I am extremely excited to bring another layer of education to the blog. Over the next few months I have lined up interviews from top traders within the trading world. Some are trend followers, some are options traders but all of them have the same goal in mind…to be the best possible trader they can be. Whatever your discipline you should find an immense amount of value in this Trader Profile series. This is invaluable information and a look into other trader’s daily processes. I wish I had access to this when I was learning.
For the inaugural trader profile I am happy to introduce someone who has become a good friend of mine over the last year or so. One of the great things about interacting on Twitter is meeting people from all over the world and this mate (as he likes to say) is from across the pond.
John Walsh started trading in his late twenties when he entered a trading competition in the UK called ‘The City Index Trading Academy’, which of course he won. This was the real kick-start his trading career needed. From that point on he has become a valuable resource in the trend following community. He has also made appearances on CNBC and BBC. His simplified system tries to capture a part of an already established trend by going long stocks hitting 52-week highs and shorting stocks hitting 52-week lows all while maintaining sound risk management. He trades what he sees and stays within his system which has allowed him to become a very successful trader.
Be sure to follow John on Twitter @_JohnWalsh_
John was also kind enough to provide us with his 3 Keys to Success which you can download at the end of this post. Without any further adieu I present our Q&A session with John Walsh.
As a young man growing up when did you know trading was something you really wanted to pursue?
I was interested in the stock market from a young age, as a teenager I used to keep the pages from the daily newspaper that had the stock prices, I would follow the tickers and the prices but didn’t really know what they meant, it wasn’t until I was in my late 20’s when I entered a trading competition here in the UK called the ‘City Index Trading Academy’ where I was actually taught to trade and I went on to win the competition where the prize was 100K that my trading journey really began and I have not looked back since.
Walk me through the step by step process you took to get where you are today.
After the competition had finished I was pretty much left to get on with my trading journey alone but had the foundations on which to build on, I started by day trading indices to which I had some success but trading stocks was always my passion so I began trading stocks to the long side only and held for as long as I liked but never really had any focus regarding what stocks I chose to trade or when I would close a trade. I read some trading books and it became clear to me that trend trading both to the long and short side using 52 week highs and lows as guide was the way to go so looked into that some more then began scanning stocks every night for potential trading ideas, it was at this point that I heard about the ‘turtle traders’ and I incorporated some of their strategy and what they were taught into my own regarding trade size and stop loss placement and then I was ready to go.
How would you describe your style to a novice trader?
My style is a simple one, I simply aim to capture a part of an already established trend by going Long stocks that are hitting 52 week highs and go Short stocks that are hitting 52 week lows with a strict risk management approach so as not to damage my account if I have a string of losing trades (which does happen with trend trading) and be able still to trade when the time comes to be in a stock that captures a big part of a trend.
What are some key components of your system you would recommend someone starting out implement right away?
The two main components of any trading system HAVE to be trade size and risk management which basically comes down to knowing how much you’re willing to risk on each trade and where you’re going to get out of a trade before you get in – Use a stop loss every single time, if you don’t then you’re basically saying that your trade cannot loss which means your now gambling instead of trading.
When was the first time you heard about price based trading?
I had read about both fundamental and technical trading but after looking at so many charts it hit me that it’s the chart that really matters and how traders get paid, with the information that a chart shows it’s all you really need.
What are some rules of your system? Anything unique to your system or personality someone might be surprised to hear?
If you have a system then you must stick to the rules of the system unconditionally or the system becomes invalid and you could miss out on some future big trades that you would have captured had you stuck with it, basically you have to leave emotions at the door and be a robot, there is no place for emotions when it comes to successful trading.
Everyone has their favorite setups. What do you look for in a setup and how do you enter the trade?
As I have mentioned previously I simply run a nightly scan of Long and Short stock candidates hitting 52 week highs/lows and keep note of these stocks and over the course of the coming days and weeks I look for which stocks keep hitting the parameters of my scans before taking a closer look at the chart, once I see there is a clean smooth trend be it going up or down I then calculate from that afternoons closing price and where the stop loss would need to be positioned on the first day the trade is placed in line with my risk management and then simply wait for the open the following day to open the trade then my system does the rest.
Do you have rules for determining position-sizing? How do they differ from the typical rules for position sizing?
I risk 2% of my trading account on every trade so as my account goes up or down that determines how much is actually risked per trade so as my account goes up more money per trade is risked and when my account is going down less money per trade is at risk – simply put I would have to lose 50 trades in a row for my account to be wiped out completely so its simple mathematics that though not impossible, its highly unlikely that I would lose all my money before hitting a big trend and staying in the game.
You competed in the city index trading competition. Throughout the competition you were exposed to what I can only imagine was a stressful environment. How did you deal with the stress and stay focused on the task at hand?
The biggest stress factor while trading in the competition was trading against others and seeing a live Profit and Loss table so you would knew where you stood in the scheme of things which could sometimes make you take trades that normally you wouldn’t take which led to mistakes being made which led to even more mistakes and you had to stop yourself from imploding, this is where I first learned that you had to be as emotionless as you possibly could and just focus on the task at hand. These days all I have to do is worry about my own trading and not anyone else’s so it’s a walk in the park as I have learned to control my emotions and let my trading system take the strain.
As a full time cab driver, how do you find the time to not only trade but trade successfully?
Because I hold my trades for weeks and months and I do all my homework when the market is closed it doesn’t affect my day job as it only takes seconds to open trades at the open and once that’s done I only check on the market a few times throughout the day but don’t actually need to do anything as the stop loss has been in place from the beginning. All that need to be done each evening when scanning for new stock ideas is to put orders in to move stops on current running trades as and when needed for the following day, I must also add that I can go weeks without opening new trades if I don’t see feel the need to and there are no proper candidates hitting my scans with clean trending charts.
For all those other traders out there with full time jobs, what is the one piece of advice you can give them that is paramount to trading with a full time job.
While having a full-time job you must simply have to do all your trading homework out of working and market hours so you have a clear head with no distractions such as stock price movements and have the trade ready to go for the following day and all that needs to be done is the executing of the trade and after that its left to play out as it should for a win or a loss.
What was the biggest struggle you had to overcome to become consistently profitable?
You have to be patient, you don’t become a doctor overnight nor will you become a consistently profitable trader, once you realize that your trading life will become much easier as you will put less pressure on yourself which will help with your trading in the long run.
We’ve talked about how unforgiving this business can be if not approached with the right mind set. What was the “ah ha” moment when you realized the importance of trader psychology?
I started to trade what I saw, not what I thought, the market doesn’t care what you think and no one truly knows what’s going to happen with any price so be prepared for all eventualities – fail to prepare, prepare to fail
Why do you think traders are their own worst enemy?
Traders are their own worst enemy simply because they get in the own way by double guessing themselves when things do or don’t go there way, they just need to let their system play out as it should and let the chips fall as they may, again it’s all about being a robot and leaving emotion at the door.