Expert Interview Series: Carley Garner of DeCarley Trading on Using Technology to Make Smarter Trading Decisions

Carley Garner is an experienced commodity broker with DeCarley Trading in Las Vegas where she has authored several futures and options trading books and is a frequent contributor to Jim Cramer’s Mad Money on CNBC.

We recently checked in with Carley to get her trading insight. Here’s what she shared:

Can you talk about your background and interest in trading?

My original intention was to be a stock broker or financial advisor, but with ETFs emerging and failure for me to see value in high-load mutual funds, I felt like I wanted to go in another direction. I opted for the road less traveled, and I’m grateful I was willing to take the plunge. I jumped into the commodity futures and options industry with both feet in 2004 after graduating from college and never looked back.

The commodity markets are exciting, but they are also treacherous. This is particularly true for those who fail to prepare for the volatility or have a tendency to abuse leverage. Accordingly, I’ve made it a point to provide a plethora of educational material for traders aimed at encouraging them to reduce leverage and risk as a means of increasing the odds of success in trading.

What are the most important lessons you’ve learned during your time as a trader?

There are no shortages of valuable lessons taught by the markets, but the most valuable lesson I’ve learned is that it is better to be on the sidelines wishing I was in the market than in the market wishing I was on the sidelines. In short, it is far less painful to miss a trade than it is to enter a market prematurely. In order to keep destructive emotions at bay, it is imperative to remain patient.

What is your trading philosophy? How do you approach it?

I believe that the practice of trading is an art rather than a science. There isn’t necessarily a right or wrong way, nor are there hard and fast rules that should always be applied. Each trader and circumstance is different and should be treated as such. For instance, trend trading and counter-trend swing trading are opposite strategies yet it is possible for traders to make money in the same market using these strategies that appear to be at odds with one another. The difference lies in the manner traders react to emotions, the time frame used, position sizing and other variables. Thus, they key is to find an approach and a strategy that seamlessly coexists with the personality of the trader.

In my case, I am most comfortable with a counter-trend trading. It causes me emotional turmoil to buy a commodity after it has already risen substantially, and vice versa. Accordingly, I tend to be most comfortable, and therefore make the best trading decisions, while employing a counter-trend strategy. I particularly like the idea of selling options against a prolonged and excessive trend. This is because at such times the market is overpricing options in anticipation of that trend continuing, but it rarely does. As an example, if crude oil plummets from $53 per barrel to $43 per barrel in short order, it could be conceivable to consider selling puts with a strike price of $35 or lower with three weeks to expiration. It may be possible to sell such options for $500. In this scenario, the trader keeps the total premium collected of $500 if the price of oil is above $35 at expiration. In order for this to happen, oil would have to have dropped over $15 altogether in about five weeks’ time. Although this isn’t impossible, it is highly unlikely.

How has technology changed options trading? What are the advantages of these changes? What about the risks?

Technology has brought option trading to the masses. Traders now have nearly 24-hour access to commodity option quotes on their trading platform and even their cell phone. When I entered this business in 2004, options were traded in open outcry pits. The price data we received was generated by somebody standing in a trading pit, hand signaling to someone else who then manually entered the price into a portal to be distributed to traders who paid a lot of money to have access to those price quotes (several hundred per month). Things have changed now. Options markets have gone electronic, so there are real-time and accurate bid/ask spread quotes available to all.

Unfortunately, the data isn’t free but for those who are not considered to be professional traders by the Chicago Mercantile Exchange, the data is reasonably priced.

One of the disadvantages technology has brought to commodity options trading is the difficulty for trading platforms to handle option spreads in the same manner that was possible with open outcry options. For example, traders wishing to trade multi-leg options could easily give a verbal order to their broker for execution. Those wishing to trade option spreads with electronic execution must first find access to a trading platform that has user-defined spreads (which are few and far between). And once you do gain access to such a platform, it can be difficult to find a market maker willing to trade the other side of your complex option package. To summarize, the lack of human involvement that enabled option spread traders to efficiently be creative with their trade structure is gone and the computer replacement is vastly inferior.

On a side note, I have noticed that high-frequency trading in futures, and even in options to some extent, have a tendency to create price extremes that weren’t necessarily possible before advances in technology. Consequently, traders should always be prepared for the unthinkable to occur and approach the markets accordingly.

How can individuals use technology to their best advantage? What are your favorite tools?

The best part about technology is the ability to chart futures contracts with an unlimited number of technical oscillators. Most of you won’t remember this, but there was actually a service that mailed charts to traders. Traders then took pencils to them to draw trendlines!

Additionally, technology enables us to access what was previously labor intensive information with a few clicks of the mouse. For example, MRCI (Moore Research Center Inc.) has computer software that scans markets for the most reliable seasonal patterns and spreads, and BarChart offers Commitments of Traders data directly onto the charts. If you are unfamiliar with the COT report, it is issued by the Commodity Futures Trading Commission (CFTC) depicting the size and type of traders and provides insight into which commodities they are buying or selling, and how aggressively they are doing so.

What are the most common mistakes you see individuals making when using technology for trading?

Traders have to be careful to avoid information overload. Whether it is charting features or newsreels, it is easy to get bogged down by too much data. The more information you incorporate into your strategy the more likely you are to get conflicting conclusions and analysis paralysis. I’ve found that keeping things simple can go a long way toward thinking logically and sticking to the plan. Stay patient and keep things simple!

What trends or headlines are you following in trading today? Why do they interest you?

The currency markets play a substantial role in commodity market valuation. A higher dollar leads to lower commodity prices and vice versa. If you ever doubt the magnitude of this relationship, pull up a chart of the U.S. dollar and crude oil over the last three years and look at them side by side. Because of this relationship, since the U.S. election, commodity traders have been scrambling to analyze the impact of the new Trump administration’s currency policies.

Why should they interest your fellow traders?

Anybody interested in speculating in commodities must be aware of the currency markets at all times. Ignoring the relationship between the currency and commodity markets puts traders at an immediate disadvantage. With that said, being keenly aware doesn’t guarantee profitable commodity trading but it is a key piece to the proverbial puzzle.

What trading advice do you find yourself repeating to clients over and over?

“Trade less, trade less, trade less!” Being an overly active trader cannot work in the long run. Not only does it unnecessarily contribute to the burden of transaction costs but it nearly ensures a trader will eventually be at the wrong place at the wrong time. Patiently waiting for the highest probability trades will do wonder for reducing stress and providing a mental environment for traders to thrive.

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