Boris Stein Interview

By Chuck Frank

Boris Stein entered the 23rd World Cup Championship of Futures Trading® on November 15, 2006, and captured second place with a 77% net return, becoming the first trader to enter the calendar-year competition in November and still win a trophy. Stein was granted political asylum in the U.S. in 1995 as a political refugee from Belarus of the former Soviet Union. He holds a dual Masters degree in physics and computer science from Minsk University. After 11 years in computer consulting on the east coast, he realized his dream in ’06 when he opened Stein Investment Management LLC. Strong trading and Internet buzz have helped the CTA place $10 million under management as of this writing. Stein, a U.S. citizen, recently spoke with WCA Managing Director Chuck Frank.

Chuck: Have things changed for traders in Eastern Europe since you left in ’95?

Boris: Nobody knew about futures trading at the time I left . To have Internet service – or even a computer at home – was a real luxury. I managed to have Internet at home because the company I worked for needed me to work from home, and I was responsible for communications. I have heard from an educator who does trading seminars in Russia that trading has become very popular there now, and seminars in Moscow get completely sold out.

Chuck: Do you have a desire to help other political refugees who have an interest in the markets?

Boris: I would love to have opportunity to educate people in the trading area, because there are a lot of misconceptions about the markets and trading. Too many brokers and money managers try to take advantage of people’s incompetence in that area, and I would be happy to help people stay away from them.

Chuck: Did brokers try to take advantage of you when you arrived in the U.S.?

Boris: In my first autumn in U.S., I got several cold calls from brokers trying to convince me to buy heating oil futures before winter. When I told them that I did not have sufficient capital to do that, they tried to get me to buy options on heating oil. I did not buy anything, but I got interested and started to study how futures markets work. Then there were some junk mails offering trading books and courses, and I bought some of them. Eventually I opened a futures trading account to try the ideas from the books in real trading.

Chuck: Did you view trading as intellectual challenge or a means to achieving financial independence?

Boris: Both. I like the challenge, and I am happy to have the opportunity to apply my educational background, scientific research experience and psychological traits toward achieving success in trading. The monetary value of successful trading is also appealing, but I would say it is secondary. The least favorable thing about life in the U.S., probably, is that there’s too much emphasis everywhere – I mean in books, television, papers – on reaching financial wealth as the biggest goal in life. It should not be so much about money. There are other important aspects of life, too.

Chuck: What are the most favorable aspects of life in the U.S. for you?

Boris: One of my favorite things about life in this country is an abundance of opportunities. With a certain level of motivation and effort,a person can reach his goals. So in this sense, America stays with the title of the “Land of Opportunity.” Another thing which always surprises me in a good sense is the peaceful co-existence of people with diverse religions, ethnicities and backgrounds. After coming from a country where it’s always been a problem, I appreciate it the most. The problems I mention were not specific to Belarus, they were common in all 15 republics of the former Soviet Union. This was one of the reasons for the breakdown of Soviet Union into 15 separate states.

Chuck: If you had an opportunity to return to Belarus to educate people about opportunities in the markets, would you take it?

Boris: Probably not. The main reason for my leaving that country was that being a Jew, I often saw evidence of anti-Semitism, and I did not think that the authorities cared to do anything about it. I had many reasons to leave that country and seek political asylum, and I have as many reasons not to go back.

Chuck: Your success in trading is built around your computer modeling skills. What precipitates the birth and development of a new system?

Boris: Usually, everything starts with observation, or an idea suddenly born in the brain. After that I spend a lot of time coding the idea and back-testing it. If the results are satisfactory, I’m adding another system to my portfolio.

Chuck: How prolific is your system development?

Boris: In 12 years of developing computerized trading systems, I have accumulated literally hundreds of them. Some of them are good, some of them are not so good, but what I have realized over time is that no system with mechanical rules that can be programmed on a computer can produce good results forever. So I came up with a set of about two dozen of the best systems I ever developed, and started to use them with some discretion in taking their signals. If I see that the accuracy of the trading signals generated by a specific system starts to decline, I look to replace it with a better-performing system. I reevaluate all the systems I use very frequently. I see the trading Holy Grail in changing the systems, and adapting to new market conditions. It is a constant evolutionary process, which I believe can help me to adapt to ever-changing markets conditions.

Chuck: Tell us about the mechanics of your trading. Do you focus on technicals or fundamentals? What kind of indicators do you use?

Boris: I believe that fundamentals mostly aff ect traders who keep long-term positions in the market. I am a short-term trader, so I focus on technicals. I use Welles Wilder’s Directional Movement Index, overbought/ oversold indicators, various price patterns and many indicators of my original design. Trading is all about probabilities, so I hit for average. Roughly half of my eff orts go toward risk and trade-size management strategies, which help me to make changes before it is too late. Even the most attractive trade can be a loser, so I apply the same money management principles to all my trades.

Chuck: You trade the S&P 500 futures market exclusively. Why?

Boris: When I started to trade futures, I attended seminars by Larry Williams, Steve Nison, Tom DeMark, Gerald Appel and others. I tried practically all different commodities and markets. Later, I figured out that each market has its own personality, and I simply do not have enough time to research all of them. Currently, I focus only on S&P futures, where I do my best.

Chuck: You’re keeping pretty busy these days between the World Cup competition, the WCA account, and your CTA business. How heavy is your workload?

Boris: My work day is really long and hectic. Lately, I work 14 to 17 hours a day, without exaggeration. During the day, I’m placing the trades, speaking with prospective and current clients, solving technical and administrative issues. At night time, I’m doing trading research for the next day, answering emails, speaking with overseas clients.

Chuck: Describe your highest and lowest moments as a trader.

Boris: I think my highest moment was on December 29th, 2006, when after just 1.5 months of participation in the World Cup Trading Competition, I found out that I’d fi nished in second place. My lowest moment was many years ago, after trying to trade the mechanical systems of several famous traders and losing much money. I was rather naïve when I started, and believed in many clichés.

One of my first trades was in 1996, and I wanted to apply some lessons from a book about placing stop orders. I placed a stop order to buy the S&P above the current price, and after getting filled, I placed a protective stop-loss order below the current price. Both stop orders were placed at the levels recommended in the book, and I was not going to move my stops no matters what, because it was described as the biggest trader sin. Right after my buy order was fi lled, the S&P went straight down, and my stop-loss was hit. After stopping me out, the price went straight up. I lost $5,000 in 25 minutes. My buy price was the exact high of the day, and my sell price was the exact low of the day. To this day, I still cannot believe it.

I came to realize that no ready-to-use system or strategy will work for me, unless I create it myself. I realized that I am on my own in the struggle with the market. I guess if it were simple, everybody would trade profitably.

©2007, Reprinted with permission of Traders World Magazine