INTERVIEW CENTRAL: John Carter, Part III

John Carter is president of Trade the Markets, Inc., and has more than 19 years' experience trading stocks, options, and futures. In 1999, he and a group of traders launched the "Trade the Markets" Web site to post their daily analysis and specific trades and parameters in the stocks, options, and futures markets, generating triple digit returns in the model portfolios each year.

John Carter is also a commodity trading advisor for Razor Trading, a money management firm, and he manages a futures and a forex fund. John is the author of the book titled Mastering the Trade, which was released in January 2006. John Carter grew up the son of a Morgan Stanley stockbroker and studied international finance at the University of Cambridge in England before graduating from the University of Texas in Austin.

This is the final installment of my recent interview with John Carter.

Optionetics: How would you characterize your technical approach to the markets?

John: It depends on the market.  For the stock indexes or individual stocks I’m a fader, meaning I will short rallies to resistance or buy pullbacks to support.  In other markets, such as currencies and grains, I’m a momentum player as these markets are better suited to that type of strategy.

Optionetics: What do you think are the greatest misconceptions beginning traders have about trading the markets?

John: That they are different or special and will not make the same mistakes as everybody else.

Optionetics: What kind of advice would you give a person just now beginning in trading the markets?

John:  Find a strategy.  A pullback to the 8 period moving average, an island reversal, whatever.  Trade it small size with real money for 25 trades in a row.  If you make money doing that time, then and only then increase your size.  New traders are going to make mistakes—make them with small trades.  Demo accounts and backtesting are ok, but a trader really has to see how they act and react when there is real money on the line.  I do this with any new setup I’m trying out.

Optionetics: Can you describe what your average trading and analysis day entails from preparation to execution?

John:  I spend about an hour each evening reviewing daily and weekly charts on the various markets I trade.  I like to use what I call “anchor charts” meaning I will only go long on a pullback on a daily chart if the weekly chart is also in an uptrend.  Or, if I’m day trading, going long on a pullback on a 5 minute chart only if the 60 minute chart is trending higher.  Once I have the anchors lines up, I then just wait for setups.  If I don’t get a setup, I don’t take the trade.  Most of my entries are done with limit orders, and I like to scale out as a trade goes my way and get my stop to breakeven quickly, allowing the last half or third of the trade a chance to run.

Optionetics: What kind of decision-making process do you go through before deciding on a particular trade and a particular sector of the market that would be worthy of putting on a position?

John:  I just look at the charts.  For example, if you look at the British Pound, the monthly, weekly and daily charts are all trending higher as it reaches 30 year highs against the US Dollar.  When I see something like this, I see no reason to go short until we get a breakdown on the daily and even weekly charts.  There are no awards given for picking the dead highs or the dead lows of a move.  Just go with the flow.

Optionetics: What type of analysis methodology do you employ to find great trading opportunities?

John:  If I had to narrow it down to a few sentences, I would say I use anchor charts to get on the right side of a trend, moving averages to get into a trend and Fibonacci extensions to scale out of a trade.

Optionetics: Thanks so much, John, for sharing your thoughts about the trading business with our Optionetics reading audience.

Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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