An Interview with Gary Hart: System Developer and CTA

Gary Hart’s various trading systems have been live as far back as 2012 and continue today. He is highly regarded in the industry and remains registered with the CFTC today and into 2019.

SRB: We understand you have been trading for around 20 years, tell us about your background.

Gary Hart: I am naturally drawn to numbers and patterns within them. As a kid, when I looked at my alarm clock, I would figure out the math formula for the sequence of numbers (ok, I still do that sometimes, I can’t help it). Physics was my favorite class in high school, and I chose to become a structural engineer. I have a bachelor’s degree in architectural engineering and a master’s degree in structural engineering. During architectural school, one of the professor’s told us how cyclical the construction industry is and that it is very important to be prepared for that. I had an interest in investing because I understood the power of compounding. In a high school economics class, I won a stock market game, so I thought maybe I could make money investing to help me survive the downturns in the economy. What I discovered once I was working, is that when the construction industry goes down, so do the things I planned to invest in (stocks and real estate). Then, in 1998, I received something in the mail from a guy in a cowboy hat smoking cigars (Ken Roberts) that promised to show me how to make millions trading commodities. Sounded great to me! Also, since I could profit from commodity trading no matter what the economy was doing, it looked like a perfect opportunity. I purchased the course and started paper trading. In 1999, I started trading real money and doubled my account in the first 2 months. Then, over the next 6 months I lost all the gains and was back where I started. I realized there was a lot more to trading than I first thought, and I was hooked! I read lots of books and magazines (no blogs then), did trading courses, and in 2001 started using TradeStation. Once I started coded and testing ideas, I knew this was a life time commitment.

SRB: When did you make the decision to become a Commodity Trading Advisor and devote your time to program trading systems?

Gary Hart: In 2008, I made the decision to become a Commodity Trading Advisor and devote my time to providing trading systems to the public. The timing for this decision was because of the financial crisis. Before 2008, I had a flourishing structural engineering business that was primarily focused on residential construction. I thought my income would be fine during a recession because I thought there would always be rich people building houses (I was wrong!), and I was making money from trading. It was a good period for day trading, but my engineering income and real estate investments evaporated. I had to use my trading funds to pay bills and keep the family fed. There wasn’t enough money to trade for a living. You’ve heard “necessity is the mother of all invention”? Well, I invented Trendfinder Trading Systems LLC and start offering my trading systems for others to use.

SRB: It’s been a 10-year bull market on Wall Street, but that may slow or turn depending on trade wars, Fed policy, and/or geopolitical events. Do you see a change in the pattern ahead for more volatility?

Gary Hart: Yes, the character of the market seems to have changed. We have gone from an extremely accommodative Fed with near zero interest rates and quantitative easing to a period of rising rates and quantitative tightening. When the Fed and other central banks were pumping money into the markets, there wasn’t much concern about market crashes. Also, with interest rates extremely low, investors felt like bonds weren’t providing sufficient returns so some of that liquidity was going into stocks. Yes, there were many talking about the high stock valuations, but with this extra liquidity, the stock market rebounded quickly every time there were any geopolitical events or market drops. The period of bullishness and low volatility reached a climax at the beginning of 2018 after tax cuts were passed and forward earnings were revised upward. All of that is now turning. Interest rates are increasing, quantitative tightening has increased and is continuing, and other central banks are either also tightening or reducing their easing. With reduced liquidity and trade war concerns, market swings and daily volatility have increased. I would expect the current volatility to continue until central banks switch to easing again and/or the trade war ends.

SRB: Your new system, Spring ES, is designed to be day only (flat end of day). Do you think the outlook is more favorable for day systems?

Gary Hart: I certainly do. From 2001 to 2010 I almost exclusively day traded the stock index futures. Starting in 2009 after the market bottomed, volatility started reducing. As volatility dropped, so did the performance of the day trading systems. I started working on swing systems and in 2011 released MeanSwing II followed by FedSwing in 2012. The swing systems did very well until the last 1-2 years. Seeing this change in the market, last year I started focusing on creating day trading systems and released Spring ES this year. 2018 has been a very good year for day trading systems, and as mentioned previously, I think volatility will remain in the markets for the foreseeable future. However, volatility will cycle – it will go down during market up moves and/or geopolitical risks easing, and it will go up during market drops and macro events. Overall, I think the relative level of volatility will be higher than the past 10 years since the Fed and other central banks are tightening. The higher the volatility, the more potential the day trading systems have to profit.

SRB: For other developers or brokers reading this interview, what books do you recommend or study courses for someone to learn how to program trading systems?

Gary Hart: There are loads of good books, blogs and courses covering all aspects of trading. I will mention the ones I know the best. For learning how to develop trading systems, I recommend courses by KJ Trading Systems and Better Trader Academy. The core idea of Spring ES was developed using the methods in Better Trader Academy’s Breakout Strategies Masterclass. For learning programming and more advanced quantitative techniques, I recommend QuantInsti. None of this learning does you any good if you don’t also learn the mental aspects of trading. I highly recommend Brett Steenbarger’s books and blog. He isn’t a systematic/algorithmic trader, but his lessons can be applied to all trading. He is an active discretionary trader that takes a quantitative approach to studying the market. I have tested many ideas he has shared and or inspired me to think of.

SRB: Thanks for your time Gary and good luck trading!