Speculative attacks on markets have been thwarted repeatedly by the various interventions of governm...
August Trading: A Real Super Summer Slow Low-Volume Kind of Month
08/29/2013 11:00 am EST
Rob Booker speaks with veteran trader Jared Johnson, CEO, founder, and president of Day Traders FX.com about August trading, and how the market has been so “August-ey” this month, which leads Rob to talk about his history of August trading and what had made this year different for him. They discuss how sometimes we think our trading system is broken, but in reality, the market conditions are just not favorable for trading. They also talk about the trap that people who trade for a living fall into, namely, thinking they must be in the markets every day and refusing to take a vacation, in order to avoid “missing something.”
Play in Windows Media format
Play in RealPlayer format
Play mp3 stream
Direct link to mp3 file
Rob Booker: So, Jared, we’re back to trading our charity account. How do you feel about the way that’s going?
Jared Johnson: So, speaking of, you had a trade on this morning, I’ve got a trade on, and I was actually looking around for the order box and I swear I couldn’t find it. It’s been so long since I’ve traded, I pretty much just had to call the broker and have him execute the order for me.
Rob Booker: That’s hilarious.
Jared Johnson: It feels good to be back in the market, man, I’m telling you this month has just been, it’s been so August-ey this month that I don’t even know what to do with it.
Rob Booker: How do you describe August-ey, what is that?
Jared Johnson: August-ey is like when you get to like the bottom of like an old cup of Tang and there’s all the flavoring at the bottom, and then there’s some random rocks and twigs and stuff. That’s what August is; it’s just below the bottom, volume it’s just way down there. At least that’s how it’s been for me; I hope you guys have had a better run. Man, I haven’t hardly taken a trade in a month it feels like.
Rob Booker: You know August is usually a terrible month for me. I find that you get a breakout and then a retracement, another breakout, and you get tons of trades that open but no trades that go to their profit target.
So, traditionally I’ve tightened up my profit targets in the month of August whether I’m trading, I mean it wouldn’t matter trading stocks or futures or currencies because the breakouts just don’t have any follow-through because everyone’s on vacation. So, one guy takes a step out into unknown territory so to speak and then no one is there to follow up with the trade that says that’s a pretty good idea. I’ve actually, this time around in August, surprisingly I’ve gotten really lucky and planned some trades that went a long way.
I had an Aussie in-trade that just shot upward last week, and I intended to close it before the weekend and I had my mind on other things. I just didn’t do it. I mean, I’d like to say there’s a story behind it, but pretty much I think I watched a bunch of Netflix and forgot what time it was on Friday and then did not close my trade before the weekend. And then once it made it through the weekend unscathed, I kept it open because the whole reason of closing it before the weekend was in case something dramatic happened over the weekend. The only dramatic things that happened over the weekend had nothing to do with trading, so I left the trade open and it went way beyond my profit target, which was fantastic. So, August for me has been less August-ey than usual.
Jared Johnson: Excellent, excellent. That is inspiring. That definitely is because it seems like it’s been a real super, summer slow, low-volume kind of month.
NEXT PAGE: The Summer Doldrums|pagebreak|
Jared Johnson: But good for you. And here’s the frustrating thing is I look at the charts. I look at the set-ups day today, and I just, you know, things just aren’t meeting my criteria, over and over and over again, and then they kind of do, but it’s not good enough for me to get in and then things run. And then I look back at the charts, and there’re actually several charts at least that I’ve been keeping an eye on over the last few weeks, you know the Aussie/yen has been trending up like crazy, and the euro/dollar had several days of moves down. I thought, I mean, I feel like I’ve been trading for like two weeks, you know. I’m thinking, how did I miss that?
But you know, it’s like on the close-up view I’m just not finding those set-ups, and then you look back over the last week or two, and it’s wow, there was a lot of movement.
Rob Booker: Well, I noticed that you took a trade on the Australian dollar, US dollar today. It’s a really good example of what goes wrong for me in August is that I plan a trade that ordinarily works perfectly fine in the system that I use and developed and spent all this time to create. And then, once the trade is open, all of a sudden it retraces, like it does everything that I would ordinarily do in any other month of the year to plan and take and manage a perfect set-up. And then it just doesn’t go anywhere. Like it opens and then that’s it. It’s like, what, you really want me, what else do you want from me, you know, like I opened the trade.
There have been August months where I considered changing my trading strategy because of the damage that I did to myself in August that I actually started to doubt the trading strategy. I think that there are times in our lives as traders where we think that our system is broken, but what’s really broken is that the market conditions are not favorable to continuation, that it’s holiday times or times when everybody’s on vacation like Christmas-time. I find myself trading on Christmas Eve one year, and I was like, what am I doing?
No one else is doing this, and you can make all kinds of excuses like, oh I’m Senor Trader Grande, and I’m taking grande trades in my grande account. I’m here to prove how awesome I am. The only thing I’m proving is that I don’t know how to take a vacation. I don’t know why it is that, I’ve noticed this is a disease amongst people who trade for a living, is that they think they get some kind of badge for not taking a vacation. I don’t know what that’s about, but did you ever go through something like that, Jared, where you’re just like, I got to be there every day?
Jared Johnson: I mean, huge amounts. And it’s funny that you mention that because I was reading an article this morning. I was sitting here watching the charts. It was 4:30 this morning, and I thought ah, nothing’s happening for a little bit. You know we had some news coming up at 5:30 so I thought I’d wait for a minute. And so I’m reading an article, and it was about, it was almost word for word what you just said, how busyness becomes almost like bragging, like something to brag about, right? You know how we’re so busy and we just never, and I’ve definitely had that a bunch of times. I mean, it’s sometimes hard to just take a day off. I feel like there’s something about trading in particular, you know, that when you take a day off you feel like you’re going to miss like that million dollar set-up that you’ve been waiting your entire trading career for, you know?
NEXT PAGE: Follow Your System No Matter What|pagebreak|
Jared Johnson: There’s always that, the unknown could be the big payout, or, you know, or something. I don’t know. It seems to be particularly contagious with traders. You know, in my trade group, we have people all over the world in every time zone, and most people have full-time jobs, and they’re always chatting about what they’re doing and so on. I know all these people in Europe are up until 2 o’clock in the morning every day trading. And then they have to be up at five or six to work or whatever. You know, and I think that’s, I’m starting to realize we’re all pushing it a little bit, probably.
Rob Booker: Yeah. I didn’t take a trade today because I was too tired. I actually do a trading room around the same time that you do, and we were in the trading room. I went through all the reasons that the trade didn’t look very good, and what I realized it was that I was trying to explain why the trade didn’t look good because I didn’t want to take it because I was tired and I was afraid that I would make a mistake. I didn’t want to admit that I was afraid that I was going to make a mistake, so I was coming up with all kinds of crap reasons that I didn’t much care for the trade. Then, the trade opened, people in the trading room took it, and the trade went not only to its profit target but far beyond the profit target. I found myself sitting there thinking, first of all I’m glad that I just admitted that I’m an idiot and I’m just tired and I’m not going to do this today, so feel free to take this trade on your own. And then I realized that it’s just a good idea every once in a while to go through a mental visualization exercise or practice in my mind walking away from a situation that I know when I’m not at my peak performance level and I know when I need to walk away and I know that I make mistakes during those times.
There was a pound dollar set-up today on the British pound, and it wasn’t, it wasn’t what I looked for but it had, it had elements of what I look for. I know you’ve been here before, Jared, where a trade looks similar to what you look for, but it’s not what you look for. And, when you’re tired or you haven’t had a good week, or you have had a good week and you’ve got money to spend or money to burn, those are the set-ups. It was like, yeah, this doesn’t quite meet my criteria, but I’ll go ahead and do it anyway.
And I’ve done that a lot of times before, and I feel happy with myself today because I didn’t take either of those set-ups because they weren’t quite what I look for. Then I ended up taking, as you know in the account that we traded together, I ended up taking an Australian dollar-Swiss franc trade that didn’t go as far, didn’t have as much profit potential. It wasn’t as big of a trade, but still the same I got it, and I got it. It was the way I like to do it, and I think that that’s what I feel pretty good about today was I stayed true to the system that I picked and the types of trades that I try to do.
Jared Johnson: Yeah, yeah. I think, you know, that’s definitely been a good theme for the last couple of weeks in my brain and you know in the group as well, as we’ve just been talking about. Sometimes you just have to follow the system when it gets boring, and you go several days sometimes without taking a trade. And likewise, sometimes it’s almost hard to follow the system, on the positive side as well, taking the trades, especially for me like I was just joking about I couldn’t find the order box and everything. I mean, it feels like I’ve been so, it feels like it’s been so long since I’ve taken a trade. Now, following my system into the market is almost like I’ve gotten rusty a little bit, so, yeah, it’s good. Aw man, sticking to the game plan and the trade plan is priceless and sometimes pretty challenging.
NEXT PAGE: The Definition of Insanity|pagebreak|
Rob Booker: Do you ever find yourself taking trades on currency pairs or financial instruments that you know don’t work well for you, but it’s a set-up and so you do it anyway and you get burned again?
Jared Johnson: You know, I did that quite a bit the first five years of my trading career probably, and now I just, now I just don’t. You know I have people asking me all the time, what do you think about the dollar-yen. I said, well I don’t really trade it because I’ve just had bad experiences with that.
And the dollar-Swiss franc, and the dollar-CAD. For some reason, when the dollar’s in the first spot on the currency pair, I seem to just have had, bad experiences the first chunk of my trading career on those pairs. So I’ve just literally forgotten that they even exist because, I got burned by them so many times I figured, if I take another trade there’s something wrong with me.
Rob Booker: Right. Well you’re describing what’s wrong with me. Yours is the enlightened approach to it, that you learn that you don’t do well and then you adjust your behavior accordingly. For me, today I have a second trade that I did not put in the charity account because I wouldn’t want to hurt a charity but I’m perfectly willing to hurt myself, on the Australian dollar-Canadian dollar. I know this thing; it’s got the Canadian dollar in it, so I know it means me no good.
It means to do me harm and it will commonly open up the tradables. It will go just far enough to open a trade, doesn’t matter what month of the year it is, and then it will just immediately reverse. Now, it doesn’t mean it won’t come back later, but I’ve noticed that that’s a characteristic of this currency regardless of what it’s traded against. I find myself getting pushed into trades on this all the time that I guess I decided that I wanted to be in but then once the trade is open I regret that I’m in. Then I have to end up using profit from a good trade from that day to pay for taking and early loss on the trade that I’m not happy that I was in today. That’s the position I’m in right now, so I was up on Aussie-Swiss. I’ve already closed that trade; I made some money. Right now, Jared, I’ve got, I’ll just tell you what’s going on. It’s easier if I just say it. So I made $3,100 this morning on Aussie-Swiss.
I sold at $85.19 and took profit at $84.90, so a 29-point profit. Now I’ve got an open trade on Aussie-CAD that is down. I opened the trade at $93.79, and it’s trading at $94.02 so it’s down about 22, 23 points. I could make about a thousand dollars overall today if I keep the winner, of course, that’s already closed and then I close the losing trade right now. What do you do in a situation like this?
Jared Johnson: I find that I do get myself in that situation from time to time, and it depends, I think, on the set-up. Now, like you’re saying, if it’s a pair that you’re trading that tends to burn you, which I definitely am not saying that I don’t trade pairs that I have regular bad experiences with. I just try not to trade as many as I have the ones I’ve had bad experiences with.
NEXT PAGE: Justifying the Insanity to Yourself|pagebreak|
Jared Johnson: There’s always a few sneaking in there. But I find myself, if it’s a pair that I’ve had bad experiences with, in your situation I would close everything and just take the reduced profit, but profit. But oftentimes if that similar situation is a pair that I feel pretty confident about the set-up, and I usually have good experiences with it, I find that when I wait those out, as long as, of course, the set-up looks good, I’ve done pretty well on those. I’ve had several trades recently that have been exactly what you’re describing. But again, if it’s that pair that’s burning you, I always, it’s painful sometimes. I always say it, but it’s painful to do it, which is, some profit’s better than no profit, right. And it’s actually tough to pull the trigger on those situations where you’re thinking, I could probably get some of this back, and yeah so…
Rob Booker: I try to look at it from two perspectives. One is the trader’s perspective. I’m here to make money for myself and support my family and my lifestyle. The second perspective is I’m here to teach other people things that they should do, and I find myself in a situation sometimes where I say, well in order to teach other people what to do I should consider this Australian dollar-Canadian dollar trade a trade on its own and I should run this to completion. I should let this play out. I should, you know, it’s a set-up. Why wouldn’t I trade a set-up? Why wouldn’t I allow a set-up to go all the way to completion?
And then I look at it from the perspective of a human that needs to have money to survive, and I think about the thousand dollars, and I’m like, okay, Isaac would like a pair of Crocs, and Olivia’s birthday’s coming up, and it’s not like I’m going to spend a thousand dollars on Crocs and birthday presents, then there are other things like, you know, child support and other things that really hit home. I’m like, wow, that’s right now I’m down $1,800 on one and up $3,100 on the other. I could come out up $1,200 or whatever. I’m done and that’s a good take for the day. And I see this battle in between what I want for myself and the type of behavior that I would want to exhibit to other people, which is stay in the trades that you take unless the rationale for having taken the trades in the first place is over.
Maybe a higher rationale on everything that we do as traders is to make money and maybe you could say, well, once you’ve made money, you close the whole thing down and that you’re done when you’ve made money for the day and when you’ve made money for the week. If I close this thing down now, I’ve made money for the week, I’ve done well, as far as I’m concerned, I ought to just go ahead and take the money and run and I can come back to all of this next week. But then it comes back to what you said at the beginning of this whole podcast, that there’s that little voice in my head that says “This is the big one.”
This is a $1,900 loss right now, but Rob, if this gets all the way to the profit target or beyond, if this could be a win, let me just take this terrible thought to its conclusion, $93.29, I got it at $93.79. This could be a $5000 winner. Think of all the Crocs you could buy with that!
Jared Johnson: You could buy the whole Croc store with that, right there.
NEXT PAGE: All Traders Struggle with This|pagebreak|
Jared Johnson: I think that’s such a good point to make because obviously you struggle with this, I struggle with this, and any trader that says they don’t is probably not being 100% truthful because I think the question mark of the result in trading is what gets us most of the time. I would like to say, propose this. I don’t know how it’s going to sound, but I think charts are probably some of our biggest enemies in trading because, obviously, it gets us into the trade and we can analyze what the market’s doing and all that good stuff, but charts are also horrible because, say for example, you close this trade out and you take a loss on this trade and a gain on the other and you’re a thousand dollars ahead. But then say this trade doesn’t go to where your stop-loss was set and it ends up ruining the profit and you get a look back at that, for days and days, and most of the time I don’t think many of us stew on these things for days, but it starts to add that psychological baggage of I didn’t stick with this and I saw what the result was. And the charts are always in front of our face to remind us, trades we didn’t get or trades that, I mean how many times have you seen a big spike on something and you thought, you know I was long on that two days ago. If I would have just held it and forgot about it, I would be up $20,000 right now.
Rob Booker: Yeah, I know, that’s crazy.
Jared Johnson: And the great thing is we only can go one of two directions, right. And the market’s always moving one of those two directions, and so it’s such a, such a psychological game. But yeah, I think that’s such a challenge with every trader.
Rob Booker: Well, while you were talking I reflected upon not only what you were saying; I was listening to everything that you were saying. I love the part about we’re always looking at the chart and saying, “Man if it just goes all the way to my profit target, boy what a rich man I will be.” And then I remember the podcast episode, Jason, where I essentially gave advice that no one who listens to the podcast should ever ask for advice from anyone ever again.
Jason Pyle: Oh yeah, I remember it.
Rob Booker: And it reminded me that I don’t think that it’s important what I have to do as an educator to teach people. I think it’s important what I have to do as an individual and that when it comes down to making trading decisions you need to make those on an individual basis and not on the basis of how you will appear to others. And if you stick to that program you avoid jumping into a trade because you want to make a big win that you could show off, because you don’t need to show off. And you avoid staying in a trade that’s a losing trade that could become a worse loser because you could close it now and end up positive for the day leaving you feeling like a big smarty-pants. And then I could always get right back into my trade afterward. I could always re-enter this trade later on. I don’t have to be in a trade at all. There’s no reason that I have to be in that trade other than to make money and if I’ve already made money then it’s just a circular reference where I’m saying, “Well I could make more money.”
You mentioned very specifically, it’s one of two things. I could make more money or I could make less money, like it’s not, it’s not just more money if I keep it open. I have to open my mind to the possibility that what I will do is give back to the market what I’ve spent so much time to plan and take. So, I’ve closed that trade while we were talking actually, and ended the day up a thousand. I’m done, I don’t think I have any more trades planned or that I need to plan or need to take for the rest of the week. Now that that’s over, I feel a weight lifted off my shoulders that I don’t have to babysit this anymore, I don’t have to watch this, I don’t have to worry about it. I can go do whatever I want today and feel carefree about it.
NEXT PAGE: Make Your Decisions Before Pulling the Trigger|pagebreak|
Rob Booker: It’s funny that after the trade is closed, I never think about the lost profit. After the trade is closed I always feel relieved about not putting myself in harm’s way at the possible loss. It’s so interesting that in between closing the trade and not closing the trade, there is an enormous difference emotionally, but there is a complete different way of thinking, that the chart is your enemy when the trade is open, Jared, but then as soon as the trade is closed, you can consider everything from a very objective and rational and calm state of mind and how interesting that is.
Jared Johnson: Doesn’t that bring up the point, or does that remind you a little bit of the opposite of that talking about trade plans and planning your trade out as best you can before you get in because I always tell people, and I tell myself this, just the opposite of, before I get into a trade everything’s clear and I’m able to make good rational decisions. And then as soon as I hit that button to get in, all of a sudden logic goes screaming out the window, and my blood pressure’s up, and I’m looking at everything, and if you don’t go in knowing exactly what you’re going to do, the chance of disaster once you’re in is crazy high. Just like you said, once you’re out of the trade it’s like, okay, you can get back to even and normal and feeling okay instead of stressed out about the trade and what’s going on. It’s a good reminder of the beforehand, as well to just plan it out so you don’t have to make those decisions once you’re already in the market.
Rob Booker: Make your decisions before you’re in the heat of the moment.
Jared Johnson: Yeah, absolutely.
Rob Booker: Absolutely.
Jared Johnson: I don’t mind if I do.
Rob Booker: I don’t mind if I do. On behalf of my excellent co-host for the day, Jared Johnson, who is CEO of Day Traders FX, you can find him online. You’re on the Twitter, Jared. Could you give your Twitter, your Twitter to everyone?
Jared Johnson: I am on the Twitter, and it’s daytradersfx.
Rob Booker: Check him out at daytradersfx. You can also go to daytradersfx.com. He’s got a live trading room. Encourage you to check that out, and on behalf of my friend and the producer, Jason Pyles, I want to wish you a happy day. Jason just started up a new podcast with a new group of people, and it’s called the Donut Show. So I’m going to give a shout-out to the Donut Show. You can find it where, Jason. Where can people find the Donut?
Jason Pyles: It’s at donutshow.com.
Rob Booker: Show me the donuts. What’s this podcast about?
Jason Pyles: Oh Rob it’s whacky. It’s just these three guys sitting around talking about various kinds of donuts and treats and pop culture. It’s kind of mess.
Rob Booker: I can’t wait to listen to episode one right now. Thanks everyone for listening. I’m Rob Booker. You’re listening to the Trader’s Podcast.