My Story

Lost it all...It was 4am December 15 2003, I was alone in my office, the room lit only by the glare of the computer screen which made my face look all the more pale.

I had gotten up in the middle of the night to check the market, it was a chilly evening but I sat there in a cold sweat unable to comprehend what had just happened…

A month ago I had thought I was God, now I had lost it all and I didn’t know what to do…

My name is Frederick Richard Brown but since birth I have been known as Derry.  I am no Financial Guru – I am just an average guy who has bounced back from big losses in the market to a situation where I am making consistent returns year after year without having to spend all day in front of the computer or read a bunch of financial reports.

But I didn’t get to this point without receiving an education (even if it wasn’t a formal one) and many of the lessons I learnt were bitter and hard to swallow.

My education started in August 2003 at a Seminar in Coolangatta Australia about how to be an Entrepreneur.  It was a mind expanding experience.  I was exposed to ideas and concepts that most people never even consider as possible in the ‘rat race’ lives that we are taught to live by school and society.  But in order to make a seminar like that interesting and to quantify the huge price tag, things were made to look easier than they actually are.  And there was another problem… I was a naive kid who was thrilled by the idea of making millions before the month was out.  I was enthusiastic and incompetent, ambitious to a fault – a lethal combination.

Like any well marketed seminar the guest speakers promoted their own overpriced seminars and I fell in love with the idea of options trading.  The mantra of one particular Guru was – “Options are the most powerful wealth creation tool ever created”.

I had never heard of options trading and my only involvement in the stock market was though a christening present of shares in a UK company called BTR that had risen dramatically to become one of the top 10 in the FTSE.  I regularly received a nice dividend cheque that was a lot of fun while I was growing up.

My father Desmond Melbourne Brown, invested actively in the Asian markets due mainly to the fact that he lived and did business in Singapore for over 25 years.  I remember how he enthusiastically jumped back into the market in 1998 after the 1997 Asian Financial Crisis.  He did well from the rebound but died in 1999 and I lacked his guidance to ground me.

Greed and EgoSo after parting with about 20K worth of seminar fees, books and CDs I jumped head first into the US options market and surprisingly did very well.  A few thousand dollars + a good market + beginners luck = Greed, profits and a colossal ego.

So I upped the stakes, I invested more money and convinced some others to let me trade their funds as well.  Again… Surprisingly, things continued to go very well and I made great returns.  A little bit of knowledge is a very dangerous thing!  Full of seminar hype and making huge returns I thought I was GOD…

And then the fairytale started to turn sour.  Small percentage losses on large sums are hard for the inexperienced and emotionally immature to stomach.  10% on $20,000 is very different from 10% on $200,000.  With a lack of trading rules and an abundance of arrogance it was only a matter of time before the market took its opportunity to bring me back down to earth and serve a humbling lesson.

I had no risk management or asset allocation rules and started to act desperately.  Blind with fear and adrenalin, my actions were guided by emotion, not logic.  As you would expect, in a short period of time most of the funds were lost.  It was one of the worst times in my life – with dreams shattered I had massive debt and no way out (boohoo).

Well it turns out that necessity really is the mother of invention and in the depths of my desperation I was forced into inspiration.  I thought there must be a logical way to analyze the market data and create a trading system that would work in any environment.   A system that could take emotion out of the picture so that ego, greed and fear could never again be allowed to cloud my judgment.

I read all that there was to be found about technical analysis and subscribed to all the newsletters.  The problem was that technical analysis appeared to be very subjective and many of the newsletters that I subscribed to were not showing a profit and if they claimed a profit then they couldn’t prove it.  There was such an information overload out there.  At every turn people wanted me to buy their data and subscribe to their service.  I started to wonder who was making more money; the traders or the ones selling them the tools?

After much frustration I decided to start at the beginning – a very good place to start.  My mission was to do my own research, discover the truth and develop my own trading systems.  To filter through all the noise and discover the information that really mattered.  It was a long process that stated in a very primitive way.  Gathering information that logically appeared important I started to put it together in a spreadsheet and look for patterns.

In the beginning, because I had no formal training in the stock market I became easy prey for good marketing and seminar hype.  This time the fact that I had no formal training was my strength.  I had never been taught a particular paradigm on how to think about the market so I was not restricted by the established thinking on what was possible and what wasn’t.  As a result I believe that I had thoughts that others had never considered and expanded upon ideas that others had never come up with.

When I look back at my early ideas and research now, it almost makes me laugh and reminds me of just how far things have come.  The biggest challenge in creating a mechanical trading model is that there is an almost infinite amount of data available and an infinite number of ways that you can manipulate that data.  But of the infinite possible outcomes there are very few can be used to generate a profitable trading strategy.

It quickly became obvious that my ideas had relevance in the market by the results I was achieving.  I developed a discretionary trading system called ‘Holistic Market Analysis’ and started sharing my trading diary in 2004 with a few other local traders.  As word spread it grew into a free weekly market commentary called the OM3 E-Zine and had hundreds of subscribers all over the world.  I needed a team of people to make it all happen and run the trading systems.

In October 2005 my server was savaged by a virus and a lot of data was lost.  The weekly commentary was taking me a long time to write, costing me money and feeling discouraged I stopped sending them out.  Since then I have been busy developing and testing my ideas largely in secret.

The business that I originally started to run all my trading through “OM3 Ltd” 2003, has now developed into an innovative Quantitative Analysis and research firm.  The returns we have been achieving over the last few years have been very exciting and I decided it was time to start sharing some of our findings publicly.

Which brings us to 2010 and the launch of ETF HQ.  While the past failures hurt, today I would never trust a trader who had not experienced what it is like to suffer a massive loss.  WHEN, things go wrong in the market unless you have experienced and survived the emotional turmoil that occurs then it is unlikely you will be able to make sound decisions.  So I am thankful for the bad times, they have lead me to where I am now and things just keep getting better.

I truly hope that you have a more profitable time in the market as a result of finding this site.

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So What is Your Story?

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I have hung up my dirty laundry for everyone to see.  You may not want to do the same but please share what has happened so far on your investing journey (or feel free to make fun of mine) in the comments section below.

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Leave A Reply (11 comments so far)


  1. Guest
    6 years ago

    Hi Derry,
    Do you still trade options? What is your opinion on something more conservative like ETF or index credit spreads with stops, which will further reduce the potential loss?


    • Derry Brown
      6 years ago

      Options are a very powerful tool. Combined with the right system, money management and most importantly emotional discipline and you have a winning combination.

      Most of the systems that I have created over the years result in a lot of small gains, small losses, very rare big loses and a reasonable number of home runs. But the average duration is usually several weeks, the home runs can last for months and the loses are usually over a very short period.

      Credit Spreads require a system that can identify to a high probability if a security will close above or below a certain level upon expiration of the spread. I have tried applying credit spreads and debit spreads to my mechanical systems in back testing but the problem arises when a string of multiple small loses occur and the positions need to be closed before theta decay has been sufficient to compensate. Add to this the fact that IV may have risen, increasing the value of theta (time) and it can result in a rather nasty string of loses.

      When I have tried to design a mechanical system just to identify good opportunities for credit spreads the number of trading opportunities has been slim when sticking to ETFs. By stepping out into stocks the number of opportunities has risen but the price change probabilities fit an even more broken bell curve. That is; there is more noise in the data and the price action is less predictable.

      Do I like credit spreads? Yes, they are one of my favorite options strategies along with diagonal calendar LEAP spreads, long options positions (usually on LEAPs or options with several months till expiration). But at this time all of my options trades are discretionary and I would much rather trade a mechanical system because it requires less time to implement and can’t be influenced by emotion in the heat of battle.

      I suggest that you become very good at identifying support and resistance levels if you are to place debit or credit spreads and join Christopher Smith’s OptionClub yahoo group – http://finance.groups.yahoo.com/group/OptionClub/ – There you will find some very experienced options traders that are most generous with their knowledge.

      Best of luck!
      Derry


  2. grain trader
    5 years ago

    Had that “GOD”-Thing – but just cost 10k.
    But I really like your Excelsheets!

    Best regards from Germany


    • Derry Brown
      5 years ago

      Glad that they are of use to you.  Let us know if there are any particular tools that would be of use.


  3. geos07
    5 years ago

    very inspiring story mr Brown.May i ask that if u were in a good mood then what books would you propose to a finance student in order to give him a no-bullshit approach to technical analysis and the opportunity to be able to tell his own personnal story sometime in the future :)?I started my approach at investing by reading books such as” the intelligent investor” of mr Grahan and the essential investments of mr Bodie,Kane and Marcus.Of course not even a single one of these enlightening books were proposed to us by the university which is kinda sad and made me turn to the internet for more no-bullshit books -this time- focused in another approach towards investing,technical analysis.So,it would really save a lot time and mental energy for me if someone could help me find the right way to technical analysis so i can invest my time towards the right things and stop wasting it with useless information.I am not asking for the solution , i am asking for the right paths to approach her.thank you in advance!


  4. Derry Brown
    5 years ago

    Hi Geos07,

    I am glad that you like my story. The first thing that I would like to stress is that you make sure you understand the math behind any technical indicators that you use. I often see people using several indicators that basically measure the same thing and are therefore redundant. Also by having a strong understanding of the through process of those technical analysts that have been before us, this helps to inspire our own fresh ideas and further development of existing ideas.

    Secondly be sure to test all ideas and systems as much as you can through common sense, back testing and paper trading. Where you see claims of risk free returns or returns in excess of 30% a year then be very skeptical. While possible, such returns are very difficult to achieve.

    Here is a great list of good books – http://investimonials.com/books/

    Hope this helps
    Derry


  5. Mani.S
    4 years ago

    Great story ! Sounds honest and sincere too. Very inspiring and a good lesson to learn for beginners looking for the magic formula to strike it rich overnight in Forex. An eye-opener.
    Thanks for sharing it.


  6. Derry Brown
    4 years ago

    Thanks Mani!


  7. Runner
    3 years ago

    Hi Derry,
    I’m glad you came out a winner. Most people get frustrated, broken and quit.
    I’m happy to learn you were able to develop a winning strategy which works for you. Unfortunately, to copy it doesn’t work, because the strategy has to be an outgrow and to be in sinc with trader’s personality in order to be profitable.
    What will most benefit other traders, if you could share with us the METHODS by which you develop your system.
    Thanks a lot in advance.

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