Justin Pugsley - Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Justin Pugsley
Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.

Julian Marchese: Age is no barrier

The story of Julian Marchese is an extraordinary one. Interesting enough for him to have appeared on CNBC, Bloomberg TV and even the hit show 'Dragon's Den' where aspiring entrepreneurs pitch wealthy business owners for funds for their ideas.

And the thing about Julian is that he started trading at the age of 8.

At the age of 18, at the time of this interview, he is still young enough to talk about his ambition of becoming a global hedge fund manager, which he'll no doubt achieve.

Starting young in one's chosen profession certainly comes with some huge advantages – it's chance to leapfrog those who realise their calling a lot later, whether it be trading or something else.

Starting young in one's chosen profession certainly comes with some huge advantages – it's chance to leapfrog those who realise their calling a lot later, whether it be trading or something else.

In this interview Julian talks about his story, how he got into trading and how it has developed since. The discussion looks at his trading strategy, which is different to others discussed in this series of interviews.

To learn more about Julian please visit his website at Marchese Financial. He's also the founder of the Leaders Investment Club, which brings together like minded young people, aged around 13-23, keen mastering trading. The main goal of the club is to promote financial literacy to a younger audience.


JP: You started trading at a very young age?

JM: I started trading when I was 11. I'm 18 now. At an early age I was interested in the concept of wealth and how that basically gives you freedom to do what you want and help others.

I was always interested in business from the age of 6. I was always trying to come up with new ways to make money whether it be the classic lemonade stand, which is what many kids do, or website development.

But when I was 8, I made some money from lemonade stands and I then did some research on what I could do with that money and I came across investing. However, I put investing on the back burner for the next 3 years because I always saw myself as an entrepreneur.

In the end I was kind of intrigued by building wealth by investing and also investing other people's wealth and so when I was 11 I decided to start really getting into it.


JP: So which markets did you start trading?

JM: My learning curve went something like this. I started off in the world of value investing – and that was when I was 8-11, but I didn't put a lot of time into it. But as I started investing I realised it took a long time to see some returns. So being the impatient 11-year old that I was, I started to look at quicker ways and over-night I went all the way from value investing to being a day trader.

So I started learning about every type of technical analysis and chart pattern, but at the time all I really understood was the equity markets, so most of what I was reading was about day trading stocks.

As I was struggling to gain consistency in the early few years I thought the answer was the market I was trading so that got me into learning about futures,options and forex. So from the ages of 11-13 or 14 that was my learning curve in that I was learning about everything from day trading to swing trading to more advanced techniques, such as strategies used by hedge funds.

Basically I tried to learn as much as I could about everything. It gave a good basis from which I could figure out what I wanted to do.

An important moment in my career was reading the Market Wizards books (by Jack Schwager – see interview with him here). They gave me the other side of the business. I was always approaching it from the mindset of I'm 11-12, I've got $5,000 to trade and I'm going to turn that into a $1 million.

Obviously from the perspective of percentage returns that didn't make a lot of sense. So I started approaching the markets more from the perspective of a financial institution or a hedge fund where it's more about the risk adjusted return and leveraging up through outside capital.

So from the age of 14-15, I started focusing my time on that and dealing with more sophisticated methods of analysis using a lot of quantitative research as opposed to technical analysis.

JP: It sounds like it took you around 3 years to start trading consistently?

JM: Yes. Obviously my learning curve was different from a lot of other individuals.


JP: Yes, you started a lot earlier

JM: But I was still understanding the concept of what I was doing. I know I'm not a day trader, but it is an engaging activity. There was a point where I was scalping oil futures. I used to trade Citigroup shares, when there was huge volume and there was an opportunity to scalp pennies.

I was always involved in those very short time frames, but I always knew in the end that the liquidity wasn't there if I wanted to be a big player.

But when I look back it was an amazing way to really learn risk management, the quick losses, the quick gains, allowed me to have a lot of occurrences, a lot of trades and I was in effect able to speed up my learning curve.

You could say that 3 years is a long time, but I was able over that time to learn about a lot of different markets and a lot of different strategies and I definitely paid my tuition to the markets.


JP: It sounds like you had a few bad draw downs during that learning period?

JM: Yeah, I didn't lose a huge amount of money, but it was a case of lots of small wins and some big loosers. But it was those big loosers that I've never forgotten. In the end it was the best thing that could have happened to me. Because, I approached the markets from a risk point of view rather than from a reward point of view.

Now it is all about the risk to reward ratio or risk adjusted return rather than just the percentage return.


JP: Could you talk about your trading strategy and how you select trades.

JM: Right now my approach is a combination of discretionary trading combined with a lot of quantitative research and systems.

I realised that the industry in general is moving towards a more systematic quantitative perspective.

But I also noticed when I went on the Internet and it was pretty clear cut that people are either systematic or they are discretionary.

There's clear edges and pros and cons to both, so if you could combine the two, you'd have a much more powerful way of approaching the market.

The systematic and quantitative side allows me to get the hard data. It's a lot easier to be confident in your position when you have data behind you as opposed to technical analysis where you say “oh the market is approaching the 20-day moving average so it should bounce off of that.” So I like to test the market to see if that assumption is actually true rather than just looking at pattern recognition.

After looking at the market for a number of years everyone will develop some sort of internal pattern recognition, which you can't really replicate. So I think if you can combine that with a quantitative perspective, I think that's powerful.

The best way of explaining my approach to the markets would be through an example.

So I'll look for previous days in history where we've had this kind of dynamic when we're near all time highs and I'll see what the average bias is a couple of days from now.

Or say if the S&P 500 is down 1% for example, I'll see what the average return is going out from there and I'll add a number of filters to replicate more of the current market time.

After doing a lot of these tests over time you start to build a database and you start automating it and from that you can get a good quantitative bias of where you should be trading over the next couple of days. There are a lot of components to consider, such as volatility.

Within my discretionary framework, with the S&P 500 as an example, I'll look at factors such as the US Federal Reserve is still pumping in money etc... so you put in the whole fundamental story into it, the whole liquidity story in there and then you can size your trade according to your level of conviction.

So the quantitative side gives me my bias, the direction most of the time and the discretionary side gives me my conviction on that position – I'll combine the two and make the trade.


JP: So looks like you analyse the various historical inter-market patterns and that forms a big part of your quantitative analysis?

JM: Yes that's right. A lot of looking at inter-markets and volume analysis. For the equity markets there is a lot of information on breadth. With the commodities you've got your inter-month spreads, which can have some good relationships. With currencies, interest rates is a good component to look at.

Obviously all the asset classes have their own correlations.

I look at the market as a more regime based thing. I mean there are a lot of obvious edges in the market, so for example if you buy and hold the US stock market for 50 years you'll probably make money.

But obviously there are times when these edges fall away completely. So the way I look at the market is to ask what regime are we in right now? So are stocks and bonds really inversely correlated or very correlated. I try to look at other times when that was the case.

So if the S&P is down 1% it doesn't make sense to look at 2008, because now we're in a completely different market environment. I want to be looking at past environments that were similar to base my bias from.


JP: It sounds like you do a lot of research into historical market data and old market reports?

JM: Yeah, I've tried to automate the process a lot. I'm not a programmer by nature. I have a pretty good grasp of (Microsoft) Excel, which has been my saviour. I've built various models on Excel spreadsheets. I actually put some of my workbooks on Youtube.


JP: It sounds like you mainly trade equities – do you trade currencies?

JM: Yes I do, but the markets I mainly trade right now are equity indices and that's mainly because they tend to have a more rotational nature. You tend to have a long bias with equity markets, which makes them easier to trade in that sense.

But I do a combination of currency and commodity trading in the mix and I'm doing a lot of futures trading, on the inter-month spreads.

I'm mainly trading macro-markets, which does include currencies. I'm not trading individual equities unless it is a system that I'm trading


JP: Can you tell me how you select trades in currency markets?

JM: With currencies you have less information, particularly on areas such as volume and breadth, so I look for correlations between other major markets. So for example, the Euro and gold used to be highly correlated.

Because of the type of trading that I do, when it comes to currencies it is important to have a fundamental component into any type of modelling. Currencies are a lot more driven by things like central bank policy.

There's an interesting website called MarketPsyche, which scrapes all the social media platforms and gives you indices on fear and other emotions. From what I've seen, that kind of stuff can be very helpful for trading currencies.

It can pick up all the comment coming from a reaction to a central bank paper and it can deduce what the market is expecting and that can drive market action.

Basically, I never take a trade unless I have a quantitative bias and it shows me that there is data behind the trade and there is an inherent bias to buying and selling at this moment in time.


JP: On average how long do your trades last?

JM: For my discretionary combination trading I'm looking at under 2 weeks, but definitely over a day. Obviously it is dependent on volatility and the move you get.

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