T2W Trading Community

The following interview was originally published in Trader's Journal (TJ) November 2007 issue and is reproduced with their kind permission.

Part I: On Trading?

TJ: John, when and how did you get started into trading?
JD: I got started in 1968 as a biology and physics teacher in Milwaukee, Wisconsin. I was the Director of the teacher investment club with a $100 per teacher contribution in a pool and some hopes and dreams. I read Harry Browne’s book in 1970 about Nixon closing the ‘gold window’ for the USD. The title of Harry’s classic book is How to Profit from the Coming Devaluation and it changed my life and all I have touched in this space forever.

TJ: What did you find trading interesting?
JD: The daily intellectual challenge of market change and the “thrill of the hunt” captivated me. I cannot image a life without the global markets to trade and invest.

TJ: What was it like when you first started trading?
JD: Hey, I lost money, lots of money through the trial and error method because I did not take it seriously and thought my buy and hold bias investing methods would work as a trader. Wrong. Then, I abandoned my buy and hold bias. You know pain has a way of capturing your attention. As professional traders know from experience: ‘Trading and Investing are very different.’ The public learns that lesson the hard way.

TJ: How much capital did you start with in trading? How much do you recommend somebody put into a trading account?
JD: I started with a USD$15,000 account. How much to start with depends on their appetite for risk, time allocated, capital base, formal education in trading and many other personal variables. One size does not fit all in our world. I suggest all new active traders find a coach and mentoring program before putting $1 of their capital at risk. Experience is a great teacher but her price is expensive.

TJ: What instruments do you trade now?
JD: I started out 100% trading NASDAQ equities and now 40% of my trading time and capital is in Forex trading.

TJ: Why?
JD: Most buy and hold biased investors do not consider the currency risk when buying securities or other asset classes. I believe there is a global bull market coming in cash and cash equivalents in the Globalization 3.0 era, especially gold. Gold is the world’s only “real money” that central banks cannot print. Paper currency is a real money substitute. I trust the 2000-year integrity history of gold to store value and be a global medium of exchange. I do not trust central bankers.

TJ: Do you specialize in any one of these instruments?
JD: No, not really, 60% stocks and 40% currencies via spot and futures contracts on the CME. I do mostly trade USD/Euro pairs and gold/Dow index.

TJ: What timeframe do you use?
JD: I mostly swing trade but do significant shorting of high probability rallies in each class. I never catch the falling knife; I always look for the higher probability countertrend rally to short. There is much lower risk.

TJ: Do you decide what to trade based mainly on the timeframe you want to trade?
JD: I do both momentum and swing trades. I am not biased either way. It depends on volatility.

TJ: How many charts do you view at a time?
JD: Usually 4 and I try to keep it very >simple. Most new traders I meet get too much paralysis through analysis. Especially pipe smoking engineers who cannot pull the trigger on the trade.

TJ: Do you use mainly classic chart setups or are these setups that you have devised on your own?
JD: No, I stick to the common chart setups that the pros use – nothing beyond the proven classics. Too much data via studies is more challenge than a benefit. Keep it simple.

TJ: What about indicators? Are there any specific technical indicators you prefer?
JD: Yes, I like Fib ratios, Elliott Waves and moving average combinations with a touch of MACD.

TJ: Do you ever consider breakouts if volume is strong?
JD: Of course…usually I find volume precedes and confirms price change variables.

TJ: Are you continuing to develop new trade setups?
JD: I am always exploring new systems, but I am very comfortable with my methods that suit my lifestyle and appetite for risk at this stage of my life. Money management skills are under-appreciated by new traders.

TJ: On average, how long do you hold onto a position?
JD: It depends on my risk tolerance and daily volatility. Recently, I do not like to hold positions overnight and never over a long holiday weekend.

TJ: You have been trading for some time. I think one of the most difficult things traders are faced with is dealing with emotion. How do you avoid falling into the type of trap?
JD: Trailing stops – For me, technology takes most of my ego and tempers my emotions of fear and greed. I know I will have losing trades because they come with the turf. So what! Just get out of denial, disengage the male ego and get out of the position with a defined risk via the trailing stop. Have a well-defined written trading plan.

TJ: Do you still make the same mistakes that you made in the past after you have been trading so long?
JD: Sometimes when my discipline is weak or I do not follow my plan properly.

TJ: How do you handle losing periods and slumps?
JD: I stop trading and reassess the situation and move to smaller size positions.

TJ: What about times when a winner become a loser?
JD: I work very hard to prevent that from happening by adjusting my trailing stops. Allowing a winner to become a loser is a mortal sin in my trader world.

TJ: What about placing stops?
JD: I like to keep stops very tight and it does not bother me anymore to get stopped out like it did as a newbie trader. I expect it.

TJ: How do you define success in trading?
JD: Am I following my written trading plan? Is my risk management tight? If I focus and not lose money on each trade I know at end of day, all will be fine. I do not focus on the winning trades.