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Join Tasty trade today and earn a double commission rebate up to $3,000 total on your stock and ETF option trades for 30 days. Visit TastyTrade.com/chat for more info. All applicable regulatory exchange and clearing fees still apply. Options involve risk and are not suitable for all investors. Learn more about Tasty trade promo terms and conditions at TastyTrade.com/double. Offer expires May 31, 2026. Tasty trade incorporated as registered broker dealer and member of FINRA, NFA, and SIPC. Trading in the financial markets involves a risk of loss. Podcast episodes and other content produced by chat with traders are for informational or educational purposes only and do not constitute trading or investment recommendations or advice. The learning of going through how a quantitative strategy works will set you up for the risk of your trading career. Number one, both in odds skills and understanding what it takes to be consistently profitable over time. Because these strategies, even though they are robust and sophisticated, they may work today, they may not work tomorrow. And what do you do when you get to a point where you put so much time and energy into the strategy? But you wake up on Friday morning, on Monday morning, and it no longer works. The answer is you need to figure it out. So getting into a position where you add that experience to not only fill the strategy, understand the variables and the testing measures that go into it and really create an alpha. But also being able to create strategy logic. What is the strategy built for? How can I ensure that the logic is sound for each variable that I've put into this so that it makes sense and it's not just a black box of noise. Really, once you've got that element down, you understand how the logic of trading systems and strategy will be a binary variable to again, be it the risk management side, trade management side, you'll then set up to create strategies, be it discretionary, systematic or quantitative for the rest of your life for the most part. [MUSIC] Markets, speculation and risk. This is the Chatwood Traders podcast. [MUSIC] You're tuning in to Chatwood Traders Episode 302 and I'm Tessa. Before we introduce our next awesome guest, I just really want to welcome you. And to let you know that it's really been an honor and great privilege to be the producer and your co-host on this podcast. And I think I can speak on behalf of my co-host Ian Cox as well that we really appreciate you. And although we don't personally know most of you, but wish we could, we really hope you are doing well in every way. Now I know I mentioned I am a producer and co-host, but I would call myself a trader first. A trader who happens to co-host and produce the podcasts on the side. In a way, this is like a public declaration for myself because when this wonderful podcasting opportunity was introduced into my life three years ago when Erin, the original founder, the podcast stepped down and I took over for a while, my trading had to take a backseat. Although it has been truly fulfilling to run a podcast and it still is, believe me. But I had to face the question on what's priority, what do I really want? Because it was really a struggle to juggle. And I regained my clarity a year ago when I decided that trading needs to come first in terms of my career and what I want. So that clarity really helped me to bring things into order and focus. And I'm sharing this because I know some of you might be going through something similar right now, struggling with what you really want to do and what your priority should be. And since we're at the half year mark of 2025, this might be a great reminder to reassess your goals and gain the clarity that you need. Well, our next guest, Dylan Montman, an intraday futures and forex trader and founder of Apex Capital Management must have had exceptional clarity starting at a young age. Use to the markets in a high school presentation by a prop firm, Dylan caught the passion for the potential of the markets and persuaded his way into a position at the firm. Learning about backtesting, he became obsessed with dissecting every nuance of past data. So as to create a system with high returns and with minimal draw downs by understanding where edge can be found as evidence in the performance of his algorithmic strategies. Oh, in this episode also includes my one and one with Dylan at the end. Ladies and gentlemen, we are so pleased to present Dylan Montman from South Africa. Dylan, I would like to welcome you to chat with traders. Yeah, absolutely fantastic to be at. Thanks for having me on. Will you sound like you have an accent, tell us where you are and where did you grow up? Yeah, I have a sense. So the accent you're hearing is first and foremost South African. So I was born out here in Cape Town. The growing atmosphere of Africa is an amazing place. If you ever get the opportunity to definitely come through, you know, beautiful science days will weather very much. Solve the type of people, hard workers. You finish my schooling here and then I studied, I studied in Italy since I was in the time of short. My first introduction to financial markets was really I think from the market. So she was, well, here's an actor. So very much risk orientated mentality from their one. And we actually had a hedge fund that comes from a school, when I was in grade 11 on the final year. And at the time, you know, that whole world was just opening up to me. You know, you're only really beginning to understand these things once you get into high school and just sound between the class and it's. And so I had the opportunity to spend some time with them, you know, learn how hedge fund been more of a proffsile trading worked at the time. And that was my real experience, actually, actually. This was in high school. So were they, was this hedge fund presenting to the other students in the class? Yeah, exactly what it was. So specifically what would happen in high school, the Stanley is, you know, maybe once a month or one supporter, they'd have either one of the parents or one of the colleagues of the alumni of the school, they would just give a presentation on what career paths and options are available. As we're happy with the high school, that's a very normal thing. Kind of found yet in a new US. That's, that's a pretty common place. So what kind of types of investment ideas to this hedge fund introduced to you and the other students and was there a particular type of investment that initially attracted you? Well, I think all in taste of purposes, they had a hedge fund on, but they're really more of a proffsile. And so it was very much a brightening start, right? And the way that they sold it was very much that financial markets are a place where billions if not billions of dollars on maintenance must every day and it attracts the best and brightest people to the field. And part of that is every day you arrive at the desk, solving challenges, that's really the crux of the job and you're up against the smaller people in the world. That's wise what really fascinated me. What was the first asset class that attracted you and when did you open up your first account? Yeah, yeah. So from then on, I traded for them. So after the assembly, I went out to the manager and said, "Look, I want to go to the field." And then she said, "Listen, no, go get your brief first." And maybe once you've got your masters and you've spent a bit of time and then they've been back in chat then. I think now you're being abolished, keen edge. The first thing I said was, "Look, I don't think you understand. I really want to trade people." And she said, "Okay, fine. If you arrive on Monday or it was a school holiday, the funding, she said, "If you arrive on Monday and it's fine." And you make a copy of the Superforce and maybe I'll mention it. I think she was joking to the artist. I arrived and obviously she came in a lot later that she was like, "Can you do it again?" She said, "Get here early and back here early." I've been making everyone copy. I thought that was the deal. So that's what it looked like. I think she just saw whatever herself and she said, "Let's give this kid a shot. If he becomes something great." And that's where I first started trading. So it is going to be a picking crypto. So, crypto names for kind of mattress swinging positions, which went back well. And I learned some more of the quantities that do the font-disc as well. Yeah, so that was really where my first question, quite a bit, but I think that's what. Describe to us kind of your early time there at the prop firm. This was going from 2018 into 2019. So really when that volatility spike in crypto really started to come back and body started to move into that space, I learned very much of response to our training, which is really where the experience comes in. So I think contextually, if you put yourself in that end space where you try and see if one pick up, you're starting to see these names start to move again, or at least substantially contextually speaking, it was the perfect story. Because they have the data and the quantitative side to say, look, this is when you want to start buying, this is when you want to start working for volume, you know, standard deviation breaks and HDR breaks and all that kind of thing. But at the time, that was my introduction to trade, which was inherently aggressive, just because the timeline of when I learned was just an aggressive market cycle, that makes it sense. So I learned, I learned to learn the basics, market structure, volume, profile at the time where there were relevant learning about narrative, things like that. That was really the fundamental things I was starting to know. And then how long were you in training, so to speak, or in this learning, initial learning phase, before you were able to click the first button to buy or short? By myself, I told my parents, I don't think at the time, by myself, I was able to make any important decisions. It was very much a team effort, which I think was a really important start to work with my training career. I really started to pick in the actual button with the team from day two to day three, learning alongside the traders next to me in the front stage of the fundamental guys. But like I said, it was very much a team effort. I wasn't making any of those decisions myself. As I think as a product, you know, we trade for a prop line, you've got to go through your school fees base, so to speak. So it sounds like you hit the market right at the right time with the volume and activity, really picking up. How did this time period go for you and the hedge fund, as far as profitability, did your strategies work out, at least initially? They did. Again, I think it's important to remember that this was really the start, where everything started to go up. So it was really important, so to speak, in a lot of ways. It's very helpful for your whole turn, it's like your whole point, not going to say the word, but the small point at the time. That was really important to us on to picking. No, we did very well. We did very well. I think for that period, I worked on a more aggressive start fund, where we were able to take on a bit more risk. I think we three extra portfolio within the sixth to eighth month period. So we did well. We did well. Well, and now are you trading your own personal account at the same time, or just dedicated to the proper? Just the problem. I think at the time, I was fully convinced that there were much more advanced, more sophisticated members on the trading team, that were trading their own accounts, obviously, linked to the problem. And that's kind of commonplace. I knew well enough that if I had to start on my own account, I wouldn't go anywhere very quickly. I think I'd be sitting myself back, you know, pretty bad, how does someone not? So for primarily just, primarily, Professor. So this is going well, and you guys are making bank. How long did you stay there at the platform? The firm did well. Obviously, I was just a little bit interested in the risk of getting it. But I made a little bit of money, though. The thing here was that he's done okay. Let's give him a bit of profitability, and we'll send him one of our own. He's ready, and that's what happened. So that was that. And then following that, I obviously went to Professor in Italy. And during COVID, there was a small gap between when I started when I finished, and as soon as I got to Italy, obviously COVID happened. And that was a spanner that was storing the work. So I moved over to Italy. I mean, in the long year, they had a phenomenal economic supply and I simply, and then 10 days in, I got a call from one of the government representatives, and he said, "Yeah, I can see on my system that you're here, and you're studying, and it's phenomenal." I said, "Yeah, I mean, a great time. Why are you calling me?" And they said, "Well, there's one flight out of the long year, and you need to be on it, it's in four hours." So I had to burst the bubble, but if you want to go back home, and drop this COVID thing, you need to leave. So that was a major, major spanner that works for my family, you know. So then I had to come back off to 10 days, and then obviously it's been just my studies are remote. But I mean, it's already about the times I've been going through those things. So it's not just me. So yeah, just for our listeners, what is the difference between a regular prop firm and what they call the funding when you quote, get funded? Are they the same thing? It's such a good point to you. No, they are, they are specifically not. So there's two primary distinctions that you need to make here. So the first one is instrument tension. Brick and mortar proprietary trading firm is defined by a group of individuals that are trading their own capital, or a firm's capital. So there's no clients whatsoever. And it is solely for the profit of those individuals and the firm. Okay, very simple. Okay, there has been a rise in what's called CFD in future products. So CFD is a contract for difference anywhere outside of the US. You can practically trade them. And that's, that is a model where a brokerage is signing a contract with you with every position. That says, whatever the difference in the position is from when you answer to the exits, I'll settle with you. I'll assume that exposure on my book. The other also has this futures and we'll get into that shortly. But for all intents and purposes, a prop firm in the sense of getting funded is a company that agrees if you can trade by our rules, and you go through a kind of evaluation process to ensure that you do that for a fee, by that, we will then give you a quote for trading account, which is 99% of the time. Not live, it is demo accounts. And we'll give you a split of whatever you would hypothetically make on that account. There are exceptions. I know that there are firms that take the same route and they do fund some of their traders live. I'm sure that is when they come in place, but if it happens, the majority of these funded accounts are not live. It is a business model like a casino, right? You pay 90% of people can't pass this challenge. And as a result, the business makes money. And whatever the difference is between what they make in from these evaluation fees and what's their purpose for it is that the profitable trade is yet they're just paying that out. So there isn't some stash of difference. And I think it's important to make that distinction. Great. So you go back to South Africa and during COVID. And during that time, you're still trading with the firm remotely or you were trading just by yourself or what? At the time, I actually wasn't. I was still following markets substantially. It was my passion and I was, well, I was focusing on. But I think just given the amount of turbulence that was going on in the world, it wasn't something that I wanted to convince you at the time. And that was obviously the time during COVID, but when you really started stable. I mean, that's when we were breaking all time, I really actually flopped. So I've been, I've been thought of by the background, but at that one. Okay. So then during this time, what are you trading? What are you looking at and anything stand out for you? Yeah, at the time, I was just doing my demo trading. I think the important part for me when I arrived at this time, I'm not in a position where I should be trading like that. I think obviously financially, it hit a lot of people on. That was my life play at the time. And having to come back and having to start over was a big challenge for me. The immediate discussion was, I know what good looks like and textures you think. I know any of that. But I need to get there as quickly as I can. So it was very much coming back, learning about an algorithmic style of trading binary variables, how to create strategies that work in the real world and not just on practice. And then eventually putting that together into my own strategy. That was a, that was a six year period of learning how to do that. And then when I got back while I was finishing my studies, I actually worked for CFD from the South Side Dream to spend. And that's what the majority of the time. So you're learning how to what create these quant models, doing a bunch of back testing on, like gives us an example of some markets that you're doing back testing on and what you found. Yeah, absolutely. So my immediate exposure was to FX. I knew that FX was for all intents and purposes the most widely available instruments that one can trade as a retail individual. And likewise, a lot of the platforms were the most popular platforms CFD at the time had a somewhat quantitative trading platform that you could optimize strategies and back test on historical data and things like that. That was my really introduction. My initial fixed test in that space was very much in your, in historic FX phase. So things like dollar-round, your crosses, like a EuroGDP that worked very well for substantial amounts of time. And then also a couple of the majors, you're a USD obviously something that you want to look at to trading FX. That was really really good. What attracted you to these more obscure trades? Is it because there's less competition or is there a particular advantage? Do the presumably less liquidity, right? Yeah, definitely less than what it's even more. When you're trading through it, it says, "Mcquiddity isn't as much of a challenge because you've got a market record or liquidity provider on the other side." The real element retrospectively that drove me towards that side was because of the volatility associated with these pairs, they tended to be more direction. You were able to catch directional edge a lot easier with the quantitative model, especially on such a surface level, that that was just where the alpha was at the time. If you look at something as when you have a more range balance, especially if it's on your USD, the level of variables and understanding of how these models work was a lot more sophisticated to create genuine alpha. Where's on your exotics when the quality wasn't an issue because you've got those market makers and liquidity providers, it was not easy as you just go, "Look, we've been long for three months and we're probably going to be long for an outrement." So your directional bias is going to be long and not easy to create an entry model, risk management plan and trade management plan, and you're good to go. That's just where the strategy programs go. It was very much a circumstance that I'm going to let the alpha decide what's working and I'm not going to dictate what needs to work, if that makes any sense to you. So did you have much of any experience with discretionary trading and if so, how did it go? Are you ready to get serious about options trading than Jolene Tasty trade? Investopedia's best platform for options trading, 2026. Stocks, options, futures and more. Tasty trade has everything you trade all in one platform. 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I think one of the first big lessons I learned was that discretion you learn to do either with the men's or with the players who plays the pool, he's in the market. Here's why I went to the more systematic and quantitative routes. So you're dealing with binary variables and this on subject to change, and this is going to be in crisis. So how do you go about doing back testing? Because I've heard people say, oh, you should only back test for the last five years or you shouldn't include exogenous events like 2008 and the COVID crisis because then it distorts everything. So what's the process that you implement in this? It's a great question and I think the simple answer and indirect one is it to bet. There's more than one thing that works in the market. We have our internal IP of how exactly that works. So firstly, let's start with time frame and let's start with the amount of data that one needs to pursue. So obviously, depending on the time frame that you choose, if you trade in the one minute the check chart versus same 15 minutes, you're going to have a very different level of data and time frame. I think the important part first is to acknowledge it's about data points and not necessarily a certain amount of time. Right? Because again, we could say five years, the five years on a one minute versus five years on a day or weekly chart are very different sets of data. So you want to ensure that you've got a substantial amount of data points to deal. For us, that typically is all the way between 5 and 10,000 data points, but again, currently we trade a lot of second one minutes and second related charts. So for us, it's really important to consume the amount of data. The other challenge when it comes to that testing is the person overoptimization or code that thing. Right? So for those who don't know what that means, it basically means if we had a value of stupid, you've got stupid as well in the US obviously. You must have. So if I put a value of stupid and let's say that I pull one red skidding on the back and then I go in and I happen to pull up another red skidding. It's fairly logical to make the assumption at this point that if you haven't seen the rest of the bag and you don't know what skills are, the color of those sweet songs that you read. Right? So if I then say, okay, I'm going to start taking best with people who don't know what's in this bag and I still don't know what's in this bag and I can make a assumption that every stipple is red, you're very quickly going to understand that you're going to lose money that way. That's called code fitting. Trading strategy that is very and extremely optimized for a sub-stack of sample data but not necessarily all of the outcomes in the data that's within the market so to speak. Right? That's how that happens. So how do you avoid this as a trade? Well, the first thing that you do is you need to test for what's important robustness. There's a few ways to do this. The way that we do it is we do something called non-consecative sample testing, what forward optimization and also sample testing. For all the quantum systematic guys in the audience is going to make a lot of sense. It's really about going, let's test and create a strategy on say 10 data points. We're happy with how this is working. We're happy with how the strategy is performing. What we now need to do is take that strategy and test it on a separate set of data points. What is the next 20-year or 30 data points? Based upon those results, you're going to get a very quick understanding of this, creative strategies and stuff because the majority of the time there's something to work. When you find something that does work, so test it on your first end and then you test it on your second and third set of 10 and it still works. You've then got something that has no. What you want to do is do a random optimization. You want to make sure that if we say test this data on another 50 data points, that not only as it sounds, but we can optimize each of those variables in the trading strategy to that set of data and it's still going to. We really want to get into the weeds of how we're going to find these things in time. If we're able to clear that robustness test, the last step for us is called non-consecative sample testing. By the stage, we've maybe tested, just based on the conversation, we're looking at 60 or 70 data points. We now want to look at the last 30 to 200 data points. 30 or 130. If the strategy still performs over that theory, that's how you create a strategy that's going to work in the long term. Not only have you tested over a specific sample, you've tested it with out of sample data and you've done something called war for optimization. You've optimized the strategies for periodic sets of data and check if the store works and it does. That's how we create a strategy. Given that the Quant trading has been around a long time and you have a lot of different groups, doing all these back testing and I've even seen some programs for sale. People have created these algorithms and stuff. I imagine what you're doing is probably pretty time consuming. Wouldn't it make more sense for your typical trader just simply buy and off the shelf programs since other people have done it before and save ourselves a bunch of time? It's a good question. I understand the logic, personally I was saying them and again, it is going to be exceptions to it, but here's why. Typically, when you create a strategy that makes alpha and does so in a sustainable and consistent way, there's more capital to be made from trading that strategy either through a hedge fund, a proffirm, etc. Or selling it to an institution if that's the which you want to take and selling it to the public. I have yet to see a consistent heat profitable strategy that's sold to the public, especially when you look at a price point of a couple hundred dollars to maybe a couple thousand dollars. These strategies typically have extremely high valuation when they are sophisticated. And generally with those return, risk return, pro-files and return, consistently they are channel you very soon. sophisticated. It's not an auto-shelf product you will buy, but what I would recommend, and again, just because I've gone down the streets personally, is I would recommend putting the work in, even if you are a manual discretionary, also as a mandatory, and I'll tell you why. The learning code of going through how a quantitative strategy works will set you up on the risk of your training career. Number one, both in hard skills and understanding what it takes to be consistently profitable over time. What do you do when you get to a point where you put so much time and energy into your strategy? But you wake up on Friday morning, on Monday morning, and then no longer works. So getting into a position where you add that experience to not only build a strategy, understand the variables and the testing measures that go into it and really create an alpha, but also being able to create strategy in logic. How can I ensure that the logic is sound for each variable that I've put into this, so that it makes sense, and it's not just a black box of noise. I think that's really important. Once you've got that element down, you understand how the logic of different trading systems and strategy will be a binary variable to again, be it the risk management side, trade management side, you'll then set up to create strategies, be it discretionary, system ethical, quantitative, for the rest of your life for the most part. Alternatively, you're going to go to someone who's maybe made a strategy. You don't really know how it works, so you didn't put the work in. They'll release an update, but ultimately because you purchased the strategy and it's your own capital down line, and if anything goes wrong, there's also an accountability shift that happens there. So, successfully, pots, do the work of only get it out the way, it will do you good in the moment. And how do we define what doesn't work? Because there's a certain time period, right, that everyone expects a drawdown. And during the drawdown period, I'm sure many traders say, "Oh, well, I just need to wait a little bit longer. My system will work. It's worked in the past. It'll come back." At what point or how long should one wait before you throw in the towel and realize, "Oh, my strategy really doesn't work?" And this is the black box thing, right? And this is why logic is so important. If you understand when and why strategy works, you'll know when it's not working, because you'll be able to point towards the variable that is supposed to dictate that you're working on. I'm getting a song, "Let's look at back there an intraday break, that's okay." So let's say we're trading NASDAQ, we've just gotten to the New York session. It's the first 50 minutes of the open, the most volatile time. But we can see that average daily volume, so the past 100-day period, for example, how much volume have we done to that point, and relative to the past 100 days of average volume? If you've only done, say, 14% of volume, okay, by the close of the first 50 minute candle of the US session, logically speaking, and you understand how markets move. Break out strategies are not typically going to work in that environment because for break out strategies to break and run, you need consistent buying volume. Okay? Now, again, that seems very simple, right? But what is consistent buying volume? How do you measure that? Then you learn about Delta, okay? This is probably the negative Delta, and then you learn about footbridge arts, and then you go into that one. Once you understand that, and you understand, okay, I'm trading a break out strategy. For this to work, I need to see this amount of volume happens within the first 50 minutes, and within the first, you know, called 12 hours of the day, you then are able to pinpoint markets between June and August. The majority of the intraday traders and the big banks will go on holiday, they just isn't that much volume surging through the market right now. And again, I see that we've only done, say 14% of the average volume within this 15 minute period. The lightiness of this working is not high because the core variable we need is volume. If the volume is not there, the break out is not probably going to work. So maybe we look at something else, mean reversion, arbitrage, things like that. So that's why it's important to really understand why do these things work? Not, does it work? It's a very good question, but why? And when you understand why, you have in note when it doesn't work and when it breaks. Does that make sense? Yes. So you mentioned the breakout volume. Are you only looking at the individual security and their volume? Or are you also looking at the market volume to see how sustainable that might be? You can look at bots. You can absolutely put the bots. This is whether, there's lots of things that both of these many races can cast in the markets. You can look at both. And again, this is also about logic. If you're going to build a strategy that maybe looks at the index as opposed to the individual start, or let's refine it, or let's think of it as an example. If you're going to look at the futures versus say the underlying index, those are two separate strategies with different financial engineering and different options. And you need to cater for one of those, right? So you can't necessarily pick one and it's going to work in both. So this is why getting into that logic is so important. So you focus just on effects or are you looking at, do you also trade other markets? Maybe I can start from where we were to kind of confirm through the stuff and so on. So after about two years of working for CFD and the Rovers of Swittons, I had some exposure to a few hedge funds then in South Africa. And there was a consistent point we realized that there's a substantial difference between the asymmetry of a proprietary trading firm. You can lose a lot less and make them more versus most hedge funds. Most hedge funds don't have a very good risk return profile. If you look at the shafts of your very big boys, like your stedadels for example, and they have a different set of variables. Trading that kind of size, I think it's unfair to expect super high-shock ratios in a symmetry, but you get the point. Most hedge funds just don't have that on pretty symmetry. When I saw that, it baffled me a bit, did I thought to myself, I thought trading is supposed to be asymmetric. Why do I have to risk one to make one, or risk one to make point seven? That doesn't mean any sense. Why would anyone do that? And that's when I began to realize, well, there's this special thing called prop trading that most people don't actually get access to. There's demand for this product. If you have to go to a lot of other multi-stractual family offices and say, look, I've got this product and I've performed with your traditional long-for-equal macro hedge fund. Here's the data that I'm going to show you how it works. That's a product that can be in high demand. As a result of that, I ended up staying two years later in my twigs. If there's ever a time to go risk on and build a business and a good one, it's not going to be what I'm living. This is the leap of faith. What I ended up doing is I've got a team. We created a company called Apex Capital. We raised some equity capital for that. We have some phenomenal investors who have been very helpful throughout this period. We incorporated our own proprietary retreat. Again, all guys in our 20s, we've got a phenomenal team that's a substantially experienced trader. It's far better than higher than the very lucky. We took futures contradictions. We created a strategy that was first and foremost meant to be liquid. This is something that you can withdraw from and play with in terms of liquidity. Secondly, extremely asymmetric. Again, we're not risking one to make one or one to make five, six, seven, and above, for example. We need to have a defined, magic, and a defined edge. We need to know our nature of what we're good at and six, it's not driven too much from the scientists' side. That's the shape of a core team, trade-mation team of four. This is right across most CME liquid futures sectors. Things like NASDAQ, S&P, natural gas, goals, crude oil, and then we have got some effects as to exposure as well. It moves, and it's got the one. Okay. It looks like you look at a wide variety of markets then. Do your algos. Do they look at, once you've got it down for one market, does it apply to all the markets? Do you have to go back and test it for every single market again and again? The logic works. The logic of how does it break out versus the mid-reversion strategy or arbitrage strategy. That works pretty much in the system via cross-fuel centralized futures markets. Again, the systems are going to necessarily work on crypto, which hasn't been advantageous in different space, but the logic works. Obviously, when you trade these instruments, particularly on an intraday basis, you begin to realize very quickly that you're dealing with different partners and things, but all optimising for different elements. They've all got proton codes, their own personality, if that makes it. NASDAQ is the pretty two natural gas and crude oil. It is important to have a set of foundation of the masterpiece that are important, but on top of that, you need to cater for each individual personality. It's like inviting a friend to a party and she'll have to ask for a drink to replace. You can invite everyone through, but not everyone likes to drink champagne. Some guys are going to want water, some guys are going to want beer, but they're all at the time. They're all at the same place. That makes it. Yes. You mentioned earlier about using order flow to confirm directional volatility in your strategy. Can you break that down a little bit more? Yeah, absolutely. So I'm going to give an overarching view here. So we base one of our alpha three core principles. So the first one is order flow. Order flow in essence is a skill where you are dissecting the volume of a particular asset over a given period. To get a better sense of what the underlying participants are doing, it's basically how you're able to read the heartbeat of the markets just before it's about to stand. Right? That's what order flow does for you. And basically it does have a bias towards short to time frames in our experience. But again, if you have got that short to time frame bias, just naturally as a trader, you want to have a little bit order flow on your centralized markets. So that's the first. The second thing is asymmetry. It's important for us to again find our niche and how niche is look good at high expected values, strategies, particularly ones that you can risk one to make three, five, seven, et cetera. Right? You can get high expected values, strategies just getting one to one, for example, but that is a completely different set of skills in our opinion. The final element that we focus on is risk management. Right? Risk management itself is also an age. And I think they're not in our trade as a paying attention to it. So again, understanding maybe the biases of your strategy from a risk perspective and catering on multiple that can trade on top of that risk management strategy whilst not necessarily optimizing for return only, but also optimizing for smooth equity. It's a chart for issues with you know, but let's get back to the question. What are flow specifically? What are flow tells you who's buying our aggressively, they're buying who selling our aggressively, they're selling who's winning? And again, because we're trading markets that are developing on an ongoing basis, right? The guys who were buying the selling 30 seconds ago are not the same kind of buying selling now, right? In the present and won't be saying the guys button and X5, 10, 15, 30 seconds. Like I said, it tends to have a bias for the short term. But if you're able to use that as a confirmation thing, perhaps for an entry, even if it's on a string position, there's a lot of age to be having. And here's more of them. It's phenomenal. Isn't it common though for both buyers and sellers to break up their orders into a whole bunch of small lots, hundred share lots or whatever? And this guy is this and how does one detect this kind of hidden way of accumulation or distribution? Yeah. You're getting into the real alpha questions now. That's a correct question. All right. So let's use that example specifically. All right. Let me ask you, who are going to be the entities that are going to be doing that's breaking up moments? The market maker, I would assume, right? Or the whoever. Yeah. Yeah. Yeah. So they'd be acting as an agent for somebody else. So there's a fund. Let's call it Ian's fund capital. Right. So Ian, you call up your investment bank and you said buy, I don't know, 200,000 shares of the stock. The guy on the other side of the phone says, yeah, Ian sounds great. I have that done for you. I'll see that. What that individual is incentivized to do is to execute your order without increasing the cost of the order or the slippage of the order. Right? Because if you just buy market in one single time, it's around a thousand shares depending on the liquidity of the asset. You're going to get up that order, but you're going to get slipped. You're going to get thrown across the investment bank or the South Side Trader, he's going to break that order up. Okay. Into small pieces. I know this sounds, this is very simple, but you'll understand why we're walking to this step by step. So he gets on this trading platform. He's starting to execute your orders. If you were an investment bank, and you're incentivized to get the best price possible, what kind of orders are you going to use ideally? Presumably limit orders, right? A whole bunch of limit orders. Yeah. You were swadding. Absolutely. Right? So now we've just brought up the thing of passive, those buying side passive, those active participation. Again, in the end, it serves your passive participation is in the limit order, whose added liquidity stock to the market. And you've got active who is removing liquidity or stock from the market. Yeah, let's look at this example. Now that we have this information in mind, let's look at a breakout fit. Okay. We've got a breakout trades. We have price breaching our level, let's say, on the one minute. And we can see in order flow that there is an influx of buying. Okay. An influx of buying is demonstrated by what people call positive data. Delta is just a fancy term for what is the difference in buyer or selling from active participation. Okay. So the volume, if you took the volume bar, you split that between buyers and sellers, are they more buyers than that kind of or they're more sellers than that? That's going into the market. Now, if we had a certain stance where we have price breaking out of the certain limit to the end of the market, ones of positive delta, pass again, abnormal positive delta. And then the price moved up above that level, we were looking at a long example. And then to climb again, below them, something intuitive, he doesn't make sense that you've got all of these buyers pushing price beyond this point. But for some reason, we can't close the candle beyond that point. How does that make any sense? The answer is limitless. There are resting limit orders that are absorbing all of that grind structure to the points where there is now an unfair fight between the guys who are buying and the guys who are selling. It takes so much more buying power to reach that resting sell order than it is for a lady address of sellers to go, look, this is very abnormal selling pressure that we can put into the market. If you're buying a key point raised price in the firm, let's just keep selling in it. It's likely going to tank the market. There's a level asymmetry there. Right? That is the kind of information you can obtain the order flow. And yes, you may have your institutions that are breaking up orders into multiple orders and I suppose women that's completely common. But these are still things you can see and read either via the tape, you have a footprint chart, the accumulated volume, does the chart, things like that. And this is why it would have looked so asymmetric, right? It lets you see the high price and see what the actual participants are doing and what that little participation looks like. So are you looking for a setup where the limit orders on the top end, the potential sellers have exhausted their stock. And then at that point, then you say, oh, look, the sellers have exhausted their stock. Now's the time to go in because it looks like this breakout is going to be more sustainable. That's, yeah, that actually is something that we look for. Right? And that's that's a common breakout. There isn't enough liquidity to hold buyers back by as a king of all of that liquidity and we can break through that level and keep breaking up. Right? Absolutely. We also looked at the previous example, which we call absorption, one of the, this is what the sector called absorption where there is so much stock available that there isn't enough buying to get through that massive order. And now there's asymmetry between buyers and sellers that are going to take this down. That's also a set up that you can. And there's tons of kinds of reasons. I mean, there's a whole world you can get in to and what's possible and the one world of flow and all of these sellouts and confirmations. And that yeah, absolutely. For your fund for you and for your fund, are you just a super short term scalper, where you take positions for longer periods. The account of positions along the periods, the arresting that is edge there for us because we wanted to turn us into a hedge fund product. For intense purposes now we are not a hedge fund. We have a crazy list of clients who want to purchase into this hedge fund. And I think once we get to critical mass fund, we get there. But for right now, we're just a proprietary trading firm, we're trading our own capital, shared capital. Because the end got has always been the hedge fund products, we are putting all of our emphasis and resources into the final of the entry day. Systems look like again, only trading within that new a session. Like you say, scalping, I mean, our average trade time is about six minutes, although we do have kind of the longest trace we've taken off. And then we have a mid-Land and sessions with close at the US, but all within that one day time. But again, I think the water flow and all of these these tools that there's a lot of time. So obviously they're just in the bias for that kind of streets with. And then so over the years, as you've learned and implemented, developed out your strategies, how have your kind of returns, draw downs, different metric, sharp ratios evolved over time. And also a lot of my questions. So. Naturally, when you start trading, you're going to be shopping. There's just no way around. Right. So I think writing the beginning when I started trading. By myself, naturally, that the returns were negative. They weren't good at all. And it was a major learning curve in a hundred experience. And then we've primarily thought this model is the water flow elements of the street philosophies that we have. We were able to optimize for better and less metrics than Dr. Sharper, a share. The year. or sortine ratio, comma, etc. Currently, our shock ratio is doing very well. It sends access of. I know it's an excess of three last time I checked it, I think it's an excess of 60. Well. Yeah, it's definitely not only well. I sortine the excess of nine as well. Today, we've returned just 30% into the fund. Well, the simulated hedge fund, the proxide we traded a higher risk model, just because honestly it's more appropriate to trade our own capital, the higher risk model for the hedge fund, which we report to we return 30%. And our natural as of today, this year is negative 0.2%, negative 0.0% into the same. So, I'm not my ratio. Yeah, it's going very well. The guys are doing phenomenal job. Well, great. What if some traders came to you and say, "Hey, look, I don't have enough money to invest in your hedge fund," or whatever, but I've been a discretionary trader for the last two years, and I'm doing quite well. Why would I want to get involved in any of this quant stuff? My discretionary trading seems to work just fine. I would say that's phenomenal. Definitely that's the news. I think it depends on what's involved ultimately. I said, "There's so many ways to make money in markets." There really are. There's so many things. If you are the kind of trader that says, "Look, I want to get not only returns, but I want to do that in the most asymmetric form possible." Right. I would then say, "Look at all the flow and look into the quant, you risk management stuff," because that's where that ultimately lies. If you're optimizing for that, you can capitalize on both sides of the expected value formula, and all four sides that could be given. Whereas, if you're just trying to do things like price action and regular backstats, then those metrics, you can get the returns out of doubt. But it's not going to get you to that ultimate form of asymmetry that you're looking. What do you think are some of the biggest risks to discretionary traders, especially ones who have some early success and say, "I've got this down. I'm doing well, and I'll just keep repeating what I'm doing. And what are some of the hidden traps that discretionary traders frequently don't look at?" Before I answer, there's discretionary or discretionary rights. I mean, they're focused out there. I know a couple of guys at this Indie Capital is fully of incursion, and there's some phenomenal firms out there that just have an IP towards discretionary trading and they do so in such a way where they can throw discretionary in a very consistent way. Even on events, not discretionary in ones who get to that level of sophistication. It is systematic. You just use your risks a lot more, which is phenomenal, right? It's like hats off to those guys that integrate. And again, it's coming back to the original points. If we define a discretionary as just having a set of binary variables that you're ticking off of where you're betraying, so that's what we're talking about. I would say that the most face value elements is obviously just tough. Right. What happens when your calls just aren't there today, and you're trying to maybe force your own views on the markets, and you just keep adding risk on the table into something that's not working. That's the first risk. Right. The other elements of discretionary trading that I feel has elements of risk that maybe your quantity and systematic style guys don't have is the risk management side. There is so much more to risk management than just risk trade and master down capability. I'd go so far as to say the one thing that has made us immediately profitable is having a sound understanding of risk management. And really diving into what that means, you know, there are hundreds and hundreds of different ways that you can look at risk that you really look in your eyes. Right. And I'd say that those are the two primary challenges, I think most discretionary guys may again, they are exceptions. I'm not talking about the super sophisticated, you know, one to kids after. Yeah. What about the issue of say position sizing? Have you found an optimum level of position sizing in your back testing? Yeah. And this is just your asking questions. Yeah. This is having a great time. Yes. So it all depends on tolerance. Right. My level of risk tolerance is not going to suit yours or. Get thousands or someone else for example, I think first and foremost, you need to have an understanding of what your personal risk tolerance is and have a target. You know, value of risk or match or down the truth and incur in the worst possible. So that's the one. Let's let's say that that's 10% for them. Okay. Let's use 10%. What's then really important to do is understand what does the draw our capability of a strategy look like based on it's inherent variables and expected value. And there's ways to test for this. Right. So you can what we do personally just to maybe get some day and ask is we use multi-color simulation. This is not new. But what we also do is we add a realism factor. Ultimately, they just some you mentioned there weren't necessarily show you the absolute worst case scenario. You then multiply that by say an additional 20 to 30%. So you exaggerate that the match or down you can occur. You what you then want to do is match that to be based on the expected value. The maximum amount of trades you can or negative trades you can occur within a kind of straight line. Right. So how many consecutive losses can I make? Okay. So let's say that I want to target a negative 10% draw down. That's what my exaggeration multiple gives me. So I that's why. I kind of target draw down. And I then see that based on my exaggeration multiple that I can incur maximum of. Let's just keep an easy 10 trades in the road of losses. What I'm then going to do is match those two together to get a risk of triple right at least as a basic. So again, 10 divided by 10 is one. So I'm going to be with one percent per trade for example. What's very really important to when it comes to understanding risk for trade is not all trades are made for right there. There's going to be some repositories where you know if you look at blackjack and the true card becomes extremely positive. You want to start you know doubling tripling or quadrupling or best size. If you're playing blackjack, you don't want to do those kind of multiples person for a fight. But they're going to be times where your strategy is more potent and there's going to be times you're strategies more than to. In those environments, you want to have the flexibility to either increase size above your baseline or decrease size substantially below your base. Right. And again, another piece of game here maybe that that would be valuable is the one of the elements that really work for us in the beginning phase. You know, before we even got into order flow was anticipating based on the variables that make our strategy successful. When we're going to see a reduction in performance or performance dilution as we call it. And substantially decreasing our risk substantially. I'm talking minimum to a third of the exposure to attend to even less. And why does this work right? You know, why is that so important to do? Well, ultimately trading is what you make versus or minus what you do is what you keep. So if you can make as much as possible during the times that your strategy is most potent. And then you know retain as much of that when your strategy is more diluted, you're going to be making more and longer. So number one, when it comes to where the edge lies, get a sound understanding of what's possible in terms of draw down with your strategy. That's the first one. Have a firm understanding of where your personal draw down limits is that is extremely important, especially if you're trading on discretionary basis, your head is very important to your head space in psychology. Matching those two together on an exaggerated basis. So give it a bit of leeway and things go wrong. Things go wrong in the real world. That's just the way that things are. And then get some nuance with your strategy in terms of variables that you can go. Okay, if the volume is greater than. X percent by a certain time period in the day or our vol is you know two or three or five times it's normal range of trading stocks. That is when my strategy logically and from a back testing perspective is more potent. So when that happens, I'm going to add some. Conversely, that you know the volume is really not there today. You know, it's a UK and US banking on it. Okay, but the volume is really 10% of what a new unit. I'm not going to trade at all if I'm going to I'm going to do that as good or take the size. So that if I lose I'm not losing much but when I win in my most asymmetric part of the day. I'm making the most money possible. This is Kevin. We hope you're enjoying this episode so far. If you are, take a second to leave a comment. We read them all and truly care about what you think. And if you haven't yet subscribed to our email list, visit chatwithtraders.com and click subscribe so we can keep you posted on information that matters. Now back to the chat with our guest. So for our listeners who obviously hear that of the enormous amount of work you've put into this over the years, is there a way for traders to either plug in to your system or to your group and/or to invest passively? Not yet. So put it this way. This is a brand new venture course. And we've got investors that are as far as you could find on the way that we're looking to get up and running. Neither of those two things are small tasks. I think especially for young team like us, I think what we do have on our side, obviously like I said, is an amazing group of investors that have taught us to last-minute implementation. But that's what we also have to work if we have the ability to forecast where maybe what we call, it's not brilliant, but we call it brilliant. That's kind of what the youth call it, right? Like you're young and hungry and you want to make your work, but that only takes you so far. There is an element of experience that you maybe haven't gotten to that's going to live a few inherently. So right now we don't have any form of plug-in or any form of passive investing that clients can get into directly, but that's right now. It is public, it's being a concept, but by stable kind of time, where we will have that edge fund open, like I said, we're raising a lot of weightless at the moment, so that is interest is that. But we're in no rush for that point. We want to ensure that I look at the time that that fund is ready. We have got all our checks and balances completely across our eyes, dot and RCs, and we're ready to rock without any hesitation. A lot of hesitation, but we're ready to rock without any box left unchecked, if that makes sense. So looking forward to tell us what are you looking forward to getting everything all the boxes checked? Yeah, absolutely. I think something that we're focusing on here really right now for the business perspective is institutionalizing. A large part of trading client capital when the time is right is trust, and it's nothing that says trust like secure robust processes, things like having a documentation in rocks so that when you have institutional kind of knocking into a door asking difficult questions, we can really show them the documentation that anticipates and answers those questions. So that's the first thing, institutional lighting, the big one for us. We've also created a substantial amount of the new IP over the past two months. This IP has been amazing for the team to digest, but obviously when you find new avenues, this is going to be new avenues for you to digest from it, right? Like so then, so the the team are not only working on existing strategies, but strategies that could become valuable in time to come once we have additional resources. And other than that, I think just being in a position where we can disseminate additional values to other traders, you know, it wasn't very early ago when we were struggling and we were trying to figure out how trading works in general. It's a challenging field to be especially when you do it alone. So being in a position where I wouldn't say we've got the secret source, but we're doing well and we can just provide some kind of direction at the very least to other traders who maybe in our shoes called it six years ago, that's something that's been phenomenal for us to do and we feel very blessed to do that. Fantastic Dylan, thanks for coming on chat with traders. Thank you for having me. It's been amazing looking forward to chatting soon. Yeah, great. And how can our listeners get in touch with you? I think the best place would be through our website, so that's www.apxcpl.com, which platforms for traders and investors and interest and funds to come up there. That'd be the best place. Fantastic. Thanks for coming on the show. Thanks again. There were a lot of golden nuggets and I admit I'm not a very good listener and I would have to listen to this interview over maybe at least two more times to really not miss anything. But I remember you mentioned something about, you know, make your strategy systematic earlier, as soon as you can, is that what you meant? And so what stuck out to me is like if I'm not a programmer, if not, you know, I don't know how to program or anything and if I hire somebody or if anyone's interested in hiring someone to do the programming to make it more systematic, I mean, wouldn't we worry about that, say that programmer who might steal our strategy or something like that? That's one of the things that I just always had in my mind. Yeah, yeah, that's a great question. So there's two answers to this. I have two avenues that I want to take. So the first one is that you don't actually have to call it, I can't call it for what it's worth, right? They'll platforms after that on low-code platforms that allow you to basically put in a preset of common variables that are very sophisticated. You know, if it's market structure for you, even indicates, right? You can just plot in when RSI does this. Yeah. And MACD does this, for example, do this at the size for the seminal defined. You can put all that stuff in and copy the code, paste it into Blackboard and then it'll test it. So that's the first avenue. There are ways to do it without having to create that kind of trust. Not to mention manual back testing. I think manual back testing literally just with a piece of paper and check list is incredibly underrated. I recommend if you try and do that, do that, if you're going down there to the new. In terms of the trust element between you and the developer, something that you've begun to realize, especially when we talk about our IP, because originally we didn't want to say anything about one R3 philosophies were how we do it we do in the face of that. One of our investors told us, no one's going to steal your idea and they're short-writing several barons. Right? If you think about people's seeing your idea, there's so much sophistication that goes into creating a strategy that someone would object to do you want to steal and incur that risk. The likeness of that happening during that period is so slow that they're not even worried about it. If you are at a place where that is so sophisticated, you would have liked to be a bolster team at that stage or at least the contact that you can trust. That would be my kind of two avenues to think about. That's helpful. Another question I have, you mentioned a lot about risk management and we know all that is super important. But what comes first? Risk management or edge? Oh, that's a good question. I would say edge comes first. And I'll tell you why. Risk management is one that's if you don't have something that works. Risk management is the thing that just it takes you from good to great on something that is already working. If that makes sense, right? Like that picture of strategy, that's all the intencing purposes, just excuse my French crappy, right? It doesn't work and you add superior risk management to it. It just means you're going to lose this. That's what it means. Whereas if you've got something that's sound and then you add the risk management elements on top of it, your returns may go with the right risk management. You're on from good to great. So that makes sense. Yes, absolutely. I just wanted to hear you confirm that. Okay, one last question. You're so young. Remind us how old you are. I'm 25. So young. And you accomplished so much already. But I'm still going to ask this question. If you had to start over, would you do anything different? If I had to start over, would I do anything different? Yes, I would. This is kind of a question. You're also like, if you had to give yourself advice, now looking back, definitely. For all the guys that are just getting you, we're just getting into the trade and it is a passion of yours. And maybe even to a degree, if you've got silence approved, it's going to be a self-value than the thing. A lot of traders attach their values what they do. And I think to launch the real world, if you're getting started, it's not going to work in the end of discussion, right? Especially if you don't have a mentor and particularly if you're doing it alone. There is no need to hinder an already difficult process by beating yourself up for not being the successful trade at mediating. That negative buildup that you created your head while you're trying to put the work in to just get ahead. It's going to hinder you. It's not going to benefit your work process. It's not going to get you to a point where you can operate more effectively or more efficiently. It's going to dial back your progress. It's going to dial back your enjoyment and dial back your efficiency. I think the most important thing is having faith in the fact that A, it takes time. It takes people, yes, to just get profitable. I've seen the guys do it in fun this time and you can definitely do it. The one thing that will take you there the fastest aside from the working ethic, aside from the hard skills, is making sure that you don't beat yourself up for not being where you want to be. Focus as intensely as you can on enjoying the process, learning every day and being thankful that you just need to take that extra step towards profitability. Yeah, that's so important. We don't hear that enough, actually, giving guidance to not beat yourself up because we do it all the time. Yeah, and it's such a tricky balance within the test because on the one hand to be excellent, which we all want to be, we all want to be top-rated, I think I'll be a big boy, like a big girl or whatever. We all want to be that person and we all think like look, I need to be hard on myself, I need to be hard on my performance and yes you do, right? But you don't need to disrespect your headspace, that's going to take you no way. It really is going to set you that. You can be hard on yourself, right? Be hard on results, but don't do it to the point where it needs to be an enjoyable process because that's going to generate inspiration and that work ethic and efficiency comes from. If you can keep that in a good space and just mutter yourself through that period and enjoy it, you're going to be unstoppable. Without it, it's just the way it is. Yes, oh my gosh, thank you so much. That is so good. We're going to, we're absolutely going to include that in the bonus section. Thank you again, Dylan and have a wonderful weekend. You too. Test again, thanks so much God, really enjoy the conversation. Stay safe. Thank you. Bye bye. Bye guys. Bye. Bye. Bye.