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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 15 August 2007 Table of Contents (1) Quote on Education (2) Interview - Chris Perruna from United States (3) Website Update - Trading Interviews ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ RSS Feed Stay up to date with all that is happening at Trading Plan, by subscribing to our 'Trading Blog' (no email address necessary). I am continually adding content and every update of this site is announced here, including minor content updates, page additions, and product releases. So stay plugged in by subscribing to this site's RSS feed. Copy and paste the address below into your RSS reader to receive the Trading Plan RSS feed... http://www.trading-plan.com/Trading-Plan.xml Not sure what RSS is? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Previous Issues Only just joined the mailing list? That's OK - you can read all of the previous issues of the Trading-Plan ezine. 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Visit http://www.trading-plan.com/trading_forum.html for more information. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -- 1 -- Quote on Education “The great aim of education is not knowledge but action.” Herbert Spencer (1820 - 1903) -- 2 -- Interview - Chris Perruna from United States * Background Info / Introduction * Q. Can you please start by making a few comments about yourself to include your trading style and what products you trade, your experience in years, and what other things of a trading nature take your time on a regular basis (e.g. writing trading books/contributing to forums/coaching/speaking engagements)? My name is Chris Perruna, I am 29 years old and I currently reside in New Jersey with my wife but was born and raised in NY. I graduated college with a degree in Architectural Engineering and went to work for a historic preservation firm in Manhattan. I currently consult for a fortune 500 big builder as an architect (listed on the NYSE), write a popular stock market blog (www.chrisperruna.com) and trend trade for capital appreciation. I am also the Founder and President of MarketStockWatch.com, an equity research firm, but that business is on hold while I am thinking about writing a book and enjoying some free time. I am a trend trader in the equity markets looking for gains of 25% or more and losses no larger than 10% (preferably smaller). Understand that this 10% loss is calculated into a position sizing spreadsheet that only risks a maximum of 1% of total capital. My foundation is rooted in CANSLIM philosophies but I developed my system with detailed position sizing calculations and money management rules from Dr. Van Tharp’s book: Trade you way to Financial Freedom. I consider myself an intermediate term trader that uses daily and weekly charts. I can hold a position as long as a year or as short as one day. I will cut a loser in the first day of trading and can take a profit in as little as a week if it hits my target. My targets are based on risk-to-reward ratios. Once a target is reached, I set retracement stops that will allow the profits to grow without great risk. I also trade options on occasion and have had that account active since 2002 and would like to move into other markets such as futures and possibly currencies if the opportunity presents itself. Q. It is fair to say that most people are initially attracted to trading by money. Is this what initially attracted you or was it something else? Yes that is a fair statement. I was initially attracted for two reasons: the lure of great financial success and time freedom from the typical rat race work-force grind. Older and wiser, I am now attracted for other reasons as stated throughout this interview. Q. What are some of your good and bad memories of your early trading days? I stated trading in the late 1990’s so I have good memories of buying my first stock ever and watching it triple in price over a few months. Many of my early memories led me to believe that trading was too easy. My bad memories contain the trades that lasted into 2000 and 2001 that didn’t seem to cooperate with my original idea that trading was “too easy”. EXTR is my worst memory but my best lesson as it dropped from $55 to $15 and gave me a huge loss in my overall account equity. It taught me the first valuable lesson of my life: cut losses short (which I truly started to understand after discovering CANSLIM). Q. How would you describe a couple of your biggest mistakes in your early trading days? As mentioned above, my biggest mistake was trading EXTR in 2000 and 2001. I followed the stock as it made huge swings of 50 points or more. I started to play it and was burned badly once 2001 concluded. I didn’t understand position sizing and risk management as the majority of my account was in one stock. It crushed the majority of my gains from 1999 and 2000. Q. Looking back to the beginning, in the face of the usual challenges, what motivated or inspired you to learn to trade well? My losses in 2001 inspired me to seek out how to trade for profits on a consistent basis. I subscribed to Investor’s Business Daily and started to read every book I found on investing. I figured that there had to be a way to trade successfully without incurring such large losses and account drawdowns. Q. On reflection, was there a single moment in time or situation that ultimately had the greatest influence on your trading? I don’t know if I would call it a single moment but rather a continuing process of market education that was pointing me in the right direction to become successful. The end of the 1990’s bull market and the ensuing bust taught me a great lesson and I am glad that I can say that I traded during that historical period of time. I started to transform into who I am today in the beginning of 2002. * Trading Plan * Q. We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both? Briefly, why? I use a combination of both technical and fundamental analysis. I use several computerized screeners to narrow down a list of potential buys each nigh based on fundamental criteria. From there, I highlight the best opportunities based on technical analysis which I perform myself by viewing the charts after the close every evening. Fundamental analysis tells me what may qualify as a possible buy and technical analysis tells me when and where to buy. Q. Do you have written trading plan detailing your approach? How would you describe it (e.g. long/short, detailed/broad, complete/work in progress)? I would call it a plan that continuously evolves. I currently trade stocks that are trending higher that are catching support near the 200 day moving averages or ones that are near a support level within 15% on a new 52-week high. I am in the beginning stages of writing a complete mechanical system that will trade based on several moving averages and an ADX indicator. Back testing looks good to this point but I haven’t traded it for real Q. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)? Do you have any comments on the simplicity or otherwise of them? I would rate my system closer to 1 as it is very simple to follow and teach. The hard part (or the 10) would have to do with each individual actually following the rules without emotion when money is on the line. Q. Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation? Start trading what you think your system may be and then analyze what you are doing by going back and studying each step in the process you took for a certain number of trades. Write notes while making an actual trade and develop that into an outline and then a plan. * Trading Mindset * Q. Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them? I hated losses in the past and couldn’t stand seeing red on my computer monitor. I was a very emotional trader that watched long term trend trading positions throughout the day. I couldn’t concentrate on work and made bad decisions based on this micromanagement of positions. However, I have learned to rid this behavior and I now accept losses as part of every system I trade or will eventually develop. As a trend trader, I will most likely see losses about 50% of the time or more. The key is getting out of a losing position based on my risk-to-reward setup prior to entering the trade. Q. Isabelle, 36 is a mother of two children and stays at home with them during the day. Her husband works full time and his salary meets all their financial obligations comfortably. Isabelle arranges an appointment with you to discuss trading – she has never traded before but knows you can help her get started with some initial guidance. What will be the 3 most important things you tell her in the appointment? 1. Make sure you are properly capitalized to trade.2. Develop rules that will limit your risk and properly size your trades.3. Study the psychology of trading and learn more about how your own mind and emotions function. Q. Jack, 58 is a very successful business owner who wants to start trading as he slowly moves into retirement and away from work. He has arranged a similar appointment to Isabelle – would your advice to him be identical to Isabelle’s or different? The exact same advice! Q. Is trading as difficult as many people appear to make it seem? Trading the actual market is easy; trading your emotions is possibly the most difficult thing for anyone to master. 95% of all aspiring traders will fail because they can’t master their own psychological emotions which translate into poor trading habits. Q. What are the 5 most important character traits of successful traders? Please feel free to briefly explain them. 1. Discipline – you must be able to follow strict rules2. Studious – you must be a student for life to remain successful3. Flexibility – you must have the courage to change your mind if the market proves you different or a system stops working4. Hard Worker – ability to study your trades, other systems and do research (study every day)5. Humility – understand that it is not you versus the market (if you fight the market, you will lose) Q. Trading can be a very solitary existence – especially in the early days when you are learning, and often feel as though you have no idea what you are doing. Do you find trading a lonely experience? Does this sit well with you? If not, how do you deal with the loneliness? Trading can be lonely as it doesn’t contain the formal limitations that society places on us in a typical job setting. I write a blog about my research and trading so I can interact with like minded individuals. I love writing about the markets so this connects me to other people. Q. What would be or has been your most significant weakness in trading? Have you learned to overcome it or do you continue to work on it? It would have to be fear of taking a position based on conflicting beliefs of what may happen. I still struggle to this day to place a trade if another belief tells me something else may happen. More times than not (if I skip the trade), it does exactly what my system predicted it would do. Just take the trades and cut your losses. Forget about what you “think” may happen based on other outside macro factors. The NASDAQ currently looks extended and due for a correction but I must continue to take long positions until the actual charts tell me otherwise. Q. Assuming you are now consistently profitable, do you still have times when you experience self doubt over your ability to trade? If yes, how does this make you feel and how do you overcome it? Self doubt will always creep in when a losing streak begins but you must continue to trade the signals and squash your emotions. Q. Ideally, we would like to be emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions? Do you get very emotional at times? Prior to placing a position, I can control my emotions very easily. The toughest thing to master is taking profits at the correct time. I still struggle with this concept and may never have the correct formula. Taking a loss is easy because you know your maximum risk on each position. Q. If you experience a large profitable trade, do you reward yourself in any way? I keep my trading profits in the account at this time to accelerate my capital appreciation. However, I rewarded myself from the income I was making while running my equity research firm. Q. In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them? The biggest lesson is learning that I am only trading beliefs about the markets. Learning to understand myself allows me to understand how others think and react so I can then take action by trading my beliefs profitably. In my opinion, it is 98% psychological, 1% system development and 1% execution. Q. To finish off, if you were to start trading all over again now, what would you do differently to what you did originally? I would properly capitalize myself and learn to position size my trades instead of risking 75% of my account on one position without any exit plan. Outside of this advice, I would study psychology even deeper! About Chris: Chris Perruna obtained his degree in Architecture and practiced in the field of Historic Preservation in NYC prior to joining a Fortune 500 Home Building Company listed on the NYSE. He invested in and studied the market while working as an architect but decided to pursue his dream and trade for a living and develop his own equity research firm. He has been trading his own accounts for ten years including stocks and options. Chris currently writes daily for his free blog, www.chrisperruna.com, and is the founder of www.MarketStockWatch.com -- 3 -- Website Update - Trading Interviews In the last month, I have published some of the trading interviews that I have conducted over the last few months. They provide powerful insight into how others think about some critical issues to trading well. I trust you will enjoy them and learn from them. Please visit www.trading-plan.com/trading_interviews.html to access the index page. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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