Interview Notes: Qullamaggie on The Compounding Lounge
The unavoidable complexity of trading, and the elements you need for success
Recently, I published notes on Qullamaggie’s Chat With Traders interview (from February 2021) in two parts:
Today, I’m sharing notes from a more recent Qullamaggie interview (June 2022) on The Compounding Lounge by Stocksholm.
This interview was shorter than the Chat With Traders one and didn’t really discuss specific setups. Instead, it covered the key elements you need to trade successfully, and discussed how complex trading is, even if you follow a relatively simple strategy.
My notes below cover:
Market structure;
Systems and rules;
How to find setups;
The importance of dedication and passion;
Finding a mentor;
Ignoring other people’s opinions;
Listening to the market;
How trading is unavoidably complex; and
A comparison of trading vs investing.
A lot of the above will probably feel familiar to you. Nevertheless, you may appreciate seeing a lot of the ‘typical’ topics in one place. In any case, I hope you find my notes interesting and useful.
About my notes
This interview was in Swedish, which I unfortunately do not speak, so my notes are based on the subtitles only.
However, the below otherwise takes my usual approach of structuring and explaining the information as clearly as I could, and only including what I felt were the highlights of this interview.
Where I think they add value, I’ve also added my own insights and/or links to other content — most notably, specific sections from the Chat With Traders interview notes.
Market structure
At 9:50, the interviewer read out the following from Kristjan’s website:
“Most traders have no idea what they are doing. Many of them may think they do, but they don’t. They are trading blind, essentially gambling.
“I was like that many years ago jumping from alert service to alert service, setup to setup, and almost no one does a deep dive into market structure and find setups that actually work.
“I still don’t know what the f*ck I am doing at times, but at least I know more now than 10 years ago when I started out.”
Following this quote, the interviewer asked Kristjan what he has learned over the past ten years. A significant part of his answer related to market structure.
Ever since the financial markets started, certain phenomena keep recurring within them, such as:
Trends;
Momentum; and
Mean reversions.
In other words, to some extent, the market is predictable. There are certain patterns that repeatedly appear in the markets, because they reflect how people act. Even with today’s algorithmic trading, there are still people behind those algorithms, so we’re still seeing the same patterns.
Systems and rules
To be able to beat the market and become consistently profitable, you need to really understand the market’s structure and take advantage of the aforementioned patterns.
Find setups that give you asymmetric risk, and build a system around them. If you trade systematically — in other words, you use a fixed set of rules around your selected setups — you will get consistent results.
To define sensible rules for your system, you need to identify the criteria you want your setups to meet. What do you need to see to give yourself decent odds of the stock moving in the direction you’re anticipating? This typically involves looking at technical criteria, but can also take fundamentals into account (in particular, the theme/sector and catalysts like big earnings/sales growth).
Kristjan himself looks at both technicals and fundamentals.
How to find setups
And how do you figure out what setups and criteria you’re looking for (11:58)?
“You study thousands of stocks and go back as far as you can.”
Kristjan himself went back around 100 years, studying stocks in all stock markets, but mainly concentrating on US stocks.
The guy may well have aptitude (talent) for trading. But that alone doesn’t get a person to the level he’s at. It’s being prepared to work considerably harder than (almost) anyone else is, over a long period of time.
Based on Kristjan’s Chat With Traders interview, I put together a step by step that reflects the approach he took to building his knowledge and, with that, conviction.
Dedication and passion
Early in the Stocksholm interview, as Kristjan explained how he got into trading, the interviewer remarked that Kristjan’s a very dedicated person: when he goes all in, he really does go all in (3:54). He talked about dedication and commitment in the Chat With Traders interview too.
Later in the Stocksholm interview (8:14), when Kristjan was asked what it takes to become a good swing trader, he said that you need to really dedicate yourself to it. Even if you get off to a good start by having a good mentor (more on this later), it still takes years to become a good trader. During those years, you either:
Won’t make money; or
Make money for a bit by being in the right place at the right time, then give it all back again.
Going through that period requires genuine passion for trading. For the activity itself. The typical mindset of ‘I will trade for a few years, make a lot of money, then do something else’ simply won’t cut it.
The importance of passion came up again later in the interview (14:33), in Kristjan’s response to a question on how he became so successful. Trading is difficult, and the learning phase is mentally tough, particularly when you blow up — in many cases, multiple times.
If you blow up even just once, never mind multiple times, you need to really love the activity to still come back to it. You need true passion and dedication. Otherwise, you aren’t going to be able to push through the tough times, nor are you likely to put in the many, many hours of study time required to get good at trading.
For clarity: you can trade part time, but need to do so with passion and dedication. It’s not something you can do on the side when you’re actually more interested in other things, which is what Kristjan tends to see in most part-time traders.
Treasure hunting
Kristjan himself mentioned in the interview that he sees trading as a treasure hunt — a hunt to finding the next big winner. And he finds it incredibly satisfying when he succeeds in this quest. However, the road to the next big winner has bumps on it (remember: Kristjan’s strike rate is low), and not letting any of those bumps deter you requires passion and conviction. It also requires you to keep your losses small and, when you finally hit a winner, to win big.
Incidentally, the treasure hunt remark reminds me of David Ryan’s interview in Jack Schwager’s Market Wizards: Interviews with Top Traders. Schwager wrote in the foreword about Ryan:
“Although most of the traders I interviewed have a love for trading, none have the unbridled enthusiasm demonstrated by Ryan. To Ryan, the whole process of stock selection is like a terrific game—a treasure hunt as he describes it—and he still can’t believe he is getting paid to do it.
“[…] I suspect that as long as [Ryan] was supplied with his charts and computer runs, he would probably be content to work in a hall closet.”
Find a good mentor
Dedication and passion aside, Kristjan was asked (5:33) whether there was anything he would have done differently, given what he knows now. His answer mainly boiled down to finding good mentors and role models from the start.
Kristjan tried out various strategies in his early days, but realises now that trading is really all about knowledge. Most people entering the stock market don’t know what they don’t know — that’s the hardest part. Unfortunately, there are many charlatans in this business who take advantage of that.
Kristjan did eventually find people, mainly on Twitter, he could really learn from and imitate. He’d then keep what worked, and discard what didn’t.
As to who to trust: he relied on his instincts to determine who did, and who didn’t, seem serious. During the interview, he advised being “as critical as possible” about this.
Ignore other people’s opinions
As discussed earlier, you need to develop your own rules and system, and follow them consistently to achieve consistent results. You can’t do things randomly, like acting on stock tips or other people’s opinions.
This doesn’t take away the fact you need some sort of mentor or role model, especially when you’re new to trading. However, while you should listen to what they say, you mustn’t take their word for anything, especially not if you don’t know why they’re saying it.
They are only there to point you in the right direction, but you need to confirm what they claim for yourself. If you don’t, you won’t have conviction, and will have problems like being unable to hold stocks for long enough. It was something Tom Dante said that really made me realise this (emphasis added in bold):
“Getting out early is just one of those potential problems where people always seek the easy way out: to blame their psychology, and they start saying s**t like ‘oh, I’m so psychologically sc**wed up, I keep coming out my trades so early ‘cause I get scared, I get impatient’, ‘oh f**k, I better read Trading in the Zone again’.
“The reason you came out early is ‘cause you do not categorically know, over a large sample size, that holding is the right thing to do, right?
“If you know that, and you’re getting out too early, you don’t need a f**king psychologist — it’s quite simple: you’re an idiot.”
He was saying this in context of crunching the numbers in your journal (quantitative analysis), but Kristjan says essentially the same thing, just in a more qualitative way: studying lots and lots of charts.
You need to do whatever works for you to get that conviction. Personally, I needed to see the hard numbers, and confirm they aligned to my qualitative observations, before I truly had conviction.
Listen to the market
In addition to ignoring what other people say, you must also listen to what the market is trying to tell you. You cannot force your opinion on the market. This is a common mistake: people think they know better than the stock market, and consequently don’t listen to what the price action is telling them.
You have to put your ego aside while trading. Forget the hype, whether from financial news, a forum or anywhere else, and forget your opinions. Focus on the price action instead. What are the stocks (and sectors) actually doing? Are they going up, or are they going down? Are they showing relative strength compared to the rest of the market, or are they showing relative weakness?
Kristjan gave Covid-19 in March 2020 as an example: the news flow was terrible, yet the market stopped going down — in fact, it started to go up. Equally, if the market has been going up for a while, then stops going up and possibly even starts going down when good news comes in, it is trying to tell you something.
The same thing applies to individual stocks: why is stock XYZ going down after, say, an earnings beat? Well, it’s because the market had different expectations. Your job is to listen to what the market is telling you. At the end of the day, the market is always right.
Kristjan only listens to what the stock market is trying to tell him. He doesn’t pay attention to financial news, as it is “a waste of time if you want to make money [in] the stock market” (18:04).
Kristjan also talked about this on the Chat With Traders interview, as well as on various Twitch streams, including the one from 9 June 2023.
Inevitable complexity
Although Kristjan tries to keep things as simple as possible — which, interestingly enough, seems a necessary component to achieving excellence in other fields too — he also regards trading as unavoidably complex.
This is because there are so many pieces of the puzzle that you need to put together to create a framework for yourself, so that you know the odds of something happening. This is the part that takes many years to learn and put together, even with hard work, and is the part that people typically underestimate.
No matter how simple you manage to make your strategy, it will typically involve analysing technicals, fundamentals and the overall market (to gauge the market conditions as well as identify relative strength).
If you want to trade successfully year after year, the full picture is incredibly complex. To repeat a quote from Kristjan during the Chat With Traders interview:
“Just trading off momentum and chart patterns, you can make a very good living — but, I think, if you can combine some type of fundamentals, [you can make even more money]. Because at the end of the day, there are some type of fundamentals that drive these stocks. […] Fundamentals are the fuel, and momentum is […] what happens after the fuel.”
Effectively, what he meant is that you can make money by learning the technicals only, but if you manage to bring together all the pieces of the puzzle, you can develop a much bigger and more resilient edge.
Trading vs investing
At 19:17 in the Stocksholm interview, Kristjan was asked how trading differs from investing. He replied that it requires a completely different mindset, so for people who want to do both, he recommends doing them from different accounts.
Trading is, to quote Kristjan, “investing on steroids”. It’s so lucrative — or rather, can be so lucrative — that everyone wants to start trading, yet few are really committed to the work required to succeed. Kristjan himself says he doesn’t recommend anyone to trade as it’s so difficult and likely to lose you money.
Instead, he recommends investing. To get good long-term results as an investor, you don’t need to do much — just putting your money in a fund and forgetting about it can be enough. Combined with patience and the ability to ignore the news and valuations, that is.
This is very different from trading, where you need to understand every little detail in the stock market. This takes years to learn, and most people won’t succeed. As such, Kristjan recommends taking an approach closer to investing, which leaves most people better off in the long run.
But he also recognises that people are still going to trade, no matter what he says. So one of the last things he says in this interview is (22:51):
“do what you do, and if you succeed, great, but if you do not, then you have to sharpen up”
I think the simplest and best advice anyone can give, in just about any endeavour, is to do more of what works and less of what doesn’t. This also links to what Kristjan said about raising your game (sharpening up) if you’re unsuccessful in your earlier attempt(s).
This is why I — and many other traders — recommend you record your results and regularly review them. You’re paying for every trade, so make sure you get something back for your money — if not a profit, then at least a valuable lesson. My previous stack discusses how you can do this in more detail.
Feedback
That’s it for today! I hope you found this stack valuable. If so, please like and share it.
I’m also always looking to improve, so please do share any feedback you have via the comments below! Alternatively, feel free to message me on Twitter or email me at kayklingson@yahoo.com.
More content like this
All my Qullamaggie notes are available here.
The Trading Resource Hub’s full archive is available here.