Scott trades the e-minis using a unique style that he devised on his own through
years of backtesting and trading experience.

Read on for a great interview and learn more about how Scott trades, the
types of setups he’s looking for, and how he got started trading.

StockTickr: Tell us a little about yourself, Scott.

Scott: I grew up in rural Virginia and now live in Cary, North
Carolina with my wife and four daughters. I attended the United States Military
Academy, most commonly known as West Point. After graduating in 1987, I served
as an Aviation officer and helicopter pilot. Serving in Operation Desert Storm
was enough for me to realize that I loved the Army and flying, but not enough to
make it career. So, I left in pursuit of a more family-friendly lifestyle.

My first job was selling laboratory products and chemicals to scientists. It
didn’t take long to realize that they weren’t interested in hearing my “war
stories”; they just wanted to find and buy what they needed as quickly and
efficiently as possible. So, in 1995, I co-founded a company called SciQuest.com
and launched one of the Internet’s first business-to-business web applications.
In a nutshell, we created an Amazon.com shopping experience with about 2 million
laboratory products and chemicals for scientists that integrated with an
organization’s procurement systems.

StockTickr: How did you get started trading?

Scott: I had the privilege and good fortune of taking SciQuest public
on the NASDAQ exchange in 1999. It was during these crazy times while
interacting with analysts and institutional fund managers that I gained a
unique, front row seat of how the markets worked. However, it was the
extraordinary moves in our stock price, in both directions, that sealed my
interest in technical, short term investing.

After stepping down as CEO of my prior company in 2001, I started looking at
a variety of different entrepreneurial ventures for my next career. In fact,
over the course of a 6 month period I conducted a very extensive personal
analysis comparing my financial goals, skills and resources with the needs and
opportunities of a variety of different business opportunities.

After failing to find a match that motivated me, it struck me to consider
trading for a living as business venture. The thoughts of no employees, no
travel, maximum time with my family, minimal investment, and unlimited financial
potential were attractive to say the least. But I also knew that my genuine,
life-long interest in the markets combined with a mathematically and risk
oriented personality would likely serve as a great foundation for this career
change.

When this light bulb went off in my head, I committed 110% to becoming
successful as a full time trader. The only concern I ever really had was how
long it would take me to achieve consistent profits and how long my wife would
continue to support me and my new passion. Thankfully, she was patient.

StockTickr: Most traders have a horror story about losing their shirt when
they first started trading. What’s yours?

Scott: I had surprisingly good success at first and even made a profit
trading my first year. But then I increased my trading size and soon my average
size winner was dwarfed by my average size loss. Every time I had a winner, I
found an excuse to take profits prior to my originally planned target. I gave
back all of my first year profits (plus a little more) in the 1st quarter of my
2nd year.

It was a brutally tough and humbling experience for me, but I learned a lot
and was fortunate not to lose more. It was also a great catalyst that forced me
to evaluate my strengths and weaknesses, as well as my financial and lifestyle
goals. This self-evaluation resulting in me focusing all of my efforts and
energy on the opening gap – a setup that generates plenty of profit potential,
minimizes discretionary decision-making, and is easily back-tested.

StockTickr: Do you trade for a living now?

Scott: Yes, I trade for a living, mostly focused on the opening gap. I
also run an educational site (www.masterthegap.com) that I started in 2007 where
I share my research and help traders profitably trade the opening gap.

StockTickr: What single lesson did you learn along the way that has helped
you the most in your trading?

Scott: The biggest lesson for me was realizing that I did not need to
change “me” to be a successful trader. I simply needed to find the setup,
timeframe and approach that best suited for my personality, and strengths and
weaknesses. Too many new traders have it backwards; they get drawn to the
promise of profits and try to adapt their personality to trade that technique
profitably. Speaking from experience, that normally only results in extreme
frustration and confusion and ultimately, losses.

StockTickr: Describe your style of trading.

Scott: I focus my personal trading primarily on fading the opening gap
in the US futures indices (i.e. S&P 500, Dow, Nasdaq 100, and Russell). At
the heart of my gap strategy are “zones.” I use these to segment and organize
the various gap setups into groups that may exhibit similar trading patterns. I
use the prior day Open, High, Low, and Close and prior day direction (up or
down), in conjunction with market trend, seasonality and daily price patterns to
determine whether to fade the opening gap or not.

Though my signals are a based upon a strategy system that I’ve created in
TradeStation, I manually execute the orders. On average I trade the gap about 2
times a week. I dabble with day trades during the opening hour and the close on
occasion, but my real edge and “bread and butter” comes from trading the
gap.

StockTickr: What’s your exit strategy for winning and losing
trades?

Scott: I generally target gap fill or beyond and use a stop equal to
roughly 30% of the 5 day ATR (Average True Range). Since all of my plans have a
pre-defined profit expectancy, I simply let the historical probabilities work
and I am either stopped out or have a nice winner.

StockTickr: What 3 books do you recommend traders read? Other than your
own, what are your 3 favorite blogs?

I recommend Mark Douglas’ books (The
Disciplined Trader or Trading
in the Zone), Trade
Your Way to Finanicial Freedom by Van Tharp, and Market
Wizards by Jack Schwager. To be honest though, I have read nearly a hundred
different books on trading and have learned something from each of them, but the
most important ones are about the psychology of trading.

My favorite blog is TraderFeed
by Brett Steenbarger. It’s the only one that I read routinely.

StockTickr: Do you think one day computers will make better traders than
humans and has that day come already?

For the average person and trader that day is already here. Most folks will
not be able to tackle the psychology and complexity of discretionary trading and
are better off following a system with rules. I am one of those people.

StockTickr: What technical indicators could you not live without?

Scott: A Japanese candlestick is the only one. Other than that, I
prefer price action and patterns. Most indicators are grossly over-rated, easily
mis-understood, and improperly used in my humble opinion.

StockTickr: How do you think the market has changed over the last several
years? How have you adapted?

Scott: Huge expansion in volatility of course. I had to move to an
average true range (ATR) based system for stops in order to accommodate the
volatile action of the past couple of years. And this has made position sizing a
little more complex, but manageable.

StockTickr: Do you backtest and if not, how do you instill belief in your
system?

Scott: All of my signals and gap trading decisions are based upon
historical probabilities that I’ve identified through extensive back-testing. I
trade much more profitably and patiently when I know that I have a historical
edge backing my setup. Otherwise, my personality is such that I tend to
over-manage and tinker with my trades – normally resulting in cutting my winners
short and riding my losers, a terrible combo!

StockTickr: What advice can you offer traders who are just starting
out?

Scott: Know thy self. Find that single market, setup and time of day
that best fits your personality and then focus, focus, focus! Way too many
newbies waste a bunch of time chasing the lure of money and the next great idea.
There are lots of ways to make money consistently in the markets, but none of
them can be found without an objective self-assessment and serious focus, effort
and analysis.

StockTickr: What do you like best about trading?

Scott: I love the freedom and control over my own life that it
provides. There are an unlimited number of ways to make and lose money trading
the markets. One of the surprising benefits for me has been the ability to use
my creative side to invent new ways to take profits out of the market. This is
truly exciting and empowering for those that have the stomach and means and
interest.

StockTickr: Thanks for your time, Scott.

Scott: Thanks, Dave.