get a feel for how good these tips actually are and, second, give people timely selling recommendations and that really is what TipsTracker is all about, is when should you sell?
John: Okay. That's the key thing?
David: Yes. We know for a fact that investors are always very good at knowing when to buy and they've got the tips to follow, so they're quite good at buying things, but people are notoriously bad at selling. It's the selling bit that really needs the hard work. So I've decided to focus on the selling and to try and help people through the process of knowing, 'What should I do?' If a tip goes well, or if it's run really well and you just don't know when the time is to sell, that's what I'm tracking for people.
John: So you're saying that most tips just give you a buy and then just go away and you don't hear of them again?
David: Generally speaking, it's very difficult for people emotionally - in fact there's a lot of evidence to suggest that you should have someone doing the buying and someone doing the selling, almost, because you're emotionally involved in your buying decisions and some traders are obviously very good at knowing when to cut and when to sell but it's still always difficult when you're in a position, which I think is why the buying is always easier because you just move from a position of being out of the market into something and then, when it comes to selling, you're thinking, 'Am I selling at the right time?' and you almost punish yourself for that. So really what I've tried to do is, in an unemotional way, say, 'Yes, that's a sell,' and key to that is utilising optimised stop-losses which is an area that I've done a lot of work on in certainly the last 5 years, where we've honed how stop-losses can give the very best signals. And so I just literally run through hundreds of tips looking for sell signals.
John: Okay. So the site is more than just a tracking site, it also looks to have added value. So you're thinking that once someone's given a buy signal, say - let's say t1ps give a buy signal - that you will actually add a sales recommendation after that.
David: Yes, well, in fact what I do, literally because I'm only using technical analysis - pure technical analysis. I don't care about anything other than just coming to the chart cold and saying, 'How does this look?' and it's quite often the case that a buy recommendation will appear on the list for the week and I'll say - just in a phrase - I'll say, 'Not a good looking chart,' or 'Downtrend,' or whatever and so quite often I will disagree and sometimes I'll come up with an immediate sell, where someone has given a buy and I'll say, 'I'm sorry, that's a sell.' So there are times when I will conflict with the tipster but generally the tips will run for a little while and I'll track them. Some will run for a very long time and some will not run for very long at all.
John: Let's say that, again, t1ps give a tip. You're going to track it. T1ps is quite good, I think, about saying when you should sell. I'm not sure, actually, about that. Some people just give a tip and then you never hear from them again, perhaps. So how will you track that kind of situation.
David: I think also I will probably be a bit more eager than nearly anybody on the selling, because I'm absolutely focused on looking for that sell signal. That is the essence of it. I'm absolutely looking for that sell signal. That's all I really care about. So once I'm tracking it, I'm just looking for the sell.
John: So in fact you'll be tracking somebody else's buy together with your sell.
David: Yes, I'm going to be tracking somebody else's buy, watching out the whole time for the sell.
John: Okay.
David: And quite often I think tipsters will almost reluctantly accept that it's now no longer looking good and it's therefore a sell. I will hopefully beat them to that, 'Well ...' the acceptance that the tip has not worked out.
John: Okay. Well, the main meat of this interview, as I mentioned earlier, is basically your methodology and how you approach markets and how you developed your approach, really.
David: Absolutely. And in fact, for the TipsTracker site, I do actually do a monthly report on global markets with a very heavy UK focus and I then also do a sector overview once a month and I'll give a little bit of market commentary in my weekly summary of the tips, so I'll say, 'Here we are in the market now,' and then cover the movement in and out of the tips table so that if there's big news - 'Such and such is a sell,' or 'Such and such has been tipped and it looks good,' - I'll make a point of emphasising that but my time horizons tend to be I look at the markets every month. At the beginning of every month. It's a discipline where I sit down and I say, 'How does the market look this moth?' and I try and forget what I wrote last month and -
John: I find that very easy. I find very easy to forget what I wrote last week, in fact. Or even yesterday.
David: Well, it's always a good thing and you will always get picked up on the fact that you said this and now you're saying that. That's the beauty of technical analysis, in a way, that you get the opportunity to change your mind and I know that's a bit unsettling for people but that's the way the market is and something might look good one month and then not the next.
John: Yes. Very true. But you look at the charts more than just one day a month, or at the beginning of the month?
David: I'm tracking the charts the whole time and I'm looking for any major or critical moves but, generally speaking, major and critical moves in markets don't really occur that often. For example, at the moment, we're in the summer of 2004, the US markets are very range bound. It's not a tight range - it's quite a wide range - but we are in a range. The S&P is trading just between below 1,100 and can't get above 1,150 and we're in that range, stuck there and until we're out of that range, it's almost impossible to say which way the markets are going to go. My hunch is they're going to go up and that's not a very common hunch because most people are pretty bearish.
John: I'm fairly bearish. I think we're up for a shake-out but I'm not quite sure how deep it'll be.
David: Yes. Well, I think the key thing is I don't like to pick tops and bottoms. There's a great saying: top pickers and bottom pickers become cotton pickers. You're going to be right most of the time if you go for the trend. If you say which part of the trend you're in, you're going to be right most of the time. If you're trying to call the top and the bottom all the time, a lot of the time you're going to be wrong. We had an obvious high in 2000. We had a low set in in late 2002 on Nasdaq and early 2003 on general markets but we had a low around that time. Since then we've recovered from that low and I don't necessarily believe that halfway between those 2 extremes we're going to suddenly roll over and go back down to new lows again. If we see lower lows this year than we've already seen, then I'm happy to accept that hypothesis but until we see lower lows -
John: Unless it's proven.
David: - until we see lower lows, I don't really feel confident.
John: It is a difficult call, certainly. Things don't seem to be that bad, do they?
David: Well, I don't really care about the news, I'm just looking purely at the pattern and I think at the moment, for me, this is a continuation pattern before the next pick-up but if we see lower lows, then that bet is clearly off.
John: Okay. David, can we start with how you got involved in trading to start with?
David: Well, I was at college and needed more money, so ... That was in 1987 which was a great time to start to trading the market.
John: I started too in '87.
David: And I was early '87 and, like many traders, my first experience was fairly catastrophic. It was well before the crash and I was trading options just for the thrill of it and in fact became quite a sizeable options trader on a personal account.
John: Were you buying them or selling them?
David: I was buying. I never wrote.
John: You never wrote. Okay.
David: I didn't like the idea of unlimited liability and if you had the stock to cover it then you needed money, so it didn't suite me to play that game.
John: Okay.
David: I think the key thing is that I got to the summer of '87 and the markets were certainly turning well before the crash and I was starting to get worried about the chart - I couldn't read it any longer - and luckily I wasn't in the market in any shape or form. I kick myself that I didn't have put options but I also am quite relieved that I didn't have call options. I just wasn't in the market in the crash of '87. But I suppose I've always had this idea that the market can be cracked and I've spent a lot of my time working towards that goal and -
John: How are you doing?
David: Well, it's a massive research project which goes on for years and years and years and I've certainly learned a hell of a lot in the last few years about characteristics of markets and particularly with optimised stop-losses. That is really the area that I've chosen to specialise in. And I've come to the conclusion, in fact, it probably doesn't matter too much what you buy. That's the whole point of tipstracker.com  - it doesn't really matter too much which ones you take, providing you have an orderly selling regime, you'll probably do quite well. So -
John: There's some sense in that, certainly.
David: It's a money management process, almost, more -
John: So why not toss a coin and let the coin decide what you go into?
David: Well, obviously it helps if you can get a fair wind behind you and you get your stock picking quite good but the reality is that a lot of things will just not turn out as you expect. The only thing that you really have any control over in trading the market is your losses. It's the only variable that you can control in the process. If you don't lose a lot of money, you live to live another day. And it's the classic conundrum: if you lose 20% of your money, it takes 25% to make that money back again. If you lose 33%, it takes 50% to win it back again. So the bigger your losses, then the bigger the job you've got to make your capital back and most of the percentage variances that I'm dealing with with TipsTracker.com will be stop-losses ranging anywhere between 5% and 25% and it tends to be the small caps that produce those bigger 25% stop-losses.
John: Okay. So it's been, what, 17 years now since you started trading?
David: Well, it was '87 so it's actually quite a bit longer than that ... Yes, 17 years. I guess it is.
John: Did you actually form Updata because you needed that computerised expertise for what you wanted to do?
David: Yes. Basically, I needed a system and I think the big problem - it's hard to imagine now but in those days I used to sit in front of an Amstrad PCW and type the prices in and it was actually such a ... it was a progression from drawing charts by hand, because once you had the data you could actually manipulate charts quite quickly but the real hassle was actually getting the data into the charts.
John: Yes.
David: So in fact we developed a system where we could take the data off Teletext and get it into a database, hence Updata. It was all about getting data from a readily available source into my charts on a computer. And the more people saw this automated process, the more they said, 'Wow! That's quite great. Could I have it?' So that was the beginning of Updata. If I'd known then that it was going to be what it is now, I would have had no idea because the systems we have now are just infinitesimally more powerful than anything I had then.
John: Yes, it's changed a huge amount. The last 20 years have been incredible, really.
David: I track now 50 markets, all with ... there's a universe of 100,000 instruments available to me and we've got all sorts of timeframes and price histories going back 20-30 years for back testing. The amount of data is no longer the issue, it's almost developing the new tools all the time to be able to analyse it in a different way than anybody else.
John: Do you test lots of systems out?
David: Yes. Basically, in the last year we've developed a lot of optimisation modules which is basically where you can throw a range of variables at up to 30 indicators we test (we back test them) but it's better than back testing because we're actually setting ranges and saying, 'Don't just back test what I think, back test all these different scenarios between all these different criterias and you could have 5 different entries on the variables signal. You need to define an entry and an exit in order to be able to back test. What we're saying is you could have an infinite number, almost, of entry possibilities once you start change all these variables and giving them ranges and the system basically comes up with what's worked best and it transpires that reading a 21 day RSI rising through 30 is completely rubbish and won't make you money and in fact there's a lot of evidence to suggest that RSI levels have actually now raised up near 40. A lot of the text book things that we've been taught don't work so well anymore because the characteristics of the market has changed.
John: Yes, of course.
David: So I'm just running loads and loads of back tests and I think probably the biggest single lesson to have come out of that process of optimisations is that optimised stop-loss is still the best thing to get you out of most positions. So that's why I've tended to focus more and more on that.
John: So you've found that most systems just aren't very effective?
David: Nearly all systems will not work for very long. It's the classic problem. If you ring up a casino in Las Vegas and say, 'Hi, I'm coming down to Las Vegas,' they'll say, 'We'll pick you up at the airport and drive you to the hotel.' If you say, 'I've got this amazing system and I'm going to do so well,' they'll say, 'We'll send you 2 first class tickets,' because they just can't wait to have you there when you've got a system, because you're going to lose big eventually. And that's part of the problem - that systems are not very good at coping with the progression of loading with more and more capital and then suddenly you come a cropper. So I think systems that are fixed are very dangerous, because the market is mutating. It's changing all the time and the optimisations are showing that the systems have to change with it and it's never standing still.
John: My colleague, Richard Hanson, is using a system which he developed over 15 years or so and it's quite a long term trending system and he trades about 40 markets and he's tested I think 20 years of data or something, so he's got something like 800 years of data he's tested. That has seemed to be quite stable, in fact.
David: Yes. Part of the problem is that you suddenly get 3 years that are different from anything else that's happened in the history and how does the system cope with that? For example, I happen to believe that the Noughties (the decade that we're in now) is going to be completely different from the Nineties and the Eighties, in terms of markets.
John: Yes, I'm sure you're right.
David: So if you've back tested on the Eighties and the Nineties and you're running a system in the Noughties, that could be actually quite tricky and all it takes is a few bad years and your system's thrown awry and one thing we have noticed in the optimisations is that the trading periods - the optimum trading period for holding a stock has come down from a few years or several months down to a few weeks or several weeks or a few months, so the trading times have really shortened and the optimisations are really telling us that. And, again, that's the essence of TipsTracker - gone are the days where you can take a tip and sell it next year. You might be sitting on this tip for a matter of weeks, not the month the newspaper is suggesting or where you're reading this tip. So you have to be more nimble in these kind of markets.
John: But we've had a pretty solid rally for the last 18 months or so - a year and a bit, isn't it?
David: If you look at that rally, it's been quite interesting because this is what markets do. They move up very sharply over a period of a few months and they spend quite a lot of months going sideways.
John: That's true.
David: And that's why I believe this is a consolidated move before the next kick up. I do think, on the FTSE, that there is massive resistance around 5,000-5,300. Everyone says, 'Wow! That'd be great if we get there.' I think we could run up to that level, once we break, very quickly but then there might be an issue for the market and then we might have another period where we go sideways for a few months. I think the main thing is not to lose these big kicks up.
John: Yes. You need to catch them. If you're investing in stocks and you miss them -
David: And the fact that we've had 18 good months is not to suggest that we're going to have 18 months just the same over again. That's the problem with markets: they don't do what they've just done all over again all the time.
John: You're not concerned about the interest rate hikes coming?
David: I'm pure charts, so for me it's all in the chart. If you can tell me something that I don't know that no-one else in the market doesn't know, then ... I think that's the key: everything that everybody knows (all the market participants know) is reflected in the chart. So I'm pretty purist in that way - I only look at the chart.
John: I'm pretty similar but I do have regard to, I guess, what's happening in the ... But I suppose -
David: It can cloud my judgement, I find, and I like to look at the chart on the merits of the chart and not get too upset about all the news flow. News is interesting. I view it as interesting, I don't view it as helpful.
John: Okay. So when you first started, how were you deciding on what to trade?
David: Well, I was limited originally to UK options and I think it's always good to give yourself a relatively small universe and you've got to cherry pick your universe and make that your specialty. So underlying options shares was great. At the time there was probably only about 50 of them and they were pretty easy to focus on and follow. I knew all those charts pretty well in my head. Nowadays I don't really keep charts in my head. Everyone asks me about this or that and I have to always pull the chart up on the system to be able to give a view and I think that's good as well, because I don't have any preconceived idea until I arrive at the chart.
John: Yes, it is.
David: But now I tend to ... My favourite area at the moment (and in fact this is in the first monthly report of TipsTracker, I've come up with this) is very much the mid cap section of the market. In the UK it's been outperforming nicely. FTSE has got some very interesting things going on at the moment. Banks and telecoms look very negative, which could have quite big implications for the FTSE itself because it's heavily laden certainly with banks and Vodafone (VOD) obviously is up there. And small caps I think are just dead. I know Tom would hate me saying this because small caps are the bread and butter of a lot of tipsters but small caps I don't think ... there will be always examples of things that will do incredibly well but as a universe small caps is ... it's a big universe and that big universe doesn't look very exciting at the moment.
John: Okay. You mentioned that you had a big problem in your early years of trading. Do you want to ... tell us -
David: Yes. I think all good traders have a near catastrophic experience to start with.
John: Or totally catastrophic.
David: Yes. That's kind of what you need. It's almost best if you can have your bad experiences at the beginning. Basically, I was effectively trading on account in stocks and in those days you used to have 10 day account periods. It was a dream. You could buy on the Monday and a fortnight later you'd sell on the Friday. In fact the market was very effected by that - strong buying on a Monday and the end of the account strong selling on a Friday. So I was buying on account.
John: By this time you'd move on from options?
David: No, this was where I started.
John: Okay. Was the account relevant, therefore? It wasn't relevant to you. You were buying the options rather than the -
David: No, no. Initially I was trading on account - stocks.
John: Okay.
David: That was where I started and in fact (this is sort of a joke for TipsTracker) I originally was looking at tips in the Sunday Times and I was buying the Sunday Times, saw the tips and I thought, 'I can't go wrong. Buy them on a Monday morning, beginning of the account. They're bound to go up because they've all just been tipped,' and in fact it worked okay for a couple of weeks but then I came a cropper. One of the tips completely fell out of bed.
John: As a result of the system stopping working.
David: Yes, exactly. Well, it is an example of it but it made me realise that if it was in the news, it was already in the price. There was nothing that I can read or see in the news and act on. It happens now so quickly in the market. It's absorbed into the market so fast by the institutions and they're able to deal on it so quickly and market makers and all the various participants are able to push the price to where it should be within seconds or minutes of news breaking now that it means that, as a private individual, you've got virtually no opportunity to take advantage of news. So basically my catastrophic experience was having spent a few weeks getting a very nice cheque from the stockbroker, I had to give it all back and that hurt. Especially when I was a student, that hurt and I had to find the money.
John: So it was very early days - it was the first month or two that it happened.
David: Yes, it was probably within 4 or 5 weeks.
John: So you probably weren't playing with too much so it wasn't ... In today's terms, it probably wasn't -
David: That's the problem, you get bigger and bigger.
John: Even after a few weeks?
David: Yes, you're sort of doubling up, almost. You think -
John: I wasn't, you were.
David: I think any trader gets excited. You think, 'This is good. I'll put more on it,' and that's the problem with a system that you think -
John: That's right. I did the same, I guess.
David: And then when it does come a cropper, it hurts you bigger. And since then obviously I've learned a hell of a lot about allocation and spreading risk.
John: So what other mistakes have you made and what other lessons have you learned?
David: Well, I don't think that I've made ... I mean probably one mistake that I made in the last 4 years is that I didn't get heavily involved in short selling. I tend to only focus on long only strategies and that's partly because time doesn't really allow me to look at short strategies - I'm pretty busy with Updata and I'm travelling a lot, so keeping my finger on the pulse with a short strategy is a bit harder. Markets fall faster than they rise, so with short strategies you do need to be closing your position up quite a lot quicker. And I've got all my PEPs and ISAs and I've tended to trade within those, so I just haven't assigned money to short selling. And certainly the opportunities have been there for spreadbetting and CFDs and I haven't taken advantage of them in the last few years. It's an area that I just accept that I'm not very good at. I'm not a very experienced short seller. I can do it but my focus always tends to be a buy side bias and I think actually a lot of the readers of TipsTracker are going to be of that sort of nature.
John: Yes, probably. It's quite rare that people sell, really, yes, the vast majority are investors.
David: If you want to be a good short seller, just tip your charts upside down.
John: That works?
David: Yes it does. If you've got a buy side bias, look at the chart upside down. It's quite good.
John: What does that actually do?
David: Well, it means that if you're bullish about a chart that's tipped upside down, then it's a sell. Because you have a buy side bias -
John: Okay.
David: So it puts the chart in a frame that we've all spent years and years and years learning charts because -
John: Well, say if you're bullish whichever way you look at it, so if you look at it upside down or the right way up and you're bullish on both occasions.
David: That's very rare that that's the case. Quite often you can't read the bear signal and you turn the chart upside down and it's just a screaming buy and if it's a screaming buy on an upside down chart, that is a screaming sell.
John: Okay. Milestone revelations - anything particularly that happened to you in the last 17 years that you think has helped you get where you are today?
David: No, not terribly. I think the stop-loss has been the thing that really has made us. There are a lot of things that have happened along the way, in terms of deals and joint ventures. At the moment, for example, we've got a lot of institutional clients using our systems on Bloomberg and that's taking ... we're seeing a good pick-up in the US and in the City and it's great working with fund managers now, teaching them a lot of the techniques - to experienced fund managers - teaching them techniques of how to get an orderly exit using things like stop-loss. So that's been very exciting but for me a lot of it has been working around the stop-loss. And probably another big thing is Updata's made 2 acquisitions. One was FairShares which has taught us a lot about portfolio administration and quite a few fund managers use the system and it's got risk modelling built in, so we've learned a lot about risk and understanding risk. And then Indexia has been a complete revelation, that acquisition, because we really advanced to a world class level in technical analysis, which is great. So I've learned so much from that.
John: You must be by far the biggest player in the UK now in your software.
David: I don't know.
John: Well, who else is there left -
David: Well, I don't really know who's left. I think from our perspective our biggest competitive issue is that we're up against people who believe ... well, websites, basically, where they're offering freebies and a lot of these freebies are not really very valuable but of course the end users feel that they do have a value. So that's an area where more and more people are doing things on the web. But we're managing to stay a step ahead all the time and we've got so many tools and techniques in research and development that we're looking to release in a few months and some tools are sitting on the blocks for next year even.
John: I haven't seen your system for a while, actually. I saw it a while ago but do you know have a real time price service that's all inclusive?
David: Yes. We have end of day real time and thousands of users on end of day and the same on real time.
John: It's all together - it's all just -
David: We provide the data and the software all on a subscription now. And all the upgrades are free. We've moved very much from a software only model to a service model and that's been a big thing for us.
John: So you can download that on the internet?
David: Yes. We get up to 1,000 downloads a month now, where people just download the system and try it and a percentage of them buy it. It's a very frictionless business. The internet, whilst it's been a competitive threat, as been a huge competitive advantage because it's enabled us to deliver systems much more easily and it enables us to drop prices very dramatically and maintain profitability. And also it's enabled us to have interactive services such as upgrades and data and price histories. Now, for example, if you have a system running on the internet, you never get the wrong chart because it will just look and say, 'The chart you've got is wrong because there's a few bars missing,' or whatever and it will update it intelligently. So from that perspective, it's been very powerful.
John: How much do you charge for the real time?
David: Real time is £57 a month in the UK, so it's pretty cost effective.
John: What about exchange fees?
David: That's included.
John: Does that include all markets?
David: At the moment that's all UK, so that's FTSE and LSE. You can add LIFFE for £40 a month and Nasdaq the same. So we do offer a number of exchanges real time. But generally most of the TipsTracker audience are going to be looking pretty well at UK. I think there's also quite a big issue coming with US trading and that is the Dollar effect. In fact I was looking at the Dollar chart this morning and you have to believe, looking at that chart, that we're going above $2 to the Pound.
John: It was quite a long time ago - it did touch $2 briefly, didn't it?
David: Yes.
John: 10 years ago, or is it more than that now?
David: That's the thing with currencies, they stay very range bound - even more so than stocks - for years on end and then suddenly you get a very dramatic move and that's what's happening with the Dollar in the last year. It's just gone ...
John: It's just collapsing.
David: Yes. And we're going to see continued Dollar weakness. I don't know where the top is. I'm not trying to pick the top. I can just see the trend and until we break out of that trend, I'm saying that trend is going all the way and it's certainly going to go above ... I'm pretty confident it's going to go above $2 to the Pound.
John: Interesting. So that's a huge move, isn't it?
David: Yes. I think it's going to change a lot of the metric of UK investors trading in US stocks and I think that, generally speaking, there's enough in the UK as a universe to trade. You don't actually probably need to look abroad. I think you've got to keep an eye very closely on US markets. My favourite is the S&P. I tend not to look at the Dow very much. The Dow is psychologically important around the 10,000 mark when it's there but generally speaking I'm looking at the S&P chart. It's a very well behaved chart and for me it is the chart that tells us what's happening in global markets.
John: So can you get CBOT on your system now?
David: Yes, you can.
John: So it covers all the major world markets.
David: Yes, you can add those in and we're also compatible with feeds like MyTrack and  MyBroker,  so if you want to run it on another feed - or Bloomberg even - you can do that.
John: Is the feed internet based now?
David: Yes. It's all delivered by IP.
John: Okay. It's amazing, really, what has changed. I used to have to cart a big satellite dish around with me to actually get my feed.
David: I know.
John: I moved to France and I had to take a big dish with me so I could still work while I was in France.
David: Now, of course - we always took the view: don't bother with a satellite feed because internet is going to be delivered on satellite so you pick up an internet feed anyway. So we've taken the view that as long as we're IP feed, which is an internet protocol, people will be able to get the internet and as long as they can get the internet, they can get our system running their data.
John: You mean it's going to change from what it is now to a satellite based, or is it -
David: For a lot of people, satellite internet is becoming a reality. If you're halfway up a mountain in France or Spain, your only option is satellite internet.
John: I did try that once and I found that the house was actually in the wrong location and there was a mountain in the way -
David: Yes, if you live on the wrong side of the mountain, there's not much you're going to be able to do there.
John: But you can actually do it now, can you? Get internet by satellite?
David: Oh, definitely.
John: Do you need a big dish, or a small dish?
David: It varies but there are various firms doing it. Aramisk(???) is one of them.
John: Is it quite expensive, or is it ... ?
David: Certainly you're looking at £1,000 to get set up but if you want to go and live in the sticks, that's one of the prices you have to pay. You'd be making lots of savings in other areas.
John: Is there a monthly fee as well?
David: Yes, then you pay on par with broadband charges. It's just getting set up that's expensive. And we were lucky - we made a very big call on broadband about a year and a half ago. We moved everything to internet based and we stopped all broadcast feeds on the basis that we felt that broadband was going to take off and even we've been surprised with the take up on broadband and it's very rare now that we get a customer in dial-up.
John: But you can run your service on dial-up?
David: You can. In fact there's quite a bit more band width on dial-up than a lot of broadcast services. 28kbp is still pretty good. The old Market Eye service is 4.5kbp so it's still 7 times better than Market Eye.
John: That's interesting. Well, the next item on my list is your best/worst trades or investments.
David: Best trade ... Gosh!
John: And your worst one - was that the one that you told us about already?
David: Yes. Certainly best trade was at the height of the dot-com boom (late '99) where you just couldn't almost put a foot wrong. There were stocks like Vocalis and you were buying them one month and doubling your money and selling them the next and I can't think of any one in particular where I'd say, 'Wow! That stands out,' because at that time they were all doing quite well. And also then I didn't really have the power of stop-losses. Had I had the power of the optimised stops in that era, it would have been absolutely fantastic.
John: About these stops, how does the optimised stop-loss work?
David: It's a trading stop-loss that moves up with the price but there's 2 characteristics of it. We optimise it to best fit the price, so we calculate what I call the retracement.
John: Is there a fairly complex formula?
David: No, it's really simple, actually. We just calculate the retracement that occurs ... The only thing you have to fix is where you want to start it from. You could say on a system, 'Just start all my stop-losses from the low in the market last year,' and it would start them from there, or you can eyeball the chart (which is by far the best way to do it) and every technique requires you to give it some criteria so you eyeball the chart and say, 'That's where I want to start it from. That's the trend I want to follow. That's what I want to see the retracement on,' and it will tell you that this stock retraces 7% over ... it can fall back from a high of 7% and then it tends to run again. So trading stop-losses as we use them are basically an abnormal retracement - I call it abnormal retracement theory. So what I'm looking for in TipsTracker is I'm following the runs and I'm saying, 'Oh-oh. We've had an abnormal retracement. That's a sell,' and sometimes it will be too early and wrong but the longer you've had that retracement going on, the more likely it is that the first time you get an abnormal breach, that's the beginning of the breakdown.
John: So do you have a precise stop level, or you just say, 'There's been an abnormal breach. It's time to get out.'?
David: Well, any stock will give you it. Vodafone at the moment is 16%. That's a massive ... The market is at around 7%, so Vodafone is actually more than twice the market retracement at the moment on Vodafone shares because it's really opened out recently. So what that's saying is ... In fact Vodafone has retraced more than 16% and is now a sell because of that. Quitea lower low because that was the last retracement at that level, so it is in effect looking like a support and picking up a lower low, which is a classic selling signal. But -
John: So Vodafone was 16% and it's now halved, is that -
David: Well, no. It was 16% and that's been triggered so it's a sell.
John: Okay.
David: It was running up with a 16% variance and now it's fallen more than 16% it's a sell.
John: Okay. So you do have a precise stop level in effect.
David: Yes, it gives a price level. I can look at any chart ... And in fact on TipsTracker I give the percentage and the current price where the stop-loss is.
John: Okay.
David: There is one other little gem to that and that is signal delay, which allows for spiking through the stop-loss and we also optimise the number of days you should allow for spikes through the stop-loss and that means that the stops actually tighten up further and it then means that you get an arc of risk, which is will it fall through a further spike than it's spiked previously, which is a sell, or will it spend more time than it spent previously below the stop-loss, which is also a sell. So it actually starts to get a bit tricky but it's built into the system.
John: How do you know it's a spike? It could just keep on going rather sharply.
David: Then you've got a sell. So basically you've got an arc of risk which is price or time. Once you fall through the optimised stop-loss with a signal delay, it's saying, 'If I fall further, which is further than the spike I've had previously, that's a sell; or if I stay below longer than the spikes did previously, that's also a sell.' So what it means is that if you go sideways below the optimised signal delay stop-loss, it says, 'There's a risk now that this is going to plummet because I've been below this level for too long. This is a different spike. This is now not a spike, this is actually staying below the level.' So it's quite clever, the way it works.
John: You're giving the trade every chance, aren't you, really?
David: Exactly.
John: Yes. That makes sense.
David: Yes.
John: Any anecdotes you'd like to share with us of the last 17 years of trading and business?
David: Well, I suppose what's been interesting, of course, is that everybody was an expert in the late '90s and you had all sorts of people coming along in 2000. At the top of the market, everyone knew everything about the market and we'd be at exhibitions or whatever and you'd have clients coming on training courses and not really wanting to learn but wanting to teach, or wanting to tell you and some of them would have come to the market quite recently and a lot of that's been washed out in the last 4 years. You're left with the hard core. And so I guess what's really interesting is the quality and the level of people we meet now is actually very inspiring, compared to 4 years back when everybody knew everything.
John: I suppose it is a human experience, isn't it? If things go really well, people assume it's because they're clever and -
David: Yes. They can do no wrong.
John: - and it's difficult to actually realise ... I think I would probably be the same. It's an easy trap to fall into.
David: It's human nature. It's in our nature.
John: And it's a terrible shock when you realise that wasn't the case at all.
David: Yes.
John: Yes, interesting.  Well, to wrap up, do you have any key advice to those listening to this interview?
David: Yes. I think the key advice is look at TipsTracker.com for your selling positions because, realistically, the reason we've done this is that we've found so many of the people that we deal with just get really bound up in not knowing when to sell and it's understandable. It's a criterion we've watched for years and it's inherent in all of us and my job is to try and help people through the difficulty of knowing when to sell. Selling will be the thing that will make you money in the coming years.
John: Right, David, thank you very much. I enjoyed that and I hope our listeners did too.
David: Pleasure.

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