For the next interview in the StockTickr Interview Series (RSS feed), I spoke with John Forman, a trading coach and author of The Essentials of Trading, a recently published book for beginning traders. John has his own site where you can contact him directly.
John was a collegiate volleyball coach and in the interview he talks about the similarities of coaching athletes and traders, the most common trading mistake he comes across among traders, and how hugely important keeping a trading journal is.
John has agreed to field questions in the comments of this post, so ask away!
StockTickr: Tell us a little about yourself, John.
John: I am currently a professional stock market analyst having just started work with a group developing a new institutional (and eventually retail) equity trading commentary service for Thomson Financial in Boston. If you’ve watched CNBC much at all, you will have heard that name as a provider of market information, earnings estimates, and whatnot. This is a new venture for the company, though we’ve done similar sort of work in the foreign exchange and fixed income (interest rate) markets for years. In fact, it’s with this company that I got my start as a market professional coming out of college about 14 years ago. In those days I was an analyst focusing on the US Treasury market, though I switched over to forex about 18 months later. I’ve just rejoined the company after about seven years. During that time I was focused primarily on collegiate volleyball coaching, but never far from the markets as I remained active trading stocks, options, futures, and forex pretty much the whole time. Aside from my work with Thomson Financial, I’m still trading on my own, and definitely working in trader education.
StockTickr: How did you get started trading stocks?
John: My mother actually got me involved in the stock market. When I was a kid I had a paper route. Mom took part of my weekly earnings and put it into a Dividend Reinvestment Plan(DRP) for Dow Chemical. I would take a look at the quarterly dividend statements and sometimes check out the quotes in the business section of the newspaper. My senior year in high school I got a little more specifically involved in the markets, starting to learn a little more about trading. It was the Crash of ’87 that really hooked me, though. I watched my Dow stock get cut in half (along with many others) and just knew that things had gotten way out of hand. If I’d had a trading account (was only 17 at the time) I would have been a buyer. That really made me realize something interesting was going on there. I opened my first brokerage account a short time later – one that I still use to this day.
StockTickr: How did you get started coaching traders?
John: I guess I’ve always been an educator at my core. I was a coach well before I became an active market participant. That was in volleyball, but the same basic idea of teaching, guiding, and motivating applies regardless of whether you talk about traders or athletes (or anything else, for that matter). My trading and markets educational work really started with writing articles for magazine publication and speaking to college students at my alma mater on a fairly regular basis after I started working in the markets professionally. That eventually evolved in to working with one of my former professors on developing and presenting a new trading class as an elective finance course.
It was actually my work on that class which directly lead to my writing The Essentials of Trading. I was looking for a book that could be used for the course, but couldn’t find a suitable one. All the introductory trading books I found were either market specific (stocks, forex, etc) or trading style specific (swing trading, day trading, etc.). Since I was dealing with young people who essentially had no experience in the markets in most cases and for whom I could not assume that a specific market or style was most appropriate, I needed a more general book. So I wrote one. It proved a great opporunity for me to really identify the foundational elements of successful trading that are really universal and not specific to any one market or approach.
Since the book came out (April 2006) I’ve done quite a bit of focused work in trading education and certainly have talked and exchanged emails with loads of traders. My actual formal coaching work has been limited, though. I’m quite particular about the arrangements I get into. I want to really feel like I can communicate well with someone and help them toward their objectives before I agree to work with them.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
John: When I first started in the futures market I decided to take a position in the Yen. Even though I was extremely knowledgable about the markets (was a forex analyst at the time) I made just about every error you can imagine. It took me forever to be able to finally pull the trigger because I kept second guessing myself. As a result, my entry wasn’t great in the first place. The market went against me and I wanted to get out. Somehow (I can’t remember the exact details – chalk it up to reressed memories maybe) I ended up doubling my position. The account was $5000 to start. By the time I became aware of the problem and got everything untangled it was down to about $1000. It all happened in like an hour. It shook me up quite a bit. I can’t imagine what I must have looked like.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
John: That’s a tough one. I think I would have to say doing things for myself. Trading is a very personal venture. In order to have any long-term success you have to make sure your trading approach really meshes with your personality, life situation, and things like that. I figured out early on that I couldn’t let other people’s views or trading influence my own. They could be the source of ideas for me to research, but I could not trade based on what other people were doing.
StockTickr: What 3 books do you recommend traders read?
John: Market Wizards tops the list. It’s part inspiration and part educational. I still read it from time to time when I need to get my trading revitalized. For stock traders, How to Make Money in Stocks. That book is the one most directly responsible for the type of trader I have become. There are definitely others I could add, but for the third one I will say Markets in Profile, which was recently released. That book does a great job of getting you looking at what is really happening in the markets driving price action.
StockTickr: What is the most common but easily correctable mistake you see traders make?
John: Mistakes on order entry are the easiest ones to correct, but probably among the most frequent. We all make them, but we really shouldn’t. Even after years of experience I sometimes don’t pay enough attention to what I’m doing and put an order in wrong. One time that worked in my favor, but basically every other time it’s cost me, or would have done had I not caught the mistake in time.
StockTickr: Do you see record keeping as a critical part of trading?
John: Hugely important! If you don’t keep good, accurate records of your trading it can become very easy to ignore or avoid confronting your trading errors. Failure to understand and acknowledge your mistakes will hamper your ability to develop good trading habits and to become a consistently profitable trader.
StockTickr: Are there ways traders can improve upon their trading journal/diaries?
John: The main purpose of a trading journal is to help you identify patterns, good or bad. A good journal will help you see both what is causing you problems and things that you are doing correctly. But a journal is only as good as what goes in to it. Garbage in, garbage out. Just recording basic trade details is accounting, not journalizing. Be thorough. That’s going to mean taking time. Consider that time and investment in your trading future. It will pay off in the long run.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
John: There have been loads of changes. The rapid evolution of forex in to a market readily tradable by individuals (not the case when I first started) has altered the landscape a bit. It used to be that new trades almost exclusively went in to stocks. While the stock market still is the one most people think of when they hear “trading”, forex has grabbed a lot of new traders in the last few years. That is probably a contributory element to the reason why volatility in the stock market has remained low. The decline in volatility occured following the bear market early in the decade which chased a lot of individuals out of stocks. I had done quite well trading index futures up until then, but the narrowing daily ranges really impacted my performance, so I was forced to go in other directions. Today my trading focus is mostly forex and individual stocks, sometimes mixing in fixed income futures. I just basically go where the opportunities present themselves.
StockTickr: Do you suggest backtesting and if not, how do you instill belief in your system?
John: If one is developing a system, or is thinking about using a system, then backtesting is critical. You absolutely must understand all the ins and outs to trade a system confidently. They all have their own quirks. If you don’t know how a system is likely to react under different circumstances you are much more likely to second guess it, usually to your detriment.
That said, not all trading methods are easily programmed for backtesting in an automated fashion. In that case you need to find a way to do it manually, so to speak. Doing that in a going forward demo account sort of fashion can take lots of time before you can build a sufficient collection of results with which to make an evaluation. Trying to test by going backward in the charts has its own limitations and pitfalls. You have to do something, though to build the understanding and confidence you need.
StockTickr: What advice can you offer traders who are just starting out?
John: As I said before, long-term trading success (as opposed to short-term success which is more luck than anything else) requires having your trading be a good fit for you. My top bit of advice for anyone I speak with who is new to the markets is to spend time making a really solid and honest assessment of themself before they take the first step. For someone just getting started it might be difficult to get everything just right because some things need to be learned along the way. Having a real grasp of expectations, time available, preferred ways of looking at an interpreting data, and whatnot, though, can more quickly put one on the right path. If for no other reason, having this kind of understanding is of great help in not wasting money on trading products and services that are not suitable. An awful lot of people waste an awful lot of money on systems and seminars and stuff like that because they never took the time to give serious thought to how best they should tackle the markets.
StockTickr: Thanks for taking the time for this, John.
John: Sure, Dave!
Be sure and read Joey Fundora’s case study on how he turned his trading around using StockTickr. Hone your trading edge with a 30 day free trial to StockTickr.
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Denise Shull
- Tim Knight, Prophet.net
- Chris Perruna
- MC, PinoyTrader
- Joey Fundora, DowntownTrader
- Brian Schumacher
- Doug Hischhorn
- High Patterns Chart Group
- Zoomie, retired fighter pilot
- Trader Gav
- Will Fisher
- Tom C.
- Michelle B.
- Elliot Dole
- Jon Tait, the Fickle Trader
- Bill Rempel
- Roger Nusbaum
- Dave Johnson
- 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, 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!