Meet Mike DiBari. Or also known as @TradingLicks. He’s a professional guitarist in Cambridge, MA home to Harvard and MIT. He shreds any stage he steps on. Jazz, funk, blues, he jams. There’s more to this story, too. You won’t meet many people like DiBari. He’s also a trader. And he’s even developed his own trading indicator called the TVO System. The stock market is filled with interesting people and in this quick interview DiBari shows us how music and stocks connect. What similarities do you see between the stock market and music? Markets are like music in that by nature they have a predictable ebb and flow. For example, the 4 stages of a stock market cycle (optimism, euphoria, hope and despair), circle around much like the common verse/chorus/verse/bridge/chorus form in many musical compositions. Understanding the predictable nature of music makes learning how to play it much easier and the same goes for the stock market. Also becoming a great musician requires a lot of time and patience, and there are many hours of practicing (in the “woodshed” so to speak) before you can expect to perform well in front of an audience. When I set out to design a trading strategy, I follow the same methodology. You need to put many hours into studying and backtesting before you can expect any method to perform well for you. What is your favorite genre to play on the guitar? Do you have a favorite song? Blues is my favorite, but I also enjoy traditional swing and bebop jazz. What makes all those styles so fun for me to play is that I get to improvise. It’s a risky business sometimes, but nothing beats the thrill of performing on stage, not knowing exactly what you’re going to play next, and then hitting it just right. I also grew up with rock music, playing stuff by The Stones, The Who and Led Zeppelin, and even ventured into punk and alternative rock at one point. A band I was in once played a club in Boston on the same bill as the Smashing Pumpkins (they were a new band at the time and they actually opened up for us). There are so many incredible songs on my list, but if I had to choose, my favorite would be “We Can Work It Out” by The Beatles. The genius of the Lennon/McCartney collaboration is at it’s best on that one. The Fab Four is still my biggest inspiration next to Freddie King and T-Bone Walker on the guitar. What came first: music or the stock market? How did you get into the markets? I’ve been playing guitar since I was in grammar school, but I first got interested in the Stock Market after seeing Eddie Murphy and Dan Aykroyd in “Trading Places” (and after that Kevin Bacon in “Quicksilver”). Both of those movies made it seem easy enough, so down the line it left me thinking, I can do that. I looked into opening an online trading account a year or so before the financial crisis, and luckily, procrastination saved me from what could have been a pretty bad first investment. Eventually I did get around to opening that account, and in 2010 I started swing and day trading stocks. I had some winners and losers, but it was mostly a struggle. A few years later after whittling away over half of my capital, I decided to come up with my own approach. That’s when I came up the idea for the Total Volume Oscillator (TVO). The TVO is pretty cool. It’s awesome you made your own indicator. What sparked that creativity and what does it measure? But you also don’t have to give away all your secrets. Thanks Stefan! The idea came out of the necessity of the simple fact that other price indicators didn’t work, and believe me I tried them all. The time I spent searching was eating into everything I was doing; my relationships, music, you name it. I had to do something to keep my life from slipping away. I was trading all the time thinking that it would improve my skills, but it only made things worse and I finally had the guts and the sense to walk away from it for a while. It was then I realized that none of the strategies I followed had any backtesting to support their merit. After finally running some of my favorite strategies through extensive backtesting, I was surprised to find that even the most respected and widely used price indicators failed to deliver much accuracy or any substantial gains historically over time. Then I had the idea that maybe price was actually the problem, so I started backtesting only volume data. The results were like nothing I had seen before. Using only end-of-day advance/decline data, I was able to form an oscillator that represents a picture of accumulation and distribution in the market. And because volume is a leading indicator, TVO often shows this happening long before anything related to price. What has the TVO become today? Also how do you use your blog and website? Great name in TradingLicks btw. Glad you like the name! When guitar playing rivals trade licks, it’s like a musical conversation or a call and response if you will. Between the bears and bulls, the markets have that same kind of rivalry, and it’s a good thing because there has to be some kind of balance. TVO started out working well but mostly on longer time frames, so I came up with 2 shorter term indicators; the Heat Gauge (HG) and more recently the Issues Oscillator (IO), to balance things out across the spectrum. Traders can view the status of all three indicators at the start of each trading day at MyTradingLicks.com to get a read on how the market is now behaving and where it’s likely to go next. There’s also a buy and sell mode posted that we call our General Investment Strategy that traders can use as a guide for how to manage their positions. Members of the site get much more as they have access to our specific options strategies and trading signals. They also get a pretty cool position size calculator that takes all the guesswork out of how many options contracts to buy. What is your primary strategy today? Options? Stocks? Long-term? To keep things simple we only trade options on SPY. There’s never any lack of liquidity and slippage is minimal. One of the things I realized a while back is that stock picking and timing the market do not mix very well together. You can have a great read on market direction, but if you’re in the wrong names of equities, it won’t help one bit. And the levels of volatility are so varied across the board of most stocks that it’s nearly impossible to backtest and come up with any kind of reliable system results long-term. The “focus on one thing approach” with SPY options goes along well with the whole philosophy of tuning out the noise and other factors and honing in on just volume and market internals. It also keeps you away from the screen and helps keep your emotions in check and your stress level low. It’s been working for almost 3 years now, so we’re sticking to it.