We are rerunning the article here for your benefit. - Bill Lussenheide
INTERVIEW CENTRAL: Bill Lussenheide
Bill Lussenheide is President of Lussenheide Capital Management, Inc. [LCM] and is a Registered Investment Advisor.
LCM uses historical, empirical and mathematical timing systems to manage risk and enhance return.
has spent the last 25 years researching the economic and market history of the past century.
This combined with real-time trading have produced computer-based timing models that monitor intermediate trends for entry and exit points.
Speaking with Bill
and seeing his
true commitment to the trading business was not only refreshing but inspirational as well.
: How did you first get interested in trading?
: As a young boy, both my father and I were Numismatists (coin collectors).
: I actually prefer intermediate term trading, about two to four times a year.
I believe that short term trends exhibit too many random characteristics and whipsaws, and that very long-term systems require too large of a drawdown once a market turns.
In the trade off between minimizing whipsaw signals, and lowering drawdowns, I believe that the intermediate term viewpoint represents the optimal "emotional" sweetspot.
: What are the things you like best about being a trader?
: It isn't really a matter of liking or disliking, it is the matter of minimizing risk!
Preserving capital and lowering risk is the key to trading.
For this reason, I firmly believe in trend following systems that are designed to lower volatility and limit drawdowns.
: How do you treat losses and account drawdown?
: An important puzzle piece for any trader is to let your profits run, but to cut your losses short.
I define this always by using a mathematical trend following model, and always obeying all signals both buy and sell, that it generates.
I do not believe in using subjective reasoning or judgment for trading decisions.
: What are some of the key rules that you feel are most important for a trader to keep in mind when evaluating any potential trading opportunity?
: First rule, stop evaluating and rely on a valid, non-optimized trend following trading model.
e track seven asset classes...NDX 100, SP 500
, NIKKEI 225, Europe STOX
, US GVT
LONG TERM BONDS, & REITS.
We use enhanced index mutual funds that use options for extra leverage, like those available from Rydex and Pro Funds for younger more aggressive accounts.
: What is your most memorable trade?
: Two come to mind, and both were because of their defensive nature.
I was in cash during the market crash of 1987, and on 9-11.
It wasn't because I was a genius or "Market Guru" but the fact that our trend following model had already identified a declining market and signaled us to move to the safety of money market funds.
: With all the different technical analysis tools out there how does a new technician avoid information overload or "analysis paralysis"?
: I believe that the more complex a system, the less likely that a system will work in the future.
: We use simple moving averages with a trading envelope.
For new money, (buys that are added to a current position), we use short-term indicators such as the McClellan Oscillator
, RSI and MACD.
: What mistakes do most people make in the markets?
: Not knowing when to stay out of the game.
: Trend following.
This of course means that you will NEVER catch a market at its extreme low, or at its extreme high.
However, there is plenty of money to be made by participating in 80% of the UP market and avoiding 80% of the down market.
: What do you think are the greatest misconceptions people have about trading and investing?
: Unrealistic expectations about potential returns.
Trading should be viewed more importantly as a risk management tool rather than a radical performance enhancer.
Our goal is to add 3 to 5% a year over buy and holding, but doing so with 33% less risk and with much less drawdown.
This is the real beauty of trading, lowering risk and protecting capital.
: How do you see the major indexes performing in 2004?
: Again, being a trend follower and not a prognosticator, I will react to the markets "in the present".
I can give you a great argument on why the market should give back 25% from here, and just as well give you a great argument on why the markets should go up 25% from here also.
I trust that the collective intelligence of the market, with each dollar being a vote in the consensus , is much smarter than any of us.
For that reason, we will track the major trends and follow them, whether we understand the fundamental reasons why they are trending or not.
: Thanks, Bill
, for taking the time to share your trading thoughts with our Optionetics reading audience.
Bill's attention to risk control and his
success in the markets is something all students of the Optionetics methodology can appreciate.