Back to the Futures: Trading through time with veteran Jake Bernstein

Back to the Futures: Trading through time with veteran Jake Bernstein

Jake Bernstein built his impressive trading career in the Futures market. Over five decades of trading, he's lived through it all, the booms, the crashes, but always sticking to a strict set of rules and methodologies. Jake was an early adopter of new technology, asking a former college roommate to build him a computer program that could forecast prices in the 70s! He's shared his secrets to success or 'rules' in more than 40 books on trading practices, futures markets and the psychology of trading. In this episode, Jake Bernstein shares his wealth of wisdom with the Artful Trader.

Jake Bernstein

CMC Markets

Jake Bernstein is a trading veteran and internationally recognised futures analyst, trader, educator and author.

Jake has written over 40 books and conducted numerous research pieces on futures trading, stock trading, trader psychology & economic forecasting.

Episode 5: Back to the Futures: Trading through time with veteran Jake Bernstein

Intro: Behaviour is the key to the whole thing. What do I do every day? How do I do it? How do I organise it? How do I build success through process. From CMC Markets, this is The Artful Trader.

Michael McCarthy: Hello and welcome to The Artful Trader. I'm Michael McCarthy the chief market strategist at CMC Markets Asia Pacific. Each episode, we'll hear the highs and lows from the industry's experts and hear their journey to mastering the art of the financial markets. Today we'll speak with Jake Bernstein, who's been trading for more than 50 years. Jake's deep thinking about markets means this episode is a must listen for newer and experienced traders. When Jake Bernstein first dabbled in the market in 1968, he bought egg futures, telling his father that he was buying and selling things that don't exist with money he doesn't have. Jake Bernstein built his impressive career in futures markets. In five decades he's seen and lived through it all. The booms and the crashes. Learning how to keep his cool and always play by his own rules. He has pioneered technical, cyclical and seasonal methodologies, and shared his secrets to success or rules in more than 40 books that he's written on, trading practices, futures markets, and the psychology of trading. He's been writing a futures trading newsletter since the seventies and still publishes advice online weekly. Today Jake Bernstein shares his wealth of wisdom with us from his home in Santa Cruz, California.

Michael McCarthy: Jake, thank you very much for joining us today for The Artful Trader podcast series. As a man in my fifties, I'm often considered an older trader, but my track record is short compared to yours.

Jake Bernstein: As opposed to an ancient trader.

Michael McCarthy: Could you tell us a little about your family background, where you were born, and what it taught you about the value of money, success and work?

Jake Bernstein: Michael, I was born in a monastery in Bavaria. My parents were concentration camp survivors, they were taken in by the Benedictine monks and I was raised in the monastery until I was about three years old. We moved to Canada, then moved to Chicago. Didn't have very much money, so everything I had I had to get on my own.

Michael McCarthy: And it's been a recurring theme throughout your career hasn't it, that you've always put in the work?

Jake Bernstein: I think these days, unless you're willing to put in the work, you won't get anywhere. Whether that work is labour, intellectual, physical, whatever it would be you need to work to get something.

Michael McCarthy: But you didn't start in markets did you. After your family migrated to the US you studied clinical psychology?

Jake Bernstein: That's correct. I studied clinical and experimental psychology, graduated from the University of Illinois. Then went on for my master's degree. I never finished my masters because I was too busy trading, but I did work with psychiatric patients for about seven years, which qualified me considerably for the work I do now, but I get paid much better.

Michael McCarthy: Traders aren't crazy Jake, they just seem that way. So it was there in that psychiatric institution you mentioned you first encountered the ad for futures investment. What caught your eye. Why were you attracted to it?

Jake Bernstein: When you're working in a mental institution in the middle of the night and there's nothing to do except hear patients hallucinate. You pick up reading material you ordinarily wouldn't be interested in such as the Wall Street Journal. I saw an ad that said will eggs hit the moon this year. The ad went onto describe a free booklet by a broker offering to teach you how to trade the egg market and make a lot of money. So of course I said that's for me. Sent it in and the broker was very persistent as brokers would be, kept calling me until I finally sent him some money. That's how it got started. My first trade was his first trade. He did everything for me. We traded nothing but eggs for about a year. Made a considerable amount of money and so all I knew was eggs.

Michael McCarthy: So you've been trading your own money for half a century or more now?

Jake Bernstein: It's been half a century and you needn't remind me of that, Michael.

Michael McCarthy: Sorry. It's just such a rare opportunity for me Jake.

Jake Bernstein: My entrepreneurial approach was inspired by the broker who called me, and when I found that even though he was making money and I didn't know how to duplicate his process, I'd have to find it on my own. So I went to a friend who said, how can we do this. I said, well, let's use computers, now mind you Michael this was in 1972. He said, computers for what I said for investing and trading, he said computers will never be used for that, computers are for insurance companies to figure out when you're going to die. I said, no, no, no, there must be a way to do this, if I have all this data can we use a computer to predict prices for the next day. He said, let's try it, and that's really where it all started.

Michael McCarthy: What did that computer look like Jake, I assume it wasn't a desktop pc?

Jake Bernstein: Michael, it was called the ILLIAC IV at the University of Illinois and she was the size of two city blocks and now about the size of the laptop I'm using.

Michael McCarthy: With every guest on our Artful Trader podcast series we ask about their worst and best trades. Where would you prefer to start?

Jake Bernstein: My worst trade, it was a trade that I didn't want to admit was incorrect, so rather than turning out to be a $500 loss it turned out to be a $40,000 loss because I kept on having hope every day. I hope it's going to turn it around. I hope it's going to get better. Yes, it's getting better. No, it's getting worse. Yes, it's getting better. No it's getting worse, and I just stayed with that losing position for a long time. The best trade I was out on my boat fishing, put the trade on in the morning, came back in the afternoon, had no idea what had happened except that they made a lot of money. Very simple. The trade paradoxically that required the least amount of attention was the best trade. The trade that required the most amount of attention was the worst trade and that's not too unusual.

Michael McCarthy: Okay. I was going to ask, do you incorporate that in your trading?

Jake Bernstein: Absolutely. The easier it is, the better it is for me.

Michael McCarthy: One of the themes of the series has been the emotional reaction that traders have to market action and how they deal with it. Given your background in psychology, is there anything you could share with our listeners about that aspect of trading.

Jake Bernstein: A great trader once told me to make money in the markets, whether you're an investor or a trader, you have to learn how to not care. Once you begin to care. As paradoxical as that may sound, you become emotionally attached, so I always take my loss at the beginning of the trade. I assume it's a losing position. I subtract the loss from my equity. It doesn't exist anymore, and therefore if I've taken the loss before the event, the event won't be a surprise.

Michael McCarthy: A lot of newer traders are advised to keep their risk on any given trade to one to two percent. Is that what you mean by not caring?

Jake Bernstein: By not caring it means once the trade is on, don't look at it unless you have to. If it's a computer generated signal, trade by the signal, don't look at the charts. Don't ask for opinions. Don't read about opinions, don't look for other indicators. That's what I mean by not caring. I mean, don't be emotionally attached to that trade. It's going to be what it is. And if you've decided ahead of time, it's a losing trade. You can't help but be pleasantly surprised at the outcome.

Michael McCarthy: I mean, you stance here is clearly to keep the emotions out of trading. Can you tell us about a trade where you found that difficult?

Jake Bernstein: Yes. Let's go back to September 11, the day of the attacks on the World Trade Center. On that morning I was in my office. I was long many of the currencies versus the US dollar. I looked at my screen and I saw the prices of the currency futures absolutely going crazy against the dollar. They were climbing faster than I've ever seen. I knew something was happening. I didn't know what it was. I turned on the news and saw the planes hitting the World Trade Center. Something was going on, must be a terrorist attack. So the issue for me was stay in the current season knowing the dollar is going to be destroyed for a while or get out and try not to profit on that event. I took the money off the table. It was an unusual event. I couldn't predict what is going to happen. I got out.

Michael McCarthy: But I believe that once you had a view on what had happened, you then moved back into the markets in a big way?

Jake Bernstein: Absolutely. But not knowing what was happening. I'm always good if I have knowledge, if I'm wrong, I want the information right away. If I'm right, I'd like to do something about it. But knowing that I didn't know anything was too nebulous for me, so I had to get out. And as they say Michael, when in doubt, stay out.

Michael McCarthy: What's the link between psychology and trading for you?

Jake Bernstein: The link for me is there is no psychology in trading. Now, Michael, think about this. I wrote the book, my first book, the Investors Coalition, which is all about psychology and trading. But it's not about psychology and trading, it's behaviour and trading and there's a difference between psychology and behaviour, psychology, attitude, opinion, emotions, and so forth. Behaviour is most important. If you learn the proper behaviours, you won't need to visit the psychiatrist. If your behaviours are correct, you won't need to deal with the emotion. Behaviour is the key to the whole thing. What do I do every day? How do I do it? How do I organise it? How do I build success through process? So I would underplay the psychology of it and overplay the disciplinary aspect of it and the behavioural aspect. So let's not confuse emotion with behaviour.

Michael McCarthy: You've developed a lot of methodologies over the years. What drove your constant searching for new ways of doing things?

Jake Bernstein: The challenge, I love the challenge. It's the only business where you can begin with virtually nothing and turn it into something really big. If you're willing to put the effort into it, and you have even the slightest amount of intelligence and creativity. The opportunities are without limit. Everything I do is rule based. If I'm not rule based, I'm emotionally based. There's no alternative for me. There was no room in what I do for imagination. There is some room for art. You call it the artful trader. Once you know the science, you can apply the art, but you can't apply the art first. You have to apply the science first.

Michael McCarthy: When can you break the rules Jake?

Jake Bernstein: You have to know the rules before you can break the rules. Once you know the rules, you get insight, you get to see how the market operates under the surface. Then you begin to form new ways of breaking the rules. That may be new rules in and of themselves derived from the old rules, but that's the important thing. Only break the rules after you know them and they're working for you. You can't afford to break the rules until you know the rules that made you money. Then you can have the luxury of breaking the rules.

Michael McCarthy: Would you like to give us an example of a time you broke the rules?

Jake Bernstein: Successfully. Yes. There was a time when I broke the rules. I put on a trade and didn't look at it anymore. The rule was I had to be out by a certain date. I completely forgot about the rule, completely forgot about the trade until the broker called me and said, you plan to get out of that gold rate, and I said, what gold trade? He said, the gold trade that’s made you so much money. Don't you look at the pieces of paper we send you every day? No, I don't. He says, well, you better open that envelope you'll be pleasantly surprised. There was a big profit on a trade that I totally forgot about, which I would have gotten out of at least a half a dozen times had I remembered about the trade and I broke the rule and it made me money. Not a positive learning experience, although rewarding.

Michael McCarthy: Understood, and a rare thing to mistakes generally cost traders don't they?

Jake Bernstein: Exactly I always tell people the best time to fix a mistake is the moment you realize you've made it because they don't get any better. Most of the time.

Michael McCarthy: Move from Jake Bernstein in a moment. Traders must find a way to deal with the emotional stress of markets. Two of our interviewees with backgrounds in psychology took two completely different perspectives. Annie Duke is a former champion poker player and cognitive scientist and she talks to us about how our brains work when they flooded with emotions.

Annie Duke: I'm using the signals that I'm feeling really emotional to trigger in analysis. So when I start to feel my heart racing and my cheeks flushing and there are certain ideas that start running through my head, you know, like this is so unfair. Why do these things always happen to me? You know, I've actually written those things down. So I use it to my advantage to get into the front part of my brain so that I can start looking at the things that are useful.

Michael McCarthy: You can hear that and all of our previous interviews at There's a wealth of information now back to my chat with Jake Bernstein in Santa Cruz, California.

Michael McCarthy: What do you think have been your most successful methodologies?

Jake Bernstein: Time-based methodologies, seasonality. Certain things happen at certain times of the year. Not always the same, but they tend to repeat with amazing regularity. So the best methodologies for me are the ones that have repetition, cyclicality, repetition of events, market response to certain events. So those are all patterns. So I think probably the best way to describe it would be pattern-based trading, patterns in time and patterns in formation and price. I think we think too much in terms of price. What was expensive six years ago is not expensive today. We live in that kind of a world. So if Bitcoin was expensive, at $20,000 is it a bargain at $6,000. If the Australian dollar was worth such amount of money at a certain point in time, is it higher now? Is it lower now? I found that thinking in terms of price doesn't serve me well. If the timing is right, the price must be right. That's important to consider. If the price is too high and I'm unwilling to pay the price, that's fine. As long as I understand the consequences of that might be missing a great opportunity. I need to think in terms of time. Timing is everything, especially in the futures market.

Michael McCarthy: Does this mean that you've got a particular leaning towards commodity markets?

Jake Bernstein: I like commodities because they're fast. For me it has to be quick. I need feedback immediately. Am I right or am I. I don't want to wait three months to try and find out I was wrong. So for me, being an inpatient trader, commodities are very fast the leverage is very high. That has always worked best for me.

Michael McCarthy: It's been argued because of the seasonal nature of commodities that some traders can successfully just buy and hold?

Jake Bernstein: Absolutely they can do that if they have the ability to buy and hold in futures. As you know, Michael, buying and holding it can be very good if you can keep on coming up with the margin when you're wrong, but that's not a formula for success unless you have unlimited funds.

Michael McCarthy: So can your concepts of seasonality be applied to markets like cryptocurrencies or other emerging markets?

Jake Bernstein: If there is sufficient history? Yes, but unfortunately for the crypto's, there's only about a year or two of history so we can really make a judgment. On shares where we've got 40, 50, 100 years of history. Absolutely, unquestionably. We look back at as much history as we can. We form a pattern. We ask the question what normally happens at this time of the year? We know for example, that the biggest move in shares is from the end of October until the end of the year. That has been the case since the 1800s. Those are the kinds of patterns I look at, but I'm not foolish enough to think it's going to be the same every year, so that's where the third part of the equation comes into play. The pattern, the timing and the trigger.

Michael McCarthy: When you talk about patterns, are you talking about chart based patterns like head and shoulders?

Jake Bernstein: Not specifically. Relationships such as the relationship between the opening and the closing price on any given day. The relationship between the close today and the close 10 days ago, those are more mathematically based patterns. Unfortunately head and shoulders can't really describe in algorithmic terms, if we can describe it in that formula, then I'm interested in it. But to look at a chart and say, this looks like a head and shoulder doesn't work for me. Because what looks like something to you may not look like something to me.

Michael McCarthy: Too much art not enough science?

Jake Bernstein: Too much art not enough science. Well said.

Michael McCarthy: I remember seeing the movie the big short based on Michael Lewis's book, but to see Richard Thaler in the casino there explaining behavioural finance was a real thrill. Are you a fan of his work?

Jake Bernstein: Absolutely, he's very brilliant and some of the theories are just phenomenal. There was more to trading than just the numbers. There's understanding the inputs, and the inputs are not all technical inputs. If you understand the inputs, you be able to predict outcomes better and improve what you're doing, so you're moving beyond the numbers, beyond the art and into a new realm of scientific interaction in which the human factor has to be given consideration all the time, much more so than previously thought.

Michael McCarthy: We do get a lot of newer traders. Our client base is largely experienced traders, but there are always people who want to join the game. Could you give us a few tips for those newer traders?

Jake Bernstein: Take at least three months. Do simulated trading, have rules, strategy, what I call setup trigger and follow through. Keep very extensive notes. Determine what you did right, what you did wrong. Was it the trader or the system? If the system lost money, understood, no problem. If you lost money because of trader error, that's the problem you have to understand. So it's not a very artistic process at the beginning. It's boring. It's nose to the grindstone. It's a lot of work. I've had doctors and lawyers come to my office and say, will you teach me how to trade? I said, yes, I do that. How long will it take? Well, it will take me, but a year to teach you correctly. Maybe six months. They say, I can't wait that long. I say, well, how long did you wait to become a doctor at six or seven years? What's the difference? They can get malpractice insurance I can't.

Michael McCarthy: And you have to be licensed.

Jake Bernstein: Exactly. So how can someone get started, patience, process, education, procedure, the ability to know when you're wrong, the ability to take your loss before it happens. Take care of all the emotional aspects before the trade happens and you'll be fine, but I would say also never quit, but don't keep on coming back to the markets with the same information and the same process that lost you money the first few times. It needs to be different.

Michael McCarthy: So what do you think of the newer traders coming through? Do you have an opinion on millennials investors for example?

Jake Bernstein: They tend to be more conservative, believe it or not, they tend to be less risk-taking, more organized, more technologically savvy, which I like, so I think they have great potential. I have a son who's followed me into the markets and has become an expert in cryptocurrencies and done extremely well with it and I'm very pleased about that because I did not force him to do that. My father did not force me to go into his profession and he would tell me all the time, don't become a tailor.

Michael McCarthy: I'm guessing you don't whole gold?

Jake Bernstein: I do hold gold, just recently in fact, for the purpose of the inevitable and coming inflation, but I'm not a gold bug Michael.

Michael McCarthy: I'm very pleased to hear that, but I have. I have actually been known as a gold bear, but I'm now considering the situation. Do you agree with that view that when inflation re-emerges it could be explosive?

Jake Bernstein: I do. I think it's going to be, but I do think there's going to be some inflation. It's inevitable. It's been repeatable. I'm certainly not committed to that as the only investment for inflation, but I think it will happen.

Michael McCarthy: So Jake, you're a long-term watcher of the market. What do you make of the current political situation in the US?

Jake Bernstein: I love the political situation because the more nonsense and fake news we get, the more opportunities the market presents us. So if we can keep our wits about us and take advantage of the big selloffs and the big rallies, take an opposite position provided the indicators are there to do that. I love the news driven market. I can trade those very successfully.

Michael McCarthy: How are you dealing with the current lower volatility environment?

Jake Bernstein: Smaller moves, larger positions. So if the volatility is low. I increase the size of my trading to compensate for the smaller moves. If the volatility is high, my positions will be smaller, but the moves will be larger.

Michael McCarthy: So what are you excited about on the market at the moment? What do you look out for?

Jake Bernstein: Michael, I look for anything that moves. I believe that many markets, especially in commodities are becoming very cheap. Sugar, cocoa, coffee. These are all markets where professionals are buying for the big picture and the big moves. So these markets are very interesting to me and I believe we will see a very big move in coffee futures over the next several years, much bigger than moves we've seen in many years. So that's one of the markets I'm very interested in. I'm very impatient and that impatience is served well in the futures markets because I need to know right away. When I say right away, I don't mean within the first few minutes or seconds, but at least a day or two. That's my timeframe, my comfort zone. The leverage is very exciting. I love the leverage because there has to be some skin in the game, so for me watching shares is like watching paint dry. I can't do that. Let somebody else do that for me.

Michael McCarthy: In this series, we've also spoken with John Neto and Jack Swagger. They've written books on the subject, but you've written 40 books. Why pass on the knowledge?

Jake Bernstein: There has to be something more Michael. More than achieving wealth. If you can't pass on some legacy, some enjoyment of the process, some appreciation of the process that you can share with somebody else and say, I helped this person in their lifetime. That's a wonderful thing, because it pays dividends beyond what you've taught. I enjoy the process of writing the books, especially when I get letters from people saying I taught them something new. I get the feel good.

Michael McCarthy: Jake, will you ever give up trading?

Jake Bernstein: Well, Michael, ever is a long, long time. As long as I'm doing well with it and again, if I'm enjoying the process, I'll never give it up. I never want to retire. I'm just having too much fun in my life and a good part of that is trading.

Michael McCarthy: Jake, it's been invaluable. I'd like to say thank you very much. It's very generous of you to share this information.

Jake Bernstein: Thank you Michael and I appreciate the opportunity to talk to you, and take care now Michael.

Michael McCarthy: That was Jake Bernstein. For more information about Jake, use the link to his website in our show notes or go to where you can also contact Jake directly. For previous episodes of The Artful Trader and more information about CMC Markets head to our website,, where you can also access some limited time offers. Don't miss an episode. Subscribe free in your favourite podcast app. The Artful Trader is an original podcast series by CMC markets, a global leader in online trading. The information in this podcast is general in nature and does not speak to your personal financial situation. I'm Michael McCarthy. Thanks for listening. This is The Artful Trader.