For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Dave Johnson, a former stock broker and now full time individual investor. Dave posts on his site, DayveJohnson on the Markets. Dave’s site caught my eye a few months ago because of the system he used and tracked on his site.
Read on for more about how Dave got started trading, what he trades and doesn’t trade intraday, and why trading for him is like crossing the street.
StockTickr: Tell us a little about yourself, Dave.
Dave: My name is Dave Johnson and was born and raised in Connecticut. I was stock broker in the 90’s for an independent firm and eventually left the business when commissions dropped through the floor. I found I enjoyed trading more than acquiring new clients. I went to work for a pharmaceutical company in Connecticut as a Histologist and was in the interem looking for the time to be right for me to jump to full-time trading. I made that transition in March.
StockTickr: How did you get started trading stocks?
Dave: I have traded stocks, options and futures since around 1985 and it basically started with me doing research for long term holdings with with Value Line at my local library. I made it a point to read every piece of information on stocks I could get my hands on. Including all the usual schools of thought including value, momentum, technical, and the myriad of other theories and techniques you could even imagine.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Dave: I don’t really have a lose your shirt type story because I have always been a conservative type trader/investor. But one of the greatest risks I unintentionally carried was when I first began to trade the SP futures, the large contract at that, which was worth $250.00 dollars per point. I was day trading by calling my broker who would then send orders to the pit. I would then receive a call back that the order had filled at about the same time it was usually time to exit the position. It’s unimaginable to think that was even acceptable at one point when today I have instant executuion on my orders today. Well after a day of frenetic trading I left the office for the day and returned in the morning and I saw the answering machine blinking with a message. Basically it was my broker saying Mr. Johnson you left an open position and you need to close it..Oh no I thought. So I clicked on CNBC and saw the futures were up like 15 points. Oh No! I hope I did not leave a short position on. I called the broker and said I needed to close the position. Fortunately the position I had left open was long and ended up closing the trade in my favor. But I learned a few valuable lessons. Double and triple check all positions are closed at the end of the day. Also don’t carry position sizes that are over your head and can make you go Uh-Oh. I was undercapitalized for the position and could have really done some damage.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Dave: Patience. Patience in waiting for trades to setup. Patience in letting trades develop. I am speaking to intraday trading mostly with this as opposed to mechanical based systems.
I will also add because of it’s importance, Independence. I believe each successful trader believes in himself. Successful traders do not rely on other peoples opinions. They develop their own and are confident in those beliefs. Right or wrong.
StockTickr: Describe your style of trading. How long do you typically hold stocks?
Dave: I run a multi timeframe portfolio that trades stocks at the swing time frame of 1-10 days. That particular portfolio system typically trades during all market conditions. When the market gives the all clear I begin to enter longer term trend entries with stocks and ETF’s. These can hold from 1 week to multiple years. This segment will roll to cash as the trends die off. Intraday I only trade e-mini futures with the SP500, Nasdaq, and Russell 2000. This segment of the portfolio tends to have a more consistent equity curve that can smooth out bumps in the road that will occur with holding longer term stock related holdings.
StockTickr: It looks like you trade futures intraday, but your equity trading is longer term. Why not daytrade equities?
Dave: I do not trade equities intraday for a couple reasons. First off I have a good feel for the indices and am most confident in my longer term profitability with those instruments. I also believe there is less possible manipulation by brokers, large traders, and news in the indices versus the market as a whole. Tax considerations are another reason for looking at futures for short term trading.
I focus in on futures because I feel I am best suited mentally for zeroing in on one aspect of the market. Plus my trading screen is pretty busy as it is now. I don’t think I can take on the additional tasks it would require without affecting my index trading.
StockTickr: What’s your exit strategy for winning and losing trades?
Dave: For stock swing trading it’s the trade going in my direction. Simple as that. In most of the backtesting models I have run on swing trading a pop up in your direction over a 1 or 2 day period is your signal to exit. This may or may not be above your entry price. The market does not care where you got in and neither should you. Statistically the win percentage on my swing system runs about 65% but you can have periods of deviations from that benchmark. You must trade through these with the ultimate goal of having more in the pot at the end of the year.
With intraday futures I use a profit target for a portion of the trade and if a trend develops I will let it run until it begins to falter but this is highly dependent on a good entry.
StockTickr: Is your system evolving (i.e., you’re tweaking it every now and then) or is it pretty much constant?
Dave: Constantly tweaking. Actually the tweaking occurs more in what I feed to the system. The watchlist of symbols that I scan and feed the stock swing trading system is an area that I have been working most closely with. The system itself is pretty simple. The research in that area is really quite promising. On the blog I had been using a watchlist that consisted of 150 stocks that exhibited minimum values in liquidity, 3 and 6 month relative strength, market capitalization, and stock price. This results in a list that is made up of recent strong performers and is updated weekly. Recently this list has been comprised of very high levels of commodity type plays that were swing buy setups because of the depth of their decline and their previous overall strength. In each of the 2 most recent wave declines in these sectors the blog performance was adversely affected. But as I explained to the readers this was a test of an entirely mechanical system. So in deference to some readers requests I have decided to add a human element to the screening process in order to balance sector risk, much like I do in my actually portfolio. So in answer to your question, these processes are constantly evaluated in real time to see if performance is matching historical norms found in backtesting.
StockTickr: What 3 books do you recommend traders read?
- As you have noted on your site Stan Weinsteins Secrets for Profiting in Bull and Bear Markets is a classic and an all time favorite of mine. When I developed systems and backtested the results based on his parameters the performance is very good, unlike almost every other guru/book that has definable entry and exit rules.
- Jack Schwager’s Market Wizards – Interviews with top Traders
- William O’Neil’s How to make money in stocks – this was one when I read it seemed so different from anything else I had ever read. A classic and Investors Business Daily is always on my desk.
StockTickr: What are your 3 favorite blogs?
Brett Steenbarger’s Traderfeed is my favorite.
Wilytrader.com is another one that I enjoy. He posts a recap of his daily trading with lots of insight that can only come from someone who does it everyday
TraderMike is another that helps keep the markets up and down moves in perspective.
StockTickr: What is your typical R per trade? i.e. what % of your portfolio do you risk with each trade?
Dave: Each of the different time frames I trade have their own levels of acceptable risk. In intraday trading my risk per trade is very small in relation to the overall portfolio. It is about 0.3%, whereas swing trades can have portfolio risk of about 1.5% per trade. In the longer term trend following type trades it would be about 2%. These values can be increased or decreased based on my own perception of market risk. One of the problems with fixed levels of risk is that at the point of max pain and where your stoplosses are tend to have the greatest potential for reversals, but that is an area of great debate that I disagree with much of the conventional wisdom in present trading circles.
StockTickr: What technical indicators could you not live without?
Dave: I believe the greatest indicator is price and volume itself. But indicators can give a trader greater clarity in defining what exactly he or she is trying to “see”. I do find trendlines to be something that I find particularly useful when trying to identify changes in market momentum.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Dave: Volatility today in relation to the top of the great bull market run has subsided, but to more historically normal levels. I believe this was more of a reversion to the mean as opposed to some vast market changing theme. Markets are the summation of crowd psychology and until that changes the markets will always revert to the norm.
StockTickr: Do you backtest and if so, how has it helped you refine your system?
Dave: Backtesting was the most eye opening experience I have had in my trading life. In terms of refining my system it allowed me to understand and visually see what sort of expectations I should have. It also has dispelled many of the common myths that I think many beginning traders have. There are many potential pitfalls in backtesting but properly applied and interpreted it is an invaluable tool.
StockTickr: What advice can you offer traders who are just starting out?
Dave: Experience. I know that is not something you can have in the beginning but it is essential to developing the “gut” that you can trust to make trading decisions on the fly. So for a new trader I would say get lots of screen time, trade super small, and learn your system so that it is almost automatic by nature to react smoothly at the times that your instincts are crystallizing decisions. It should be as simple as crossing the street. Look both ways. No cars? Cross. Until then trade slow and small.
StockTickr: What do you like best about trading?
Dave: I do what I have always had a passion for. I have unlimited upside in terms of what my income is. And ultimately I only have to rely on myself for the success of my business.
StockTickr: When did you start your blog and what prompted you to do so?
Dave: I started posting regularly last November (2005) as a way to express my thoughts outwardly. I then thought people would be interested in following the performance and trades of a mechanical system. It has been loads of fun and the people I have had a chance to meet through the blog have been very rewarding. I think the blog will develop over time into something that will be a benefit to traders at all levels of experience.
StockTickr: Thanks, Dave!
Dave: Sure, Dave.
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Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- J.C., the NYSE Scalper
- Brian Shannon, AlphaTrends
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin from Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!