If you’ve ever entertained the idea of being a full-time trader then you’ve probably spent time looking for the holy grail of trading – the perfect system that will guarantee making big bucks on the market.
Well, professional trader Kerry Johnston has, in his own way, found it – although he doesn’t like to call it the holy grail, he does admit that it’s a system that has served him for 25 years and is just as successful trading CFDs, forex and futures as it is for picking shares in his super account.
Johnston’s system could be summed up by the saying, “keep it simple stupid” – for it relies on just six steps, involves surprisingly few indicators, and takes about 15 hours a week. In fact, Johnston rarely trades for longer than three hours at a time. And the reward? Johnston spends at least four months of the year travelling.
Now that’s not so stupid.
Johnston thinks that trading is a fine way of funding the other more important things in life that you want to achieve – such as travelling, or jet skiing. But the problem for most budding traders, he reckons, is getting through the beginning bit – the early learning period is often costly, and many a talented trader will throw in the towel along with a big chunk of their savings.
If Johnston could yell from the rooftops he’d scream: “Stop searching for the perfect system.” It becomes like an obsession, he muses, taking up countless hours of traders’ time for something that does not exist and no one else can find.
Traders instead should find a basic system to follow and stick to it. “The business of trading shares, options, futures or currencies can be as complicated or simple as you want. I make my trading as simple as possible and most successful traders I know do the same,” he says.
But trading the markets wasn’t always so simple for Johnston. Like most professional traders interviewed by TheBull over the years, the early part of trading involved plenty of tough times and lost dough. Johnston suffered a heart attack and gave away just under $100,000 to the market in his early years. As he says, “the money isn’t lost but goes to other traders. There are a lot of traders out there that trade very successfully.”
Insights from super trader Ed Seykota
In the mid 80s, Johnston fronted up to a trading course in the United States, and met super trader Ed Seykota, featured in the best-selling book Market Wizards. Seykota invited Johnston to a meeting with a small group of traders to learn about their trading methods. “I learnt why they were successful,” says Johnston. “They weren’t caught up with technical indicators and trying to have the perfect system. They had their strategies, but their focus was on the money management and their trading skills. As I left I was told that if I changed my trading strategy into a set of simple steps and stgeloped the confidence and skills to follow them, then I would be successful.”
Johnston returned home, stopped trading and observed the market action to stgelop his trading strategy. It was based on the real force that drives the market, the levels of buying and selling pressure caused by market participants. “I still use the same strategy today. The settings have changed over time to suit the changes in technology, but the principles are the same and they won’t change in the years to come,” he says.
Six-step trading strategy
Ed Seykota advised Johnston that he needed a set of simple steps to follow:
1: I have to identify if the market activity suits my strategy
2: I have to identify a time to buy or sell using the Pressure Trading Strategy. It looks for a probable price direction and the buying or selling pressure levels.
3: I enter the market when prices move in the direction of the pressure.
4: I place my initial risk stop loss at the pressure level
5: It is my objective to get my exit order to a breakeven price as soon as possible. Once it is at breakeven, then I can’t lose any money and the trade is very relaxing.
6: This is my profit exit rule. Most traders will tell you that getting out of a trade is the hardest thing to do. There is no right way. I take a each way bet where I exit part of my position on a target and trail the remainder.
Weekly trading schedule
Johnston’s trading can be split into two distinct sections where he trade both ends of the market:
a) Short-term intra-day trading stock indices and forex
Johnston trades 4-6 times a week for about 3 hours per session. The trading sessions focus on ASX200, FT100, S&P or forex. In any week there are numerous trading opportunities, he says. “I treat my intra-day trading like a job where I get paid for my effort.”
b) Long-term trading the same markets using daily charts
End-of-day takes a few minutes a day, he says. “I do this around 6.45pm so as to enter after the London market open to improve the probability of the trades. I consider this to be like an investment income where the profits are generated by the long term moves in the market.”