Rise and shine! Welcome to Episode 557 of The Traders Podcast! In this show, your usual hosts Rob Booker and the producer Jason Pyles welcome back special guest and fan-favorite Scott Welsh! As a world famous robot trader, Scott gives us an update on his successful journey in automated trading. And we also get a question from Tyler who asks for a recommendation on which trading platform he should use.
As always, thank you for listening to The Traders Podcast. We release new episodes every Tuesday and Thursday. Subscribe free in iTunes and join us!
Links for this episode:
Subscribe to Rob’s YouTube channel here: https://youtube.com/robbooker
Rob on Twitter: @RobBooker
The Traders Podcast on Twitter: @TradersPodcast
Hear Jason’s movie podcasts:
Movie Podcast Weekly where we review new movies in theaters.
Horror Movie Podcast where we’re Dead Serious About Horror Movies.
Movie Podcast Network a group of eight film-related audio podcasts that cover various movie genres.
Full transcript for this episode:
Rob Booker: Mr. Pyles.
Jason Pyles: Hey, Rob Booker, how are you?
Rob Booker: Doing great.
Jason Pyles: Hello, Scott.
Scott Welsh: What is up, Jason? Good to hear from you. Is Rob there, too? I guess it’s good to hear from him, too.
Jason Pyles: Yes.
Scott Welsh: So great.
Jason Pyles: It’s been too long.
Scott Welsh: Too long, but I’m glad we’re here today.
Jason Pyles: I know, it’s great.
Rob Booker: There are some listeners who don’t know that we did, far too few, but about 150 episodes of a podcast together called The Rise and Shine Podcast, and I think we would all agree that everyone should stop listening to this right now and go check that out.
Jason Pyles: Yeah.
Scott Welsh: Just stop. We can wait. How long, 153 episodes? We can wait a half hour. We’ll just sit here.
Jason Pyles: Yeah, they were short form.
Rob Booker: They could play them on fast forward.
Jason Pyles: That’s true.
Scott Welsh: Exactly, yeah.
Rob Booker: That’s spectacular. Our guest today is Scott Welsh, and Scott, what’s your website? Let’s just get that out there right now.
Scott Welsh: It’s ScottWelsh.me. It’s S-C-O-T-T W-E-L-S-H.me, at me.
Rob Booker: Alright, everybody, go check it out. Scott’s a good friend a longtime friend of the show. Not a first-time caller, not a first-time listener. We’re glad to have him here. Jason, we got a question from a listener, did we not?
Jason Pyles: Mm-hmm (affirmative), yeah, we sure did. We got a question from Tyler. I can read it right now. It says, Hi, Rob, my name is Tyler and I recently discovered your podcast on iTunes and have been devouring episodes on my drive to work. I have a question for you about trading platforms. I’m new to this and I’m wondering if you have a recommendation for a platform. I’ve done some research and there are many to choose from. Some cost money, some allow trades in certain markets only, etc.. Do you spend any time in any episodes discussing this? Appreciate your thoughts. Tyler.
Rob Booker: Well, Tyler, we do. We talked about this in episode 557, which is the one you’re listening to right now. Scott, do you have any- You and I have used about every platform there is. Do you have any comments on that?
Scott Welsh: Yeah, I probably used less than you, but yeah. I looked around at a few platforms. I started on TD Ameritrade back in the stock days, and that feels like caveman days even though it’s a fine company or whatever. But as far as technical trading, wouldn’t you agree, if you ever looked at it it’s pretty poor? But as far as technical trading, I love TradeStation. That’s what I grew up on. That’s the first really complicated platform I looked at. I still use it, I still like it. MT4 has been fine for me. It’s super stable, so it’s been fine. But if I’m gonna open up a platform, I’d probably pick TradeStation or its cousin, MultiCharts.
Rob Booker: Got it. Oh, I haven’t used MultiCharts. Is that a Windows-only platform?
Scott Welsh: Yeah, I think it is, actually. Yeah. I’m doing it on Windows so I don’t know, but yeah. It’s basically like TradeStation. It’s similar.
Rob Booker: Okay. Yeah, and it uses all the same language that TradeStation uses, right?
Scott Welsh: Right, exactly. Yeah.
Rob Booker: Can you trade 4X on MultiCharts?
Scott Welsh: Yes, correct.
Rob Booker: Oh. You can use all the robots that you built for TradeStation and you could run them on MultiCharts.
Scott Welsh: Right. I bought it probably over a year ago. It’s very expensive, which is why a lot of people, I think, don’t use it. It’s quite expensive. I’m getting very much into MultiCharts. I’m thinking about running MultiCharts on my VPS instead MT4. That’s the conversation I’ve been having lately with myself.
Rob Booker: Oh, wow. How expensive is it?
Scott Welsh: A lifetime membership, I think, was $1,300, $1,200.
Rob Booker: Oh, yeah, that’s … Yeah, alright.
Scott Welsh: That’s a lot for people to spend, but yeah, I did it.
Rob Booker: Yeah, I hear really good things about the platform, I just don’t have a Windows computer anymore. It makes it difficult to use stuff that needs a Windows computer. Now, why not just use something- Of course, we don’t necessarily want to recommend to Tyler that he jumps onto TradeStation or MultiCharts. What kind of free options would you recommend to Tyler?
Scott Welsh: Free options, then yeah, I’d probably go into MT4. You can do a lot of good things with MT4. I’m just dubious about the testing. For me, I do tons of research. It’s what I love to do. It’s what I’ve done a lot of. For me, the way I’ve done testing in TradeStation, whatever I’ve done, all the work I’ve done, when I take it to live markets I get very similar results. In fact, most of the time my live results are slightly better than my tested results because people get really freaked out by that. Oh, I’ve done some fact testing, it’s curve-fitting, it’s over-optimizing, it’s not gonna work in real life.
Well, that hasn’t been my experience. My experience is if something doesn’t work, it was bad design. It wasn’t because testing was fake and trading is real. I have not yet had that experience with MT4 where it shows up in the live market exactly as strategy tester does. It’s close, but TradeStation is superior. I’m gonna work on MT4 more, actually, in the next actually month or so. I will finally answer that question. I’m gonna buy some expensive data and I’m gonna see if it really can match up.
MT4 might be fine. I would say it’s mostly fine right now, I just don’t like it as well as the MultiCharts, TradeStation option.
Rob Booker: You’re saying that, in your experience, when you’ve done backtesting in MT4, MetaTrader 4, and then turned on a robot onto the live market, that the results have not matched up with your testing?
Scott Welsh: Slightly worse, yes. Almost without exception, when I take TradeStation to the market, the real life is better. But I have yet to do extensive testing on MT4 and have it show up and look exactly the same. It’s a little bit worse so far. I’m gonna be doing more work on this.
Rob Booker: What robots are you running right now?
Scott Welsh: I run a robot that I called The Hornet, which is a day trading robot. I run that. I’m very focused with my trading, so I only have two currency pairs that I trade with that. I’m also running The Heron, which I just [inaudible 00:06:03] robot I released late May. I run a fair value robot, too, also. I’ve got some other things I’m gonna be running, but that’s what I’m running sitting here right now.
Rob Booker: What about your trend trade robot that you had on the dollar/yen?
Scott Welsh: I trade that in demo. I’m gonna open up an account and I am gonna be trading that, but I watch that every day. But I don’t have real money committed to that at this moment.
Rob Booker: I’m obsessed lately with trend trading and trend trade robots. If you don’t mind, I’m gonna ask you a few questions about that.
Scott Welsh: Let’s go, yeah.
Rob Booker: Okay. First of all, does that trend trade robot use any stop losses?
Scott Welsh: Yes. Absolutely it does. Yeah, it is, that robot is the epitome of all the cliches we’ve heard. Stop out quick and take big winners, that’s exactly how it’s designed. It’s got our-
Rob Booker: Cut your losses short and ride your wins.
Scott Welsh: Ride your winners, yeah. That one does exactly that. It takes … Well, who cares how it stops? It’s a short stop-out based on the volatility of the market at that time.
Rob Booker: How many trades a year does that take?
Scott Welsh: Well, I love trend-following, trend trading robots on big charts. I started testing them on 240-minute charts and those are fine. I love daily charts the best. I just love … They’re so much cleaner. The results are actually better. But it doesn’t trade that much and people that I’ve talked to, and I’m sure it’s even more so for you, they want trades, trades, trades every day. How often does it trade? That’s a question that people ask me when they’re talking about robots, which blows my mind.
Shouldn’t it be, How good is it? Right? What are the- They don’t. How often does it trade? If you’re trading it on daily chart and you’re waiting for it to break to an all new level that it hasn’t been to in a long time, it could trade four times a year. That sometimes freaks people out.
Rob Booker: How long are those trades open, though.
Scott Welsh: Well, if it stops out, not very long. It could be a day. It could be a day or two ’cause those stops aren’t big. But the winners can be in for a month or two. But I’ve found that is not a problem. When you’re in profit, that’s a glorious month or two to spend. That’s not a problem to be in profit. The long trades, something good is happening. That’s good news. [inaudible 00:08:17]
Rob Booker: Yeah, that’s really good news. What is that robot called?
Scott Welsh: I just call it The Breakout.
Rob Booker: The Breakout.
Scott Welsh: Yeah, it’s based on the Turtles. It’s based on the famous Turtle methodology, but it’s not exactly the same as Turtles. I get questions about that. Just use it as inspiration. I didn’t actually follow the rules to the T. I made my own rules on it.
Rob Booker: Okay. It’s not-
Scott Welsh: But, yeah, The Breakout.
Rob Booker: It’s not the same as the Turtles, Jason, there’s a bunch of turtles that live in South Florida and they do some trading and it’s not the same.
Scott Welsh: Or the rock band from the ’60s.
Jason Pyles: Not Leonardo, Michelangelo, gotcha.
Scott Welsh: Oh, yeah, or those, too.
Jason Pyles: Gotcha.
Rob Booker: Did you see this comparison between Pennywise and one of the ninja turtles? They live in the sewer, they hang out with children, something crazy.
Jason Pyles: No, but that’s hilarious. I love that.
Rob Booker: But maybe Pennywise is secretly one of the lost teenage mutant ninja turtles.
Jason Pyles: Mm-hmm (affirmative), I think so, yeah. There is a turtle thing from the novel, as well. That’s interesting.
Rob Booker: Oh, interesting. There’s a connection. Scott, there’s also this thought in the back of my mind. Anytime anybody brings up trading, these Turtles, this question does come up. The ’80s or whenever it was, Richard Dennis and his partner had an argument whether or not trader were born or taught. Dennis said, I can pick some people off the street, teach them to trade, tell them to implement a system, and they’ll be successful. He was somewhat proven correct by teaching them a system to follow and asking them to follow it to the letter. The ones that did succeeded, and the ones that did not dropped out. The rest of it is, as they say, history.
Every time we talk about trend trading, I’m sure you’ve been asked this before. Did you ever built a robot that was based on the Turtle trade trend-following system?
Scott Welsh: Yeah, and that’s what this is. That’s exactly it. That was the inspiration for the Breakout robot, absolutely 100%. It’s just not exactly the same.
Rob Booker: Okay.
Scott Welsh: That’s exactly- I got fascinated by that story for the hundredth time and I decided, Well, I’m just gonna build something. I’m gonna get it in the market. There are still Turtles trading and trading very well and trading hundreds of millions of dollars. The Turtles still live from the original Turtle class.
Rob Booker: They live for hundreds of years, as far as I’ve heard.
Scott Welsh: Yes, they’re dinosaurs. Yes.
Jason Pyles: There’s no shortage, is there?
Rob Booker: There’s no shortage of turtle jokes in this episode. How do you answer the question, How many robots is too many? How do you choose a portfolio of robots to run? Did you upload all the results into a portfolio to see that they balanced each other out, or something like that?
Scott Welsh: Well, it comes down to personal preference. It’s like, How many girlfriends do you want to have or How many boyfriends do you want to have? When you’re younger, you like dating around. I like talking to this person, this person. Then sometimes you get to a different part of your life and maybe you just want one person. The first is preference. What do you like? We’ve talked about it in podcasts before. Do you like a lot of action?
Well, if that’s what you need for your trading then you’re gonna have a big portfolio. You’re gonna need a bunch of stuff. Something like the Turtle robot we’re talking about right now, if it trades four times a year, that’s gonna just mess you up. You’re gonna start taking trades that you’re not supposed to take and it’s gonna be awful. The first thing is, What do you like when people say, Well, what kind of portfolio?
For me, the second question is all draw-down. How much draw-down? If you could have a draw-down that you like and it’s just one robot trading one system on one currency pair, and the draw-down is manageable, and it makes the amount of money you want, why do you need 10? For me, I love focus. I love deep focus on one thing at a time. I fight as hard as I can. What’s the least amount of robots I can trade and get the results that I want?
Rob Booker: Okay.
Scott Welsh: When you’re talking about fund managers, though, we’re talking about 50, 60, 100. To manage hundreds of millions of dollars, you have to be diversified. As you get more money in your account, diversification probably becomes more and more of an issue.
Rob Booker: Okay, well that makes sense to me. There’s the famous, who is it, Renaissance Capital and [build simons 00:12:34] or whoever it is in Long Island or whatever and he built this firm of- Jason, it’s all turtles. The whole firm is turtles. The guy’s stiff, but once you break through his shell he’s pretty nice. They have a wide selection of grubs in the company cafeteria.
Anyway, he hired a bunch of Russian physicists and scientists and whatever and they were managing billions and billions of dollars. Eventually, they all were so rich- This is actually true. It sounds like this is a story. They were all so rich that they gave back all the investor money and now this super secretive firm only manages its own money internally from all the people inside of the firm so they don’t have to deal with any of the regulations or answering to people or whatever.
They have been known to … They have hundreds of strategies running, all of them automated, all of them with the computer that’s just making the trades and placing the orders, some of which are doing things as crazy as trading based on the cycles of the moon. He has been known to quote that it even gets stranger than that. If it works, he doesn’t care how stupid it sounds.
Scott Welsh: There was that one time, though, he got flipped over on his back and they had to cease trading, then they flipped him back over and it was fine.
Rob Booker: You couldn’t get back up. That’s right, yeah.
Scott Welsh: Other than that, yeah, it’s been amazing.
Rob Booker: Flipped on his back and he couldn’t get back up. Oh, my gosh. Jason, let’s plug your podcasts. Where can our listeners hear more about the best movies that are out right now?
Jason Pyles: Sure. MoviePodcastWeekly.com and HorrorMoviePodcast.com.
Rob Booker: I’ll plug Marketing Podcast Weekly for our listeners that are interested in online marketing, in particular in the financial space. You can listen to Jason and I sit around and talk about marketing, which I actually listened to Wednesday’s episode in its entirety again. I just listened to it again.
Scott Welsh: That’s a good podcast, by the way, guys. I really like that. I know it’s new, but I look forward to that a lot. I like that.
Rob Booker: Well, thank you.
Jason Pyles: Thank you.
Rob Booker: Scott, two things. One, where can our listeners find your podcast?
Jason Pyles: Yes. That’s what we want to know.
Scott Welsh: Yeah, okay. Well, Rob, knows that I’m thinking I would really like to do a podcast and I’m really thinking about that, so thank you, Rob, for bringing that up. That’s a little sore spot. No, it’s not a sore spot.
Rob Booker: We’ll be on the lookout for that. Maybe we can plug it inside of some kind of a trader’s podcast network of shows.
Jason Pyles: Yes.
Rob Booker: Second of all, where can people find out more about this Breakout trend trading robot? I know that’s what everyone who’s listening right now’s gonna want to know about.
Scott Welsh: Well, you go to that website and I’ve got listings of the robots that I offer. You can also email me, I’m the one who emails you back, which is Scot.Welsh@gmail.com, but it only has one T. My email has one T and my website has two.
Rob Booker: Okay, and you can also go to the show notes for episode 557 of The Trader’s Podcast and inside those show notes, we’ll link to Scott’s website and some information about the Breakout robot. Will you come right back and join us for another episode?
Scott Welsh: I would love that.
Rob Booker: Let’s do it. Thanks for listening, everybody, we love you all. We’ll see you next time.