Interview with Norman Hallet – Guru of Trading Psychology

Norman Hallett

Norman Hallett offers a unique insight into the psychology of trading. Having been a successful trader, trading specialist, and trading coach, Norman focuses his experience on the important and far reaching aspects of how to establish the proper mind-set to become a successful trader. Now the CEO of his own corporation which develops products such as the popular TradingMind software for market traders, Norman shares some of his wisdom with us in this interesting and enlightening interview.

Len: Mr. Hallett, welcome and thank you for sharing your unique outlook. Could we begin by finding out a little about you? First question: What do you do for a living?

Norman: I’m the CEO of Subconscious Training Corporation, a company I founded 7 years ago. STC develops and retails a line of mental training software, including one of our most popular titles, TradingMind Software for traders.

Len:  Do you consider yourself a professional trader?

Norman: I’m no longer a full time trader. I now just hold a few long term positions in the futures markets. I did spend 21 years in the markets… 15 as a securities and commodities broker and 6 as a Commodity Trading Advisor.

Len: How did you get started in trading business?

Norman: I assessed my talents and figured my Mathematics degree and my sales background would combine to serve me well as broker. So I picked up the newspaper, saw an ad for a commodity broker and applied for the job.

Len: What did you buy or sell on your first trade?

Norman: Actually, for me, that’s an important question… because it was my first trade that kept me in the business in some form or another till this day… 27 years later. I began my career as a commodity broker in October of 1979. Investments in gold and silver were the rage. Jimmy Carter was President and everybody was concerned about inflation. So I spent the first few months of my career positioning customers in gold and silver call options.

Well, by January of 1980, just a few months after I started, gold hit $850 and silver hit $50 and ounce as the Hunt brothers cornered the silver market. My clients were holding positions that had increased 10 fold and more in a short period of time. I thought to myself, “Where have I been all my life? I could have been helping people get rich!”

Needless to say, many took big profits, but many did not. In fact, many speculators stood by as silver experienced a series of limit down days that the market had never seen before and their options went to zero. I learned a lot in my first few months in the business. But mostly it was experiencing the power of the market that has me believing in its potential to this day.

Len: Looking back on it right now, do you consider it a good trade?

Norman: For those that took their profits, yes. For those that were either looking for more or were looking to take the profit they would have gotten yesterday as the market was falling, no.

Len: Do you consider yourself a fundamentalist or technician?

Norman: A technician, but I don’t ignore the fundamentals completely.

Len: What are the hardest markets you have ever traded in?

Norman: I would have to say that the meat markets… live cattle, hogs and bellies are the toughest for me. These markets tend to chop, which is not good if you’re trying to follow or identify trends. Compare that to the bond market, which tends to trend up as interest rates move lower, and down as they move higher. It’s an inverse math thing and that lends to consistency.

Len: What is your longest losing streak?

Norman: As a CTA (Commodities Trading Advisor), I adopted a version of a method of trading called “scale trading” which requires very deep pockets. Essentially, you identify a commodity market that is at 10 or 20 year lows and begin buying that market one position at a time in downward “steps”. So, if you began buying gold at $300, you would buy one position at $300, then, as the market moved lower, you’d by one at $290 and again at $280, etc. You would look for say $5 (or $500 in equity terms) from each position, so when the market rallied to $285, you’d sell the contract you bought at $280 and then you’d sell your $290 at $295. If the market came back down, you’d re-establish your $290 position, then $280, etc., looking for the same $5 from each position. This was called a “10 by 5” scale. As you can see, the fact that you are letting your losses run and cutting your gains, means that you must have deep pockets. The (fundamental) theory of scale trading stems from the basic fundamental that when a commodity gets too low in price, producers (farmers, whatever) will stop producing it, supply will dry up and eventually even a weak demand curve will overtake the supply curve and the market will begin to move higher.

Len: What do you think contributed to that?

Norman: The nature of “scale trading” is such that you know you’ll take losses (sometimes deep) upfront, knowing that in the end, you’ll get it all back if you can stand the pain. The Achilles heel of this system is the fact that futures contracts are finite and must be “rolled”. You need to carry forward the roll premium (the price difference between the contract you roll from to the new contract you roll to) into your scale pricing, bring your scale price higher. That’s where skill comes in… minimizing the price difference in rolling.

Len: How did you manage to bounce back?

Norman: Most of the time, just waiting the supply/demand out resulted in recovery and then profit. It was the market that went to 20 year lows and then 30 year lows that caused real pain… sometimes enough for the customer to give up… even though they had “planned” for this event before they entered into the scale. The pain was just too much.

Len: Beside that, what other financial instruments do you trade?

Norman: I’ll trade just about anything if the chart is right. So, currencies, stock indexes, grains, whatever gives me the strongest technical signal.

Len: Do you have a system of trading? Can you share with us what it is?

Norman: Over the years, I’ve learned to keep my trading “system” simple. The simpler it is, the easier it is to follow and stay disciplined with it… and it’s the LACK of discipline that does most traders in. This is why I devote my time now to helping traders with their discipline through our TradingMind Software. I use basic Candlestick signals to trigger me into a market. I look for the strongest 2 or 3 types of turning candlestick signals to appear and I trigger myself into the trade. Once I’m in, and have set my stops, I take profits at the relevant Fibonacci expansion or retracement points. Simple.

But one thing I must point out… and I tell this to traders who ask me: “What’s the best system out there to trade?” My answer is always, “The one that makes sense to you…that you can believe in”. Because if you believe in the process that generated your signals, then you’ll more easily be a disciplined trader. You see, Candlestick patterns makes sense to me because the Japanese believe that there are only two times during the day that a trader is completely honest… when the market opens and you take your position based on all the homework you did all night, and at the close of trading, where you must live with your position overnight if you leave it on. All the trading between the open and the close is mostly noise.

Now, having been in the business for so long that just makes total sense to me! Fibonacci also make sense. It’s based on a universal ratio that’s seen in spiral galaxies as well as snail shells. Because of my mathematics background, this rings true for me. So, for me, if the market starts to make a move against me, I don’t panic. I stay with my trading system and it’s easy for me because I believe in the REASONING behind what generated my trading parameters. So, figure out what makes sense for you… the process that you can believe in and build your system based on your own truths.

Len: What is the funniest moment you have ever experienced while trading?

Norman: You know, I don’t know that any moment has ever been funny. Exciting, exhilarating, yes, but not funny. I see trading as a process, devoid of fun or depression. It’s all process. Call me boring, I guess!

Len: Trading is a stressful business. How do you cope with the stress?

Norman: By having a trading system that you can believe in, you’ll tame a lot of your stress out of the gate. But that’s not enough. The markets will push and pull you until you’re frazzled if you don’t employ a mental training regime. It’s just as important as the signals you’re using to trade.

Without sounding too self-serving, our TradingMind™ Software is just the ticket a trader needs for discipline. The software contains short 7-minute mental training sessions that you take before you start your trading day. Simple. Easy. Effective. Thousand of traders worldwide use TradingMind™ to stay focused. It’s the only subconscious training tool out there especially designed for traders.

Reading books that tell you how you SHOULD be thinking don’t work. In the heat of battle, you’ll fall back on what your subconscious mind believes and for many traders that means fear. Successful trading means having your wits about you while others are panicking… that’s where big money is made.

Len: It seems like there is a stereotype out there that traders have a life in the “fast lane”. Do you agree with that general perception?

Norman: I agree and disagree. Look… most trading is speculating and that means you’re putting yourself on the line. Is that the fast lane? I guess so. But disciplined trading is more akin to investing which places your trading as part of a balanced overall portfolio, where trading is the section what you expect more return in exchange for more risk. It’s all about balance. Balance within your trading. Balancing your trading with other investments that comprise your investment portfolio. Balancing your emotions through training your subconscious mind to succeed.

Len: What is your advice to a person who is starting out in trading?

Norman: Start slowly. Paper trade only briefly to make sure you have the technicals of trading down… how to place an order, how to execute your trading signals, etc. It’s only when you have REAL DOLLARS at risk, no matter how small an amount, that your education will begin. And much of that education is learning about YOURSELF.

Learning to see yourself as a successful trader rather than a person who is trying to trade. You MUST see yourself as a trader. Don’t listen to the comments and noise around you. It’s you and only you that needs to firmly believe in what you are doing. Your success will make others believers, too.