Thought I would post the full interview I did with Sam Barry, founder of LittleFishFX, on here. For those who haven’t ssen, the original posts can be found here also:
Keep an eye out for my next Trader Interview, where I will be firing questions at James Harte, an FX Analyst and Trader at LFX. Should be out soon.
But here is the interview with Sam Barry:
Having spotted the post about Guest Bloggers, I immediately thought back a few months where I had written some questions I wanted to present to Mr LFX himself.
Being an amateur trader, getting to ask my own questions I thought would draw out some interesting answers (I was not wrong), and be a great insight to someone else’s journey to becoming a successful trader, one that I could potentially learn from and be motivated by.
I hope others who are at my stage or those who are further along in the process will find Sam’s answers just as interesting, helpful and insightful as I did.
From writing his first algo on a train, flooding a brokers server causing it to shut down to explaining where the name LittleFish originated from, Sam takes us along his own trading journey. So let’s get into it:
(CJ-Chris Johnston | SB-Sam Barry)
CJ: Where did it all begin? How did you get into trading? Can you remember when you placed your first trade?
SB: Actually I started with algorithmic systems on an internship at Bloomberg in their R&D department. From there when I moved to London to work in a bank a year later I had already started playing with systems but the first system I built with a friend actually worked on horse racing essentially it was a HFT system to scalp liquidity off of the open exchanges. When I realised the limited upside to this I moved into trading. Weird thing was with trading I suspected the technology would be much more advanced but it wasn’t. My first algo I ever wrote though was actually on a train back from an event for the bank and I saw an advert for backing and laying bets and that’s where I had the idea and wrote code on my note book for the algo.
CJ: What was it about Forex that caught your eye; did you ever delve into stocks at all?
SB: Liquidity and low barriers to entry. Problem with stocks is the inherent costs of placing the trades. Forex is low cost and there is enough to play with so you don’t get bored. That said I have played a lot with futures and indexes. I think the key here is with stocks you need to understand the underlying company a bit more if you are going to add real value, technicals are ok but only if you are placing trades on hundreds of stocks at a time or you are using them as a filter to then delve deeper. My passion was in the first place focused on systems that could be consistent and sustainable.
CJ: In the beginning, did you focus more on technical or fundamental analysis? Or a mix of the two?
SB: Technical. I actually love fundamentals but I never found them that useful for making money. I can argue all day about economic and monetary policy and like most people out there my knowledge will be left somewhat wanting and if I was brutally honest like 95% of the traders out there, a fundamental call that I got right would probably be more luck around timing than judgement. I also have a very strong view on the efficient market hypothesis (more on this later) and that is that it is nonsense. The market isn’t remotely efficient, this leads me to the view that you can generate alpha through technicals. That said why I say technicals worth clarifying I also include the old poker adage that you are playing the person opposite you as well and that means market psychology and behaviours also comes into technicals.
CJ: How important do you think it is to be able to understand a market technically, but also have some grip on what it is doing from a fundamental perspective?
SB: Problem for most retails traders is after they have read a few pieces of material online they become super arrogant that they know everything. Typically this is just after they have a good month or two; this is typically the phase they are actually the most stupid and when basic fundamental and technical knowledge can be killer. I think if you can keep your arrogance, ego and most importantly expectations in check (another major bug bare for me) then technicals are great, I could list off a bunch of systems that are consistently profitable in the long run, majority of retail traders out there wouldn’t listen to me and wouldn’t follow the rules though. Fundamentals are dangerous unless you honestly have a strong understanding, so many nuances and factors it can be difficult to really work out the possible outcomes and hence what the trade actually is. If you play fundamentals with less knowledge they really need to be really long term bets.
CJ: Now you are clearly a successful trader, but did you ever blow up any accounts, were there any times where you thought about sacking it in, or was failure/defeat something that spurred you to continue to tangle with the markets?
SB: Every good trader I know has blown up accounts and I’ve blown up three:
> 1st I was an egotistical idiot retail trader and deserved it but the pot was small
> 2nd I had learnt a lot and made a lot of money, 18 months in I imploded
> 3rd was an algo system I built that I forgot to cap the amount of trades on and it killed me…extremely quickly, although this was a small test account, but think I managed to knock out a brokers trade server at the same time as I flooded it…oups
The hardest thing in trading is not trading. The hardest thing is protecting your capital and managing the business of trading and your emotions. I never saw me blowing up accounts as failure more as part of the learning process and I continue to learn. The risk of failure is more in the company than the trading. I have systems now I could leave on for the rest of my life and never have to do anything with them.
CJ: Do you remember the point where you thought ‘right, I can do this, I can consistently pull profit from the market’?
SB: Yeah just before I blew up my first and second account. I then learnt never to think I can beat the market or do anything consistently. A healthy dose of reality that I will never be good enough means I am always pushing to do better. Be more accurate, find more issues with our systems, find more ways to hedge our exposure find better ways to place and manage trades. The day I think I can do it is the day I lose it all.
CJ: Did you ever have a mentor who helped you along your trading journey?
SB: Yes but not a trading mentor. I’ve never needed a person to give me feedback on trades, I am a relatively quick learner and a relatively smart guy and after listening to a few people talk about trading I quickly learnt most of them didn’t have a clue what they were on about, in fact I used to enjoy going on webinars and asking maths questions as a lot of the people presenting were idiots. Not very nice and regret that now. I’ve always surrounded myself with people better than me and who I look up to. In all parts of my life I’ve done this, it humbles you and makes you want to achieve; probably the best skill I have is to place myself amongst incredible people.
CJ: Before setting up LittleFishFX, you said you worked at a bank. Can you tell us a little bit about how you ended up there and what your role was?
SB: Decided at Bloomberg (internship) I didn’t want to be a programmer but I loved finance. Honestly though I wanted to be a pilot in the RAF and when that wasn’t possible my view was I was going to earn enough money so I could fly. After Uni I went to work for a bank. Typical grad scheme and I ended up meeting some incredible people and doing a lot of different jobs, got to travel a bit and managed some pretty big projects given my age. It was fantastic experience for me and I had incredible bosses who had a habit of throwing me in at the deep end. They were the ones that encouraged me to set-up on my own.
CJ: Do you think working for a bank, gave you a unique insight into the workings of the market and how the ‘big boys’ trade?
SB: No more than one could read about. Possibly I had a little more access to go talk to people but the reality is it isn’t that hard and there are about 1,000 books and websites out there that tell you how they do it, problem is I guess that there are a lot of people selling utter nonsense as well.
CJ: What would be the one thing you took away from working in a bank you would say has really helped whilst setting up LFX? If any.
SB: Financial company….very little; from the people I worked with and the roles I did, an awful lot; but almost all of it was on the management, people and strategy side as opposed to trading.
CJ: You set up LittleFish in 2011. Can you expand a little bit on why you decided to create the company?
SB: If I am honest that’s when I registered the name and trademarks etc… the company was actually about a year after. Interesting question. I suspect two main reasons. 1) I was pretty fed up with the educational stuff for traders online as a lot of it is just lies. These people telling nonsense stories of making millions from nothing is garbage and that wound me up enough to want to change it (my nature when I get annoyed is to fix it and I get annoyed a lot). 2) I guess the other reason is why not see what we could do. I knew I could pull together an amazing team and so there was a very good chance we could make a pretty decent company out of it.
CJ: You provide a lot excellent services, whether it be market analysis, trade set ups, course, indicators etc. for the retail side of things. However I understand you provide services for professional financial firms and hedge funds, could you expand on this a little?
SB: Not really due to NDAs. We do a lot of white label products though, in fact Littlefish FX website has always been the smallest part of what we do, hopefully over the next year or two that might change but we have really exciting plans on the other side of the business.
CJ: I know you are a big fan of Order Flow and Volume analysis. Why have you gravitated towards these two indicators/theories to apply to your strategies?
SB: I like these as they are consistent systematically. No other reason. If I am honest I equally like a lot of the other pieces we use, think order flow and volume are quite nice for traders to learn though especially if you are manually trading, they typically make a bit more sense intuitively and they are trend following in nature so support some good practices.
CJ: I know you’re also a big fan of clean data. What do you mean by clean data and how can you tell data is clean and useable?
SB: One of the biggest issues I found in developing systems is data. It is amazing the difference the correct spreads, slippage and costs can make to a system. A lot of issues occur when your data isn’t incredibly accurate. Drawdowns in the wrong place, incorrect behaviour that you assume is normal the list is massive. Even getting spreads wrong. You know if you are placing trades towards the close of the day, changing the time you place your trade by only 5 minutes can make the difference of an extra pip per trade. When you think most good systems have a trade expectancy on the long run maybe of 10 to 20 pips. That’s 1/10th of your profit for a 5 minute difference. When you are building systems all these tiny details make a large amount of variation. If you don’t understand all of these in detail and understand their impacts your system will perform very differently in live to back test.
CJ: You see a lot of traders on social media say they are Risk Managers first, Traders second. Would you agree with this approach?
SB: Most of them are saying this as they have heard someone else say it not because they understand it. If I am honest my role is to make as much money as possible for a given level of risk. That to me is a trader. Risk management is a fundamental part of that and it is critical especially if you ever want to manage other people’s money but so is making a return.
CJ: Is there more to managing risk on a trade than a simple 2:1 RR, stop loss and only allocating X% of capital per trade etc.? This seems to be what all retail traders get taught. How do you control risk?
SB: Risk management is a mathematical equation. % capital per trade is nonsense and it angers me, utter garbage lazy way of people managing risk who don’t understand the maths behind it. Look risk management is simple. If you win 50% of the time than your average win need to be great than your average loss to make money. If your win rate is 25% of the time then your average win needs to be greater than 3 times your average loss. I.e. if I place 4 trades and win one then that needs to cover my 3 losing trades. If you don’t do this then you won’t make money in the long run. 2:1 only makes sense for a specific win rate, if you aren’t hitting that then it makes no sense. For us it is a mathematical equation to hit specific targets and if we can’t achieve them then we don’t operate the system. I think it is great practice for people to place stop losses and you need a point where you will exit the trade but I am not one for saying that a stop loss needs to be X pips every time as that suggests the market is far more uniform than it is and you are curve fitting a system (although will note in the odd rare occasion this does work better); but you need to ensure you don’t lose more than your model can cope with otherwise you need to earn more as per equation above.
CJ: I know you love the mathematical side to trading, so would this mean you believe that the market is an efficient mathematical world that can be predicted or do you think the ‘random walk’ hypothesis is more appropriate for the market?
SB: Neither. I love mathematics though. Market is not statistical in nature as humans mess it up by playing with it every day. I like the poker analogies for this. If you put 6 simply programmed efficient computers playing poker then the outcome is simply the computer with the best hand as it will base the entire programme on probabilities. Stick 6 people round a table and typically it is the person who can lie the best. The market has way too many people messing it up to be efficient but that doesn’t mean there aren’t statistical anomalies, they are very rare and not quite what I suspect you are thinking. The market is however not random, you can show this by looking at order books.
CJ: Last year you started up a prop trading side of the company. What were the key drivers for you to do this?
SB: Was getting annoyed that a lot of these prop firms are setting stupid expectations and ripping people off. Charging £200 per month, expecting 70% win ratio and stupid targets is not how most prop firms work, all they are doing is ripping people off. It costs a lot to run a prop set-up but we will see how it goes, if it can work then we can take retail traders and mould them a bit and give them low leverage cash to see what they can do with it. I’m not sure what we can do yet but will be fun to find out.
CJ: I know you wanted to do your take on the Turtle Trading approach, does this mean you believe that anyone can trade successfully if they put in the hard work and dedicate themselves or do you find you have to have that natural ability?
SB: 100% believe you can teach people to trade. Like I said I could give anyone 5 to 10 profitable strategies that they could operate easily if they followed the rules. I think the key is finding the right people though. Not interested in helping any arrogant people who think they know better nor do I think I we can help anyone who thinks this is a get rich quick scheme but for the people with the right attitude and motivations we are more than happy to see what we can do to support. If I found someone I could get on with well I could easily teach them to trade and trade large sums of money.
CJ: Has the prop firm met / exceeded expectations?
SB: So far its meeting expectations, people are progressing quicker than I thought but we could do with a lot more clients and teachers to help.
CJ: Do you still trade day to day or are you more involved in managing the business? I guess most of your systems are automated?
SB: I tinker in my own accounts but its rare most days now, I am still heavily involved in all of the systematic trading and so know all of our positions across every system with everyone we work with at all times so still heavily involved in the markets but I am not pulling the trigger any more.
CJ: What are your working hours like? How do you manage work/life balance, as I know you guys sometimes pull late nights and work the occasional weekend?
SB: My work life balance is rubbish, but I love what I do. Hopefully it should change as we get more people on board this year.
CJ: What do you like to do outside work to relax and take your mind off the market?
SB: Gym, sports, socialize, I read quite a lot, I watch a fair few films as well. Fairly normal.
CJ: If someone wanted to work their way to becoming a full time trader, what advice would you give them?
SB: Read as much as you can and surround yourself with good traders, learn from them, be humble and set your expectations low. Stop thinking 10% per month is possible and instead aim for 2%.
CJ:> Finally what can we expect to see from LFX in 2016?
SB: We want to expand the content and get a lot more people involved and it will be fun to see where the prop group goes.
Quick Fire Questions:
Not a massive one for words of wisdom but more the general sentiment. A lot of great leaders are often quoted on two different topics (seriously check it out). 1) is that failure breads opportunities and should be something to be learned from and 2) that you should take risks and try new things as that’s the only way of progressing.
Pretty much summed up as
– Don’t quit
– Learn from your mistakes
– And take calculated risks, don’t play it safe
3 of the hardest things to do though, unfortunately no-one can teach you much on how to do these things as they are all against our nature, scary, upsetting, tough, difficult etc… you just have to do it.
Actually there are two quotes that do stick in my head from work experiences
1) “No-one wants to be a Littlefish” (give you a clue to where the name came from) – this was from a very inspiring boss, who was the first person I worked for in Barclays – taught me a lot about other people’s mentalities and how they change their behaviour based on this fact and how you can change yours to support this point
2) “Just f@#&%$* do it” – almost famous quote that came from Branson and someone who worked close to him reiterating this point. Probably the most inspirational person I’ve worked with (not Branson but the person who worked for him at the time). I don’t necessarily agree with Branson almost uncalculated approach as I am too analytical but I do agree with the sentiment which is pretty much, stop finding excuses or being scared, just get on with it.
Favourite Financial Themed Movie
Big Short looks ace but not seen it, I quite like Margin Call as well.
One book that everyone must read (trading or non-trading related)
Probably ought to say something like Sun Tzo Art of War but I have too many books I think people ought to read, think more important thing is that people read, whether it is online or books, it broadens your understanding.
One financial / trading themed book that everyone must read
Market Wizards series is good, or probably for fictional stuff go read Michael Lewis as they are entertaining.
Favourite currency pair at the moment
Always EURUSD for profit
Favourite holiday destination
South of France, Cape Town, too many places I want to go
Probably London, then New York.
Lager or Ale man
Ale, although not that fussy
I’d like to thank Sam for letting me ask so many questions and for giving me some fantastic answers; it was a great insight into how he got to where he is and his views on trading. It has certainly given me a lot to think about and what I’m expecting from my own trading in the future. I hope others have also found it equally interesting and helpful.