Made in Hong Kong. Interview with Rickey Cheung Algo Trader and Mentor

Recently, our roving “forex photo-journalist”, Larry Levy, met up with automated trader Rickey Cheung in Hong Kong to learn more about the local legend. Here are Larry’s photographs and his interview with Rickey.

First Published: e-Forex Magazine 56 / Tradertalk / April, 2014

Made in Hong Kong. Interview with Rickey Cheung Algo Trader and Mentor

It’s a Monday in late January 2014, just days before the Chinese New Year. I disembark the TurboJet ferry from Macau to be immediately met by Rickey at the Central Ferry Terminal in Hong Kong. I am immediately ushered along through the mini mall to his rather immaculate cream leather clad Toyota limo complete with ultra discreet driver and I realize that there are other ways to travel around Hong Kong than in a red taxi that is some years past its optimal performance levels to put it mildly, which had happened to me on the previous Friday.

Rickey’s relaxed demeanor and simple yet wise and calm way of dealing with the world is impressive, and clearly transmits itself into his trading logic. At every level one gets the impression one is dealing with a rather controlled, logical, self effacing, humble, yet very clever and concise individual reflecting perhaps the best of Confucian tradition.

After a day of chatting informally, interviewing and photo shooting around Hong Kong which included a nice lunch and review of his systems at Rickey’s Wan Chai office we are transported to a favourite haunt of his, the restaurant at the Island Shangri-La Hotel for a superlative dinner. A rather nice way to end a fascinating day in a fascinating place before boarding the ferry back to Macau. Here are some questions we put to Rickey. A video interview can also be viewed online - filmed at his office (see link above).

Could you tell us a little bit about your background and what made you interested in trading?

I was born in Hong Kong and have lived there most of my life. When I studied Analytic Biochemistry at the University of Houston, my professor took me home for dinner during Christmas with his family. 

After dinner, he showed me what he did by part time trading in the soy bean bean futures. At just 20 years of age, this was all pretty new to me. He told me how he traded, about the leverage, and that he had been doing that for years with good profits. It certainly got me interested and excited. When I finally completed my MBA I hoped to learn more about stock markets and trading commodities. 

After university, I got a job in Houston on a one year executive training program. Following that the firm sent me back to their Asian operation, and I immediately opened my own trading account. I started off by trading FX actually, and like most beginners, I just lost money.

Luckily however I was on a good salary with many benefits, so I actually had enough money to lose in trading and learn lessons by my losses - still being as careful as I could of course. Back then I mainly traded Dollar Yen , Pound Dollar, and also Dollar Swiss, as these were the hottest markets at the time, mainly due to their volatility and ability to make huge moves. 

Later on I got into gold, copper and many other markets. I started with FX though and I still trade FX. These days its mainly Dollar Yen, and Euro Dollar spot, as the Euro Dollar is the most traded pair with super liquidity. I like being involved in the biggest markets which are also the most active and volatile! For me, the more volatile the market the easier it is to make money. When the trader possesses a definite edge. 

“My trading edge in FX, like my trading edge in some other markets is that I can define when the market is in a tight range or in a big trend.”

“My trading edge in FX, like my trading edge in some other markets is that I can define when the market is in a tight range or in a big trend.”

Please tell us about the proprietary trading and signal distribution activities you undertake?

For the past four years my FX trading has been mainly in Euro Dollar and Dollar Yen. 

My trading edge in FX, like my trading edge in some other markets is that I can define when the market is in a tight range or in a big trend. In a big trend, (day or swing trade), I ride with the profit with a stop loss, and also an indicator stop. I use the indicator to stop the trade out with a good profit at a good price, or sometimes stop at an early loss and seldom get hit by the actual “stop loss”. This underlies the beauty of the indicator stop. The indicator tells the trader or the system to stop when it detects strength or weakness in the other direction of your trade. In a tight range day, I use a proprietary Oversold and Overbought indicator I developed, which is about 80% accurate. I do not use the RSI or other popular indicators, which often have like a 50/50 accuracy which is like a random walk so to speak.

I have around ten automated systems running in realtime as you can see in my office in a dedicated rack (see photo, top). However, I have developed hundreds of systems, many of them only for my own use and research. 

Of course each market has its individual behavioral parameters and different indicators are best in different markets.

When a trader in any market especially in FX knows that market is in a big trend or a tight range, and has the strategy to trade it, the success rate is high and profits can be large. Markets can only behave in either in trend or in range modes. Simple enough but not easy. However when you’ve got the edge, then its simpler and easier!

Made in Hong Kong. Interview with Rickey Cheung Algo Trader and Mentor

Could you describe your client base, where they are located and what they find most attractive about the services you offer?

I am a CTA (Commodity Trading Advisor) in the US and also a Licensed Futures Advisor in Hong Kong. This enables me to advise clients, or give student traders real time coaching. I prefer real time coaching, so that the trader can learn, rather than getting signals or advice to win, without knowing the underlying logic behind the trade. 

I prefer to call my clients “student traders”. I only advise a few high net wealth individuals or fund managers. In most cases I give my clients real time coaching. 

Over time I have trained a few hundred student traders in FX. Many of them have since become friends as I have continued to mentor them over time. Recently most of them have originated from from Hong Kong. Going back some years I had more students from further afield - especially from Japan. 

I am essentially a systems developer, so my signals or teaching strategies are systematic. There are no grey areas. If it’s a BUY (long), it’s a BUY (long) and visa versa. All student traders or clients see the same thing. The objective of all RC Systems is very clear and simple: TO WIN.

How are your trading signals distributed?

Once a student has taken my course and done the work, my models can be run on computers.

How do you go about optimising and back-testing models?

Optimisation is a debatable subject. Many developers like optimising parameters. I do not optimise however, as curve fitting can be an easy setup for failure. If you do backtest, one must do so on out of sample data. Better still is to do what I call forward testing. To run the system derived from out of sample back data for some months in the real market in real time. Usually I do this for a minimum of four months. If one gets good results, then ok, the system is tested in the real world and good to go as such. Such, for example is my RC Euro Great Master System, which has many consistent winning months based on the aforesaid testing logic.

This also explains why clients find RC Systems and strategies attractive. It’s not service, its not high prices, its not anything just one thing - winning! RC Systems win, and this is in my view all that counts.

Do you customise and build models to meet clients specific requirements and investment strategy objectives?

I did that for one big client some years ago, but now not any more. RC Systems are good enough for them to lease and use, if I agree to lease them out.

What does you think about new developments such as social or mirror trading and what opportunities do you see for automated trading with these?

Social and mirror trading are fascinating developments that have become popular in recent years. Since my philosophy is to teach understanding, simple selling of signals is not attractive to me and I do not participate in this.

In what ways do you think successful automated trading has become a harder or easier process today than it was when you first started out?

For the kind of automated trading I do it is essentially the same like in the year 2000 when I started to system trade.

Since my systems are not over curve fitted or optimised as some call it, they are more robust over time. Therefore they work today much as they worked ten years ago and much as I expect them to continue to work in the future.

How do you think that FX markets differ from other markets or asset classes in terms of their behaviour and trading results?

Traders with an edge like to trade deep, liquid markets with high volatility. FX fits these criteria perfectly. Its simplicity and its relative stability make it increasingly attractive.

“The awareness of FX has grown considerably over recent years, and as a class that is not tied to the fortunes of one economy or system and is entirely neutral (one goes up another down) it offers an exceptional attraction as an investment.”

“The awareness of FX has grown considerably over recent years, and as a class that is not tied to the fortunes of one economy or system and is entirely neutral (one goes up another down) it offers an exceptional attraction as an investment.”

How do you view the growth of FX as an investment asset class and how do you see its future?

One one level FX has been an investment asset class for years, and it continues to be. For example, here in Hong Kong our currency is pegged to the US dollar. As a result of this, many Japanese people bring their money to Hong Kong to open accounts here, as the Yen has deteriorated over time.

On another level more and more people are investing in systems that trade on FX for a variety of reasons. The awareness of FX has grown considerably over recent years, and as a class that is not tied to the fortunes of one economy or system and is entirely neutral (one goes up another down) it offers an exceptional attraction as an investment. 

Finally, its sheer simplicity makes it attractive. Derivatives that take some level of skill to understand have always been treated with a level of suspicion on an institutional level, but all the more so since 2008. And perhaps for all of these reasons more and more roads lead to FX as an asset class.

Are there any specific currency pairs you prefer to trade over others and why?

Euro Dollar is the best for me, and I imagine for many traders, as it has the largest volume, and biggest movement in recent times. Dollar Yen is my second favourite as it’s so predictable, and less choppy!

Can you give is a description of the growth of awareness of FX as an asset class in Hong Kong and in Asia in general over the last 10 years?

This really mirrors its growth elsewhere and I refer to my answers above. Needless to say the potential is still huge over here.

Regulation is a growing issue in the FX markets. Any comments as to regulation in for example, Hong Kong and Singapore compared with Europe and the United States?

Hong Kong and Singapore are well regulated markets in terms of brokers and banks. So, from a depositary angle its seen as a safe bet by local and overseas investors. I think the regulators in these jurisdictions are very keen to tread a fine balance between regulation and over policing of local markets.

Compared with the US and Europe, I think the small physical size of Hong Kong and Singapore count in its favour from a regulatory angle, as any abuses are usually quickly spotted and dealt with.

Do you plan to grow your offering of models in the FX arena?

Quality and not quantity is what I want now. So I have no plan and no need to grow my offering of FX models or advisory services at this point.