069: John Carter – How an Aggressive Trader Thinks, Uses Options and Made $1.4M on a Single Tesla Trade

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Hey there. What's up? How you doing folks? Welcome to another installment of the Chatwith Traders podcast. I'm your host, Aaron Firefield, and thank you very much for tuning in. I've got an awesome guest lined up for you. His name is Mr. John Carter from Austin, Texas. In short, John is an options trader and also futures trader to a slightly lesser extent. He's been trading for around about 25 years now. His typical holding time for any given trade is just a couple of days.

And he classifies himself as an aggressive trader, which I think you'll pick up on that pretty quickly also. In this interview, you'll hear I ask John about the multiple boom and bust cycles he endured over the space of about eight years before gaining any real consistency. I also ask, is a high risk tolerance essential for becoming a successful trader? So you'll get John's take on that as well.

Then we get into some talk about options and John has some really great advice for those who are still trying to find their feed. Additionally, we talk about indicators and technical analysis and we go step by step. through John's million dollar test the trade. So there's a lot packed into this episode. I hope you enjoy it, but more than that, I hope you can take at least just one thing away from this and apply it to your own trading. Okay, let's get to it. Here is my interview with John Carter.

Okay. And we're rolling. John, it's good to be speaking with you, buddy. How you doing? Uh good, Aaron. Thanks for having me on. It's uh it's it's a pleasure and uh hope you're up bright and early out there in uh in Australia. It's evening time over here, so I I I can probably have a beer and you can't at this time, but

Always always up nice and early. So thank you very much for being here, John. I really do appreciate you taking the time to do this. I'm sure you have a a very busy schedule on your hands, but I'm glad you could you could fit this in. So

As we're recording this, um, we're just about to close out the first quarter for twenty sixteen. I'd like to ask, how has trading been for you this year so far? You know, it's it's been really good. I'll I'll tell you specifically about the account that I like to use. Um I I uh which is rare, I was one hundred percent flat as of December thirty first. I just didn't understand the market.

And and I was a little upset at myself because I as a trader I love the short side and so I wake up the first trading day of the year and the markets are just getting hammered. And when they're getting hammered, it's hard to get in. And so the first week I literally just watched the markets collapse.

And it it was a little painful. I mean, I uh on the one hand, I at least I wasn't long. But on the other hand, as a trader, you know, you don't like missing moves like that. And so it took me a little while to get into a groove. And I would say that then then when I started trading it was a little hit or miss.

Um, and then as so so the account that I use, we I have this uh I start every year back at about a hundred and eighty thousand dollars and it's my model account. This is the one that everybody in our trading room can see.

And I'm very I'm pretty transparent. It's just like, hey, I'm these are my winning trades, these are my losing trades. I show my P N L. So as of today's close, that hundred and eighty five thousand dollar accounts at three hundred and seven thousand dollars. So I think that's up about sixty some odd percent. Uh I mean I mean I'm a very aggressive trader, but the goal you know, the goal is

And this has been mostly options trades with some futures trades, but the my goal with this account is to turn it into a million dollars by the end of the year. So I'm either gonna do great or I'm gonna fall flat on my face and then everybody gets to watch. Okay. Well it sounds like you're off to a good start. That's for sure. That's uh you're doing really well. So props to you. Um

Now you you said something really interesting right at the start there about how, you know, the market sort of took off um and you were upset that you weren't in it. Like how do you deal with that? Do you just realise that you've potentially missed the move and you just You know that you have to sit on your hands now or do you

jump into it with a smaller position size like how do you manage um those sorts of situations? Cause I know it can be very frustrating um when you see a move which you were kind of anticipating, but it just takes off without you and you're not on it. How do you deal with that?

You know, it's it's one of those things you would think and I and I've been trading I would say actively now for gosh twenty f oh almost twenty five years, which isn't crazy'cause it's it seems like it was just yesterday. But with experience comes comes patience. And that was one of my mentors and I it never it didn't sink in when they were when they taught me this. One of my mentors after about six years of trading

uh sat me down and said, look, here's the deal and this guy had been trading for like thirty years. He said, look, the difference between traders who um can do this for a living and those who can't is patience.

Patience to wait for the right opportunity, you know, patience to sit in a winning trade. And he's like, otherwise, you know, it's it's it's game over. And I didn't appreciate that at the time, but what I've learned and also my father who kind of got me into trading um you know, every once in a while I remember when I first started I'd say, Oh God, I can't believe I missed this move and he just laugh.

He's like, look, I promise you the markets are gonna be open tomorrow and there's gonna be another opportunity. And so what happened was is I sat there for a week doing nothing and it was so painful because at least the US markets, I mean, the Dow was down three hundred points a day.

And, you know, h had I been positioned correctly, I I just could have made a lot of money. And it's frustrating, but what I've learned in doing this over time is that when you get emotional and you chase You just you get yourself in a mindset where you actually miss what's really going on.

And you get yourself in a mindset that when a real opportunity comes along, you're just not ready because you're, you know, you're chasing, you're emotionally vested in something that, you know, it wasn't really a setup. You just had that you just felt like you were being left out. And that's just something that comes with experience. I mean

At some point you can kind of snap your fingers and say, Okay, I'm not gonna do, I'm not gonna chase stuff anymore. But after a while, what happens is you just learn. the opportunity cost of doing that. You know, first of all, you're usually getting you know, the last one to get in. And then secondly, your brain's all messed up because, you know, you're it's a purely emotional trade.

And emotional trades just just over the long over the long run just aren't consistent. So and that that's just that's what I've how I've learned to kind of deal with it.

Sure, sure. Okay. No, I think you answered that really well. There's a lot of really great insight in that answer. We're off to a good start. So I'd like to ask you, um, you've already kind of mentioned that there's some market blood that runs in the family. Tell us about how you actually first got into trading. So when I was eighteen I uh I was working at a mall at a cookie store.

Which is a r thankless job. You made like four dollars an hour and uh making cookie dough and then selling cookies to kids that came up, you know, with their moms at the mall. And over the course of a summer I'd saved up about a thousand dollars. And I came home towards the end of the summer, it was a Sunday night. My dad and his friends.

They're sitting around the table, they got copies of Investors Business Daily, and as I'm walking by, I just hear someone say, Well, you know, gosh, I could you know I'd probably make a thousand dollars on that trade. And uh you know, and that and in my mind I'm going like, Well, I've got a thousand dollars in my bank account now, so what do you so I just kinda asked, what are you guys talking about?

So the short version is I have no I had no idea what they were talking about, but they were gonna buy some call options on Intel. that week and I didn't know what intel was, I didn't know what a call option was, but I said, Look, I'm eighteen, I got nothing to lose. I was like, Can I open an account and do this trade? And they're like, Well

You're not gonna have time to open an account and fill out all the paperwork, but we'll spot you. You know, give us a thousand dollars, I'll buy ten contracts for you. And if it loses money, you're SOL, you know, shit out of luck. If you are uh but if it makes money, we'll give it to you. Like done. So laun so what happened was is that these options that they bought at a dollar, they sold it at a dollar eight.

So I had worked for three months, eight hours a day, five days a week, to make a thousand dollars. And now in the course of five days doing absolutely nothing, I made eight hundred dollars. And at that point I was hooked.

Uh it I just kinda realized how the power of having your own money work for you instead of, you know, doing physical physical labor. I mean not that there's anything wrong with physical labor. It's good to get out and work, but it was just You know, we're we're we're worth so much more than what somebody's willing to pay us per hour is really what it came down to.

No doubt. And I think that's what, you know, a lot of traders realise and what's got them, you know, pursuing this. So yeah, no, I I totally understand where you're coming from. Now In past interviews, I've heard you talk about when you did start getting into trading, you went through um several boom and bust cycles. I'd love to ask you like what did those boom and bust cycles actually look like?

So I I've always been a pretty decent risk taker, uh, for whatever reason. I mean, I think everybody's just wired, you know, you kinda you're kinda born with inherit inherit things.

And when I started trading, I was I couldn't I was very good at making a lot of money and then I would lose it. So there was three times over the course of my college and my working career where I'd have say ten thousand dollars and then over the course of about a year, I would run it up to like a hundred thousand dollars.

And I was taking crazy risks in terms of position sizing. You know, it's like, wow, I like this, so I'm just gonna put my entire account into this trade. And if it worked, it great. And if it didn't work, you know, I wouldn't You know, I w I so what would typically happen is I'd have ten thousand dollars, it would jump to twenty, drop back to thirteen, you know, jump up at twenty seven, drop back to, you know, eighteen.

But when I what would happen is when I'd get to about a hundred and ten, hundred and twenty thousand dollars, I would step back and go, wow, I just went from ten to like a hundred. So now I'm gonna go from a hundred to like a million.

And what happened was and I did not it just took me forever to figure this out, but what I finally figured out is that I started focusing on the million dollars. Before I was just trading. I didn't have a goal. I was just like, here's a trade. Let's take it. I want to make some money.

But when I started focusing on I'm gonna make a million dollars, I changed my trading approach. And what would happen is if I had a losing trade, whereas before I would just get out, like, yeah, this isn't working, get get me out of this. What happened is that I would say, gosh, I'm trying to make a million dollars. So I can't take this loss. You know, I've got to at least get out at break even. So I started doing stupid things. And so that happened to me three times.

where I would, you know, make this money, blow it up. Um and and and after the third time I really dis I went through kind of a you know a very kind of a gut-wrenching learning cycle and kind of you know conversation with myself going like do I want to keep putting myself through this? And at the time I was just about to get married and it's like if I'm gonna get married and have kids, am I gonna put my family through

And I just had to come to terms with what it w you know, what was it that I was doing? And So that's what I kind of figured out. I mean, I I ran across uh Mark Douglas' book, The Disciplined Trader at that point, and then Trading in the Zone. That helped a lot, talked to some traders, you know, and then I just said, all right, if I'm gonna do this, let's act like a professional. You know, don't, you know, don't try to quote unquote, you know, make a million dollars.

And um, you know, let's do this. And and and that that changed things. It it didn't mean that I never had obviously losing trades or drawdowns, but I never blew up an account. Okay, sure. So a couple of things I'd like to ask you, um, just to bounce off your response there.

You obviously by nature have quite a big appetite for for risk. You're very comfortable um in in many ways taking large amounts of risk. Do you think that's a necessary trait to be a successful trader? So there's a there's a fine line. You can be you can take too much risk, but I think I I don't know what is worse. If it's you know, if you have an appetite for too much risk or if you're too conservative.

And I've seen both. And and obviously too much risk opens up the door of you're gonna make a lot of money and then you're just gonna blow up. I mean that's that's that's the too much risk scenario. If you if you have too much fear though, I mean the good news is with too much fear, you're not gonna lose a lot.

But you're not gonna make a living as a trader either. And I think that's one of the things that, you know, people kind of confuse is that let's say, you know, you've got whatever amount of money that you have to trade with. Um fifty thousand dollars, ten thousand dollars, you know, whate whatever it is. But I think One of the goals of a lot of people, and this was certainly my goal for a while, was okay, I'm working at this job.

I'm getting this check. And and when I was working in the corporate world, at one point I was making around right up at around a hundred thousand dollars a year. So I was like, all right, if I'm gonna quit my job, I need to make, you know, eight thousand five hundred dollars a month trading. And what happens is that if you're too ri too aggressive in that situation, you're you're making your account's making swings that does that don't make sense with your goals. But if you're too fearful

you're going to you know not make nearly enough money to meet your goals. The biggest problem with being too fearful is that you wait as a trader, you wait for confirmation. And the problem with waiting for confirmation and trading is that by the time something is confirmed and all the indicators are aligned that this is a buy signal.

that's usually the time that it's you should be taking profits. Like, you know, the m everybody's looking at the same charts. And if everybody thinks that something looks good and everybody's long No one's left to buy. And at that point it rolls over. And so that's why sometimes it feels like, you know, if you're in a pattern where you're buying something, and as soon as you buy something, it goes down.

Well, usually it's because there's twenty seven indicators that someone's been watching and now they're finally all lined up, so you feel quote unquote safe to take the control. uh you know to take the trade but you know at that point it's like now it's so obvious that everybody's getting out. Right, okay. And we might get into that a little bit more um in just a bit.

Um, the other thing I was gonna ask you was uh you mentioned Mark Douglas's book, uh, Trading in the Zone. I've heard you speak about this in the past also. Um, what was it about this book that was such a huge help and in getting you to the point where you could achieve consistency. Like, what was it about this book that really clicked with you?

The w the one of the things and so and when I first read the books I I didn't know Mark. I eventually got to know him and we became friends and he he recently passed in August, which was I you know was a complete surprise. But his his knowledge of the A the markets and B the human mind and then C how the two interacted is unparalleled. And I just anybody anybody who's uh discret uh making their own trade decisions, i.e. they're you know, they're not just turning it over to a computer.

Anyone who's making their own trade decisions without having read Mark Douglas's books is at a disadvantage because he he kind of just he's just learned and he's got an intuitive sense of how the markets like prey on people. And it does. I mean, it sucks people in at the wrong time. Um, you know, it's just all these weird things, and it's just you just learn that.

The the main thing that you learn from w from reading Mark's books is that to trade successfully, you've got to understand what your mind should be thinking while you're in a trade. And how your mind should be thinking while you're in a trade is about probabilities. And you need to have a probabilistic mindset, meaning that, hey, you know what? Anything can happen. Just because I'm long doesn't mean the stock's gonna go up. Anything can happen.

And if you realize that anything can happen, then you kinda get a little bit more relaxed. You focus more on risk. You know, you don't take small profits because if anything could happen, it could, you know, it could turn into a big winner. And when I got my arms wrapped around that, I mean, my trading just changed. You know, it was one of those like, wow, my winners are bigger now and my losses are smaller. This is amazing.

Okay. So just so we can put this into perspective, so from the point where you, you know, got started, you came into trading, you went through these boom and bust cycles three times over, um, until the point where you achieved Gosh, that's a good question. Um, okay, so I traded I I would say that my learning curve for trading was probably longer than most people's. And and the reason for that is because I stuck with it longer than I should have.

Uh a lot of people I know they try trading for like, you know, two years, it doesn't work and they give up. So and I'll and I'll back up here a little bit and there's a reason the reason I was able to last longer, I guess, is that, you know, when I had those three boom and bus cycles

And I would take ten thousand and turn it into like a hundred and thirty thousand and then think like, okay, I'm gonna make a million. The one smart thing I would do is that I would say, all right, I'm gonna take thirty thousand out. I'm gonna put it into real estate. I'm gonna put down payments on, you know, two houses and I'm gonna rent them out. And so what happened is that there's two things there's two things that happened.

One, by the time I busted my third account, you know, I d actually had some real estate. So when I finally was like, I'm gonna take this for real, I could sell that real estate, you know, and raise another state. So that was semi important, but you know, the idea that you can always get a stake. I mean you can if you have trading skills, you could trade somebody else's account. I mean there's you know, there's always a ways to get a stake if you're determined. But the the thing was

w went off on a tangent, so I I kind of forgot the question. So what was the question? I was asking you about how long it took you from when you first started out um up until the point where you achieved some form of consistency, like how long was that time frame? Okay. So so at this point when I finally read Mark Douglas' book and I went through all that, it it was eight years. And it was um

You know, and I and I put my my fiancee through hell. I mean, there was a couple of times where w you know, we were gonna buy a house and couldn't buy the house'cause I blew up an account. I mean that that kind of stuff. And and we're still married to this day and have kids, so you know, she's a keeper. Um but, you know, part of my you know, my mission, I mean, I love trading. At the end of the day, my life would be a lot easier if I just traded.

But I don't think it needs to be I don't think it needs to be eight years of frustration to learn how to trade. I think it c I think it, you know, there you gotta put in the time. I mean, nobody's gonna learn on day one. But, you know, I like to compress the learning curve with other folks. For me it took eight years. I think for the

The average trader that has the right tools, it can be two years. And the reason I say that is that people have to figure out, you know, they have to see different market conditions. Um and the one thing that's unknown is how people react. You know, if you've got um money on the line.

and the market starts going against you or it gaps against you, how are you gonna react? Are you gonna freak out? Are you gonna be dear in the headlights? Are you gonna be able to calmly take action? And that's a little different for everyone. The sooner that you can get to the point where uh that you're you know you just focus on probabilities and you let go of any emotional attachment to the outcome, the sooner you're gonna be consistent. Mm-hmm. Mm-hmm. Okay.

All right, John, well let's focus in now a little more on um how you trade today. So how would you describe your method and your overall approach to markets? So the the main thing with that is I I I I find I think it's food good for every trader to find their sweet spot. So for some people, it's gonna be, you know, there's this idea of you need to kind of match your trading to your personality. Now, I am not a what I would call so to me there's four types of trading.

There's scalping slash day trading. There's swing trading. There's position trading. There's investing. I'm my sweet spot as a swing trader. I I don't really have a lot of interest in buying, you know, watching a one minute chart. buying something and then selling it, you know, three minutes later. Now it seems like that that's safe and it does create a lot of adrenaline. What a lot of people don't realize is that you generate so much commissions that it's almost impossible to make money.

You know, if you have a twenty thousand dollar account and you're day trading, it is very likely that you are spending twenty thousand a year in commission. So it's like you have to make a hundred percent a year just to pay your broker. And when people just they d you know, you just don't realize that until you start tracking. So to me the sweet spot though is, you know, within five minutes, that's not worth it.

Uh, with you know, over the course of three months, I think it's just hard to predict. But, you know, two days to two weeks, that's kind of my sweet spot. And so that's what I'm interested in. So I'm not looking at five-minute charts during the day. And by the way, one of the best things I ever did was just took my five-minute charts and just threw them away. I look at 30-minute charts. Um you know, basically kinda hourly charts, then daily and weekly charts.

And I'm just looking for setups that I want to be in something. If I'm buying something on Tuesday, I'm like, I wanna be I you know, the earliest I would sell it is Thursday unless I'm stopped out. And that to me is a nice sweet spot. You can get aggressive, you can catch nice little pops.

Uh and the markets tend to do that. They tend to move in little pops and then consolidate. And so that's what I kind of look for. And that's that for me works really well. Okay. And what markets or or products are you most actively trading? I I cut my teeth on the stock index futures. So I like the stock indexes in the US, so the you know S E mini S Ps, E mini Nasdaq, but I'm also a big options trader on individual stocks.

So and and the two are very complementary. So you know if I'm bullish on the ES then great. What are the strongest stocks? You know, Tesla, Google, Amazon, then I'll you know, I could buy some call options on those. And so to me it all those all work together.

Uh I'm also big on correlations. You know, it's like okay, if the yen futures are going higher, is that gonna mean, you know, weakness for stocks and things like that? So I do like to I I I do like to look at kind of those leverage instruments and

I'm I'm a big believer that you know, and I watched the Australian dollar too and you know the fact that, you know, when oil and gold were coming off and um, you know, Australia uh here's a funny story. In two thousand eight I actually flew out to Australia to give a talk And I bought I I'm a I I'm a big fan of buying the country that you're going to, buy the currency before you go there, just in case you need it.

So I bought it about a month before I went and I bought it when the ratio of Aussie dollar to to USD was one to one. And then by the time I got there in October of two thousand eight it had fallen in half. So that was my you know, that was a really bad trade'cause I bought'em for a dollar and they were worth only half that w by the time I got there. But um that was, you know, the markets, the world economies are all tied in together.

And here's the thing is that you don't need to know that. You do not need to know that if the yen goes higher, stocks might go lower. All you have to do is have a handful of good setups. And the traders that I've learned, you know, that I've that have mentored me and have been doing this for thirty plus years.

They're they all have like, oh, I've got three setups and I watch four markets and that's it. They don't care what's going on. You know, they don't watch the news. They're not looking for the latest tip. They just have their niche and they kind of, you know, grind it out and make some money. And and I'm a big believer in that. I I actually think the less information you have. the better you'll do because otherwise you just get distracted.

Okay. Yeah. No, I think that's that's a great point you raise. Um now something you said a little earlier about, you know traders might see some sort of consistency after putting in two years of of good work. And the reason for that was because they over that time they'll experience different market conditions um and, you know, will go through different regimes.

How did your trading change depending on what type of market we're going through at the time? That that's a good question because I one of the things that it took me a long time to learn is that you don't do the same trades all the time. You know, is it a bullish market? Is it a bearish market? Um and so so what I I I think the art of trading has come down to a couple things.

One of them is knowing that there are three positions that you can have. You can be long, you can be short, or you can be flat. And the longer I do this, the more I realize that flat is one of the best positions because when you're flat, your mind is neutral. You're not um there's there's a saying that I heard by a friend of mine, a trader in London, and he said he's like, you know, don't piddle away your chips, which is like, you know, in the US we'd say don't piss away your capital.

And if there's nothing to do and you're bored, just go do something else. Wait, be patient. And Right now, the markets are kind of interesting because we had this, you know, super bearish sentiment in January. And then in February. All the signal all the signals that I've gotten have been long, but my brain was screaming to be short, which was interesting. And so I and I've learned to just trust the signals. Like, hey, this is a bullish signal, buy it.

And the the main thing that I've learned is that, you know, there's no first of all, no no trading day is alike. But there are kind of cycles. And if it's a bullish cycle, great. Uh if you're in at the beginning of the bullish cycle and you've got some you know some signals that are going that are going in there.

you know, load the boat and ride it out. But like right now, we've had this fantastic rally since the beginning of February to now. This is not the time to load the boat on longs, but it's not the time to load the boat on shorts either, because there's no short signals.

I'm playing it pretty light. I'm just kind of in hurry up and wait mode. And what I've found is in trading is that if you can be patient, Over the course of a trading year, there's going to be one or two days a month where if you're focused and you are, you know, you've got a neutral state of mind, you can dive in, have a very of a larger than normal position.

And make a killing and then get out and go flat again. And that's really what it's all about. As a trader, it's hard to do that because you think you should always be trading. But what I found is that for people who get bored and they trade to alleviate their boredom, they just piss away their capital so that by the time a big trading opportunity comes along, they're just kind of getting back to where they were.

And and I think that's one of the toughest things to do, but it's one of the most important things to do is just if you if you're looking at the markets and there's nothing to do, don't do anything. We all you know, you get to the point where it's like if you look back on your trades and say, Wow, God, that trade worked out really well, go back and look at it. You know, what came together? Wait for that to cut to happen again.

you know, go for a larger than average position. Otherwise, stop. You know, don't don't don't piss away your capital. And I just that I think it's just something you just don't know at the beginning, but over time you learn and it's just a huge lesson. Yeah, absolutely. Now just going to the other end of the trade, um, what's your thought process for deciding when or where uh to get out of a trade? Like how do you form an exit plan?

You know, it's a it's a good question. I mean, here at the end of the day, entries are a dime a dozen. If y to become a good trader, you've got to become a master of equity. And that means of course stop losses, but also um you know targets. And You have to you have to have an idea of what and and this is actually kind of easy in the options world because options are priced with what's called an expected move.

Um but this also works with futures and stuff like that too. But what I mean by an expected move is that Market makers actually study all this stuff and In options, implied volatility and all this kind of stuff, you can say, oh wow, okay, the option makers. So Netflix is a hundred dollar stock and the market makers have priced in an eight dollar move over the next two weeks. Well, guess what? If you've got Netflix as a stock, or if you bought options on it, and it's up$8 from your entry.

And that's what the move that was expected by the market makers get out. I mean, it the odds of it going much higher than that are not very high. The other thing I'm a huge fan of is Fibonacci extension. So whether it's a five minute chart or a thirty minute chart or a daily chart or whatever, you know, if a stock makes a new swing high and it gets up to the one, two seven two extension of that move, you know, from that from the from the swing low.

Ninety are ninety percent of the time you're gonna hit that target. But the odds of it going much past that are low. So, you know, maybe 50% that you'll get to the 1618 extension. So you want to know where the low-hanging fruit is. And I'm I love the idea of like, wow, here's a great setup. Yeah.

Uh, you know, I'm gonna go, I'm gonna try I'm gonna get 10 contracts. Okay, let's let's say it's futures. I'm gonna get 10 SP futures contracts. And if we get to the 1272 extension, I'm gonna sell seven of them. Like let's take the bulk of the risk off the table here. And then if we get to the 1618, great, but I'm gonna move my stop to break even here. So I'm gonna I'm gonna get aggressive about taking off a large part of my position at those low-hanging fruit targets. And I'm not gonna hope.

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So let's let's talk a little more about options now that you you bring it up. So, you know, I know options are one of your main focuses right now, but you know, over your twenty years you I believe you've traded pretty much every market at some point during your career. What is it about options that you find really attractive? So for options so options versus futures, uh futures it

Is you know, if I look at something like say gold, like, okay, I'm bullish on gold, what do I do? Do I go out and buy some gold futures or do I buy call options on a stock like or ETF like GLD, which mimics gold? Here's the thing, it is harder to hold on to a futures conversation. Uh futures move all the time and they could blow through your stops. I mean, you know, futures aren't some gold futures aren't that liquid.

What I like about options is that there's two things. One, in this example, I could say, all right, you know what? I'm willing to risk$5,000. So I could buy some gold call options, five thousand dollars worth, sixty days out, and just forget about it. Now gold futures, I might get stopped out on that very easily, but with those gold o with those gold options.

Yeah. Um, you know, it could come down and something that would have stopped me out of the futures could turn around and rally strongly, and I end up making a bunch of money on the options. And so what I like about the options is you can just say, like, you know what, I just wanna I just wanna risk five thousand dollars, I'm done. And the gold market could actually have huge fluctuations and you'd be fine with gold futures.

You don't have that luxury because gold, you know, if you get down to a certain point, you have to get out. It's like, oh, I'm down$5,000. So that's if you haven't traded options before, that might not make sense. But with options, if you're long an option, it's it's a fixed amount of risk. And then the other thing is that options are depreciating assets, which are kind of fun, meaning that all so let's uh you know, a popular stock in in the US markets is Apple.

So if Apple's at$105, you could buy a hundred and twenty dollar call option for like a dollar. And you're making this bet that like, wow, Apple's this amazing stock and it's gonna rally up to one hundred and twenty. Well, it's probably not. So you can actually take the opposite side of that trade and just sell it, you sell it for a dollar. it expires worthless and then you keep all the money. So with options, there's a lot of fun things you can do in terms of selling'em.

Keeping that money, you know, and that's kind of you know, you're taking the opposite side of other people who are like buying options that go to zero. So there's a lot of fun things. Okay. Now listen to your interview on uh the Option Alpha podcast uh with Kirk Duplessis, um who was actually on episode number two. Um yeah, that was yeah, he's got a great site. Yeah, yeah. So One of the things you were speaking to him about is um with options you you find that um

The they've helped you see more consistency in your results, kind of minimize the drawdowns, um, less volatility in your actual account. Um Did I understand that right? Is is that something relevant to to your choice of or your decision of trading options? Well yeah, and it depends on your goals. If you are looking for a steadier equity curve.

You know, meaning like you don't want the up and down, you know, the like all these crazy ups and crazy downs. You can structure trades in a way with options that makes it really consistent. Now, consistency also means you're limiting profit potential. Okay, but that's not a bad thing for most people. Uh you can sit there and say, you know, is an example that, you know, I could okay, I could buy a call option on Tesla at eight bucks and it's either gonna go to sixteen or go to zero.

Or you could sell, say, a put credit spread on Tesla that's out of the money. And the odds of that going, you know, you're you making a profit on that trade are like 90%. So That's, you know, you c everybody uh the nice thing about options is that you can sit there and just say like, okay, just be honest with yourself. What what w what kind of risk do you want to take?

What kind of equity curve do you want? And when I mean that, I just mean that the job of the trader is to have an equity curve that goes from the lower left of the screen to the upper right, right? It's going higher. It's not about being right. It's about, you know, managing that equity curve.

Now I'm an aggressive trader, so my equity curve is gonna have a little bit more zigzag in there. But some people don't like that. They don't want to sit there and go like, oh God, I just had a you know, I just I just had some losses here. they want it to be more consistent. And what what's nice about options is that you can kinda construct your trades in such a way so that, you know, you're never gonna have any big blow up surprises.

But you're not gonna have any upside you know, upside excitement either. You're just steadily cranking out the money.

And uh and that's great. And I and I think that's a very great thing with options because you can structure your trades in in a way that just kind of matches your personality and your own trading goals, which obviously at the end of the day, all this all that matters here is that everybody's able to meet you know figure out their trading goals and then find the right instrument to actually execute those trading goals. Mm-hmm. Okay. And another thing you mentioned on that podcast uh was

You use the term financing a trade. Now I didn't quite understand this, but I I think it was it was somewhat interesting. Would you mind expanding on what you what you mean when you're referring to financing a trade uh using options? Sure. And there's a couple of ways to do it. So one way to do it is and well since we were talking about gold earlier, I'll use that again. But we could say like, okay.

GLD, I think it's going to go higher, you know, over the next three months. So I'm going to buy a call option three months out. Well, let's say it's at$120. Well, what I could do is even though my call option is three months out, I could sell the hundred and twenty-five dollar options that are thirty days out against those. And in a perfect world they expire worthless.

And that's called a the trade is called a diagonal. So you buy something that's longer term and then you sell shorter term stuff against it. And if the stock moves up methodically you or down th methodically if it's a bearish play, you can do it in such a way that you you end up selling enough options against it that it actually pays for itself, which is kind of fun. The other thing in that scenario is you can buy the options. So you could buy like say ten call-offs.

And then sell um you know a 30 contract put credit spread that ends up expiring worthless, and that could actually pay for the entire trade. So now you got a free trade. So the nice thing with options is that there, you know, there are things like that that you can do.

Obviously on anything like that, you know, it's like, okay, what's the risk here? But, you know, the fun thing is you can actually it's called fine, you know, financing a trade. And once it's financed, you can just kind of let it go and see w see what it can do. Okay, so it sounds like something which is a a little bit more advanced, um, but very interesting.

Just before we move off the topic of options, is there any advice you'd like to give to, you know, novice options traders that would be really helpful? Um, maybe some advice that would have been helpful for you when you started getting into options? I I'd say the first thing is that if you're you know, if you're a novice and you're getting into options, usually what you're gonna do is you're gonna if you think it's a stock's gonna go higher.

You're gonna buy a call. If you think it's gonna go lower, you're gonna buy a put. I mean that's just kind of the basics that are The mistake that most novice traders make is they look for cheap options. So if you're looking at a stock like, you know, let's use Apple as an example. It's$120,$100 stock. And you'll look at it and say, wow, you know, here's a hundred dollar stock. The ninety-five dollar calls are seven dollars.

But the hundred and ten dollar calls are only a dollar. So I'm gonna buy the hundred and ten dollar calls'cause they're cheaper. And that's the biggest mistake you can make. Uh essentially with options Those out-of-the-money options are designed to expire worthless. They're designed to suck people into them. So if you buy an in-the-money option, even though it's quote unquote more expensive, you all you gotta think of it is this. Instead of buying Apple for$100, you're buying an option for$7.

So you for a much cheaper price than actually owning Apple, you're gonna be able to participate in the price movement of Apple um and do it that way. So I I would just say like focus on in-the-money options. And if you graduate from that. uh start considering spreads, you know, selling put credit spreads or call credit spreads.

But you don't really need to go I remember the first time I went to an option seminar and I started hearing about butterflies and all this kind of stuff. You really don't need to go down that road. You know, if you're bullish on something, buy an in-the-money call, sell a put credit spread. You're done. If you're bearish on something, buy an in-the-money put and sell a call credit spread. You're done. And that's all you need to do.

Okay, and when you say you don't need to go down that road, are you talking about sort of in the early days or I mean, is it is it not necessary at any point? Like is it is that something you get into these days? No, I actually don't think it's necessary at any point. I mean the thing about options that can get you know, because there's so much math and you know, they call it the Greeks, you know, Vega, Delta, gamma.

I mean, at least for the kind of trading that I do, uh, it's a distraction. And I know a lot of people get involved in that and if you talk to market makers, you know, they think it's really important. But it depends on your style of trading. I mean, I look at a chart and I get an opinion based on a setup that this thing's going higher. Well

That's very simple. It's like if I think it's going to go higher, then I need to buy the right call. And then if I sell a put credit spread and it expires worthless, that's a win. What happens is that it's very and I'm not knocking these strategies because I actually know traders who love this stuff where it's like, okay Um the odds of it going here are X so I'm gonna you know I'm gonna

buy a butterfly and do this diagonal around it and people really get into it. I just don't and I don't think it's necessary. And I think that One of the things with options is don't be intimidated by all these crazy different things that you'll see because you don't need to do them. If you think something's going higher, buy an in-the-money call, that's all you need to do. I think it's a good idea to learn what a put credit spread means.

Because that that's a you know, that's a benefit and then you're done. Yeah, if you want to do more than that, that's fine, but you don't need Okay, okay. Good advice.

Alright, well let's talk a little about technical analysis and indicators. So uh starting with technical analysis, how do you use technical analysis in your trading? Like is there anything key that you look for on a chart? Well my main my favorite setup is something called a squeeze. All that is is that when the Bollinger bands are trading inside the Keltner channels, it just means that the standard deviation of a stock or a market is now trading inside of its average true range.

And and you know, it may sound kinda complicated, but it's just kind of a it's one of those things where if you think of it this way, you know, if if an Olympic athlete has just ran a hundred yard dash They're not going to go run a hundred-yard dash immediately after that. They're going to rest, they're going to drink some Gatorade, you know, they're going to get ready for their next event. And it's the same thing with the stock.

It's gonna have a move and then it's got to rest and relax and kind of get ready for the next one. What I found is that when the when the Bollinger bands contract to the point that they're trading inside of the Keltner channels, and by the way, these are all default settings or available on most platforms, that's that's telling you like, hey, heads up, this is getting ready to go.

We've got an indicator that we cr we created called the squeeze that kind of you know m you know makes that a scannable kind of a feature. But that's my main thing. I I feel very, very comfortable if I see a stock or a market. It's like, wow. This has a squeeze. This is about, you know, this is ready to do something. And, you know, if it's if it's if it's in an uptrend, this is saying like, wow, there's an 87% chance that this uptrend is going to continue.

I can work with that and vice versa if it's in a downtrend. So I I keep it fairly simple. There's a lot of other indicators I use, but I always start with that. Okay. Okay. Do you have like a a video or an article about um where we can actually See that on a chart? Like d any visualizations that I could maybe link to in the show notes?

Yeah, you know what we've got a couple and if you want uh if you have some show notes or something like that, we can I'll send I could we can send you a link that says, Hey, here's a here's a good example of that. Yeah, no, that'd be really cool. So um yeah, I'll be sure to include that in the show notes. I think that'd be cool if people can actually um visualize something like that. Um they might want to check that out. Sure, sure.

Now don't mean to keep going back to uh the interview with Option Alpha. Um I'll also link to that in the show notes too. It was a good interview. One of the things you said which really um struck me was that you don't look at a chart for more than a split second. I'd love it if you could share your reasoning for this uh with the listeners. Yeah, uh this is another hard lesson I learned. So the good setups, they are they are right there in front of your face.

And if you're looking at a chart for more than a split second, it means that you're trying to force something onto I mean literally the best setups in half a second you're like, oh my gosh, that's amazing. You know, everything's coming together. If it's not like that, then you're gonna keep staring at it and you're gonna like, you know, you're you're gonna try to force something into that that's not actually there.

It's not a good setup. The best setups, you can identify them, you know, just like that. And if you can't, move on to the next chart. The toughest thing with that is somebody, you know, or you read something in the news. Oh my gosh, Google. This amazing article came out. So you go look at the chart and the chart looks like crap, but you're like, eh, you know, in your mind, you're like, it should be bullish. So you keep looking at it and all these things and trying to force it into that.

Well, your mind's gonna see whatever whatever it is in, you know, if you have a concept in your mind of this stock is bullish, you are gonna find something on that chart that says it's bullish, even though it has nothing to do with whatever you've looked at in the past. And that's gonna that's gonna take some time to figure that out.

If you so the answer to that is like if you're looking at a chart and if in like a split second you don't see anything, it's you don't have anything. So just that it's just the easiest way to do Okay. And do you think I mean do you think that you can identify set ups that quickly because you have, you know, twenty plus years of market experience and and years looking at charts? Um or is that something you would say that newer traders should also try to apply to their own trading?

No, I I think it's I think it's a little combination of both. What happens is after doing this for twenty plus years, you start learning the setups that give you the best results. So, you know, that's to be fair, it's like, Oh, okay, gosh, anytime that happens, I'm definitely gonna, you know, take a position.

Um, as a newer trader, what happens is I call it you know, the the is there's a natural inclination to search for that holy grail and continue tweaking a chart, adding more indicators, you know, all that kind of fun stuff. But what happens is that, you know, as a newer as a newer trader, is that there's this idea of Okay, I want to get long this stock. So you'll keep looking at the stock until you find a reason to go long.

Even if it's the most bearish setup on the planet, you can find a reason to go long if you really want to. So the what the moral of the story is. you know, have a setup that you like. Keep it simple. And I've found that if you have a setup that you can't explain to a twelve year old, it's too complicated. So, you know, keep it simple. And

And from there, because you don't you don't actually need a lot of indicators. I mean, you really actually shouldn't have more than like three. So here's your price, here's three indicators, and you're done. If you've got more than that, you've got too many indicators on your chart. And, you know, identify that setup. If you end up using something like a squeeze, great. Moving average crossover. It actually really doesn't matter. Just identify what the setup is.

And then track it. And the secret to that is whenever you find a setup, just do 25 trades in a row. And at the end of 25 trades, did you make money or lose money? Because, you know, wins and losses, even on a 75% probability, are going to be randomly distributed.

Just because you do four trades doesn't mean three of them are gonna be winners. You might have four losers in a row. But at the end of a twenty-five trades, you're gonna have a good sample set. And if you made money on that, you're gonna have more confidence just to say, okay, every time I see that setup, I'm gonna take a trade.

And you know, that's that's what you do. And that's that's where you get to the habit of in a split second, it's like, oh, that's a setup. Great. I'm taking it. Absolutely. Yeah. Now that's a really great point that you highlight there, John. Um now You have mentioned indicators a few times. When do indicators serve a purpose and when are they unnecessary noise?

So I know traders that only look at price action and there there are times when that makes sense when you're looking at price action and say trend lines, but At the end of the day, if you anytime you're looking at, you know, the most classic one I remember as a newer trader was, okay, the market's rallying, but it's overbought because my stochastic is over eight.

So I can't buy it. And the market goes up like forever after And And what happens is is that that indicator, that overbought indicator becomes noise against the actual price. So at the end of the day, it's the price action that matters. Indicators, all they are, is a derivative, an interpretation of price action. You know, it's not there's no magic involved in indicators, there's just math.

And you don't want to let the indicators get in the way of what's actually happening on the screen. So first the first thing that's most important is price. And then you kind of look at like, okay, I've got a couple of indicators here, what's going on? But Um, you know, it's easy to get it's easy to get lost in a bunch of different indicators when all that matters

Is that the market's either going up or it's going down? And the price is the most important thing. The indicators are merely an interpretation. Okay, okay. That's well said. I like that.

Now, one of the things I'm really keen to ask you about, and anyone who follows you is probably aware that you banked about, I think it was about one point four million dollars on a trade. Um I'm not sure exactly when it was. Um, but could you please share the story with us? Like walk us through it step by step. I think it would be really interesting. Sure. No, I I remember that trade. I mean it was like uh so I I've had a couple of big trades before, but not in one day.

So I rem so it was either J gosh. So this was in January of twenty fourteen. And so that w is and um it was either January 14th, 15th, or 16th. It was one of those days. But on that day, it was interesting is I remember on that day that I woke up and I had two trades that weren't doing well. And I got stopped out of both of them.

And in that account I was trading about a it was a million and a half dollar account. So it was you know, it was a s pretty decent size account. I'd lost like a hundred thousand dollars. I was like, All right, well, you know, that's not what I wanted, but I've you know, I've been doing this a l a long time. So I'm like, All right. And as I'm sitting there and I'm now flat, I got stopped out of my positions.

And I had noticed that earlier on the day Tesla was down ten dollars. And then I suddenly noticed that it was up five dollars. I'm like, what is going on? I mean Tesla was down ten dollars and now it's up five dollars. So, you know, I check on Twitter. And it's like Elon Musk said some kind of announcement, like I think it was an earnings or I don't even know what it was.

And then I check the short interest. And I I do like to track the short interest on a stock. And the reason is that is I and and Tesla's like forty percent at the time, is that if there's a lot of people who are short, it's typically over twenty percent. Then if you get some kind of surprise announcement to the upside, they're forced to cover. Plus, there's gonna be new buyers, you can generally get like these huge moves.

So I'm looking at that going like all right Tesla was down ten, it's up five. I'm looking at the chart. There's no real resistance and and the prices were like I think it was at uh maybe a hundred and fifty bucks at this point. Yeah. And there's no resistance till like 170. So I buy a hundred call options. And it continues to do well. And I'm buying'em like at six dollars. So, you know, in an a million and a half dollar account that's

That's a small position. And I keep adding as it goes in my favor. And I get to the point where I have a thousand call options, which is, I mean, that's a pretty sizable position. I even bought a bunch of stock. And that was it was interesting because at one point, there was one point that made the difference for me in that trade, is that at one point I was up, so I'd lost$100,000 on that day.

And at one point I was up about three hundred thousand dollars. I was like, okay, this is an amazing trade. I mean, I was excited. This is great. I've been doing this a long time. I would be completely happy taking the profit there. But I'm looking at this going like I think this this is not showing any signs of stopping. The volume is pouring into this. But obviously no stock goes up or down. in a straight line. So it started pulling back.

And I'm watching my profit that was up three hundred thousand dollars, you know, over the course of like ten minutes drops to like up two hundred thousand dollars. I'm like, uh, now we're at that moment in time of every trader is like, I don't want this to turn into a losing trade. But oh my god, I think I see a lot of potential here. So I stepped away from the computer and I took a shower.

And it was just like I had to get away. I like I stopped thinking objectively. So I went and took a shower and I came back. Um, you know, Tesla had gone a little bit lower than it stabilized, so I was back tour, I was up like 300,000. It's like, okay, looks good.

I was at home and I needed to get to the office and the office was about twenty minutes away, so I hopped in my car, started to drive, and I got there, and by the time I got to the office, then I was up six hundred thousand. So now it broke out again and started taking off. And it just kinda rallied into the clothes and I sold half of the clothes. I held half overnight. It gapped up ten points the next morning.

Um I mean it was you know, it was an amazing trade and you know, there were things that, you know i and it's interesting looking at it because it's like I you know, i in a perfect world I could've I could've done a lot better. But, you know, and it was down ten. I didn't buy it until it was up five. That's a fifteen point turnaround. But, you know, the consistently high volume, the ability to sit on a winner is hard.

Uh that's just that's training and that's just something where it's like you recognize like wow this thing's this thing's moving. uh there's volume pouring in, every pullback is being bought. You know, where is this gonna end? And that was just one of those things where like, you know, there there's these moments in time in trading where all of your training comes together.

And that was one of those times. And obviously, you know, now I haven't had another million dollar day trade since then. I've had plenty of pretty decent trades. Uh there's been some I've had that it could have been that, but I didn't do as big of a position. So, you know, it's always like, Well, why did I why did I think Tesla um you know, would have been a much bigger winner? Well, part of it was the short interest and things like that too, but

Um so it's interesting. So I mean I think there's just there's just there's always moments in time where You know, as you do this, you just you're just like, Wow, this this is one of those special times where you just hold on and you've gotta have the guts to do it. It's hard. It is hard to hold on to those things. But I you know, I love the idea of having concentrated positions on something that's working.

You know, and just watching that basket and um you know, it worked out really well and you know, those are the things I still continue to look at. Yeah, yeah. And the part I find really fascinating about that is that you you had you kind of almost knew to push harder on that trade. Like you said, uh when the trade started working out, you just kept adding to your position. Um

I don't I don't know. How did you know how to push harder on this particular trade? I mean a big part of that is just recognizing what I would just call a special situation. You know, we've seen those days where You know, a stock starts off down five and then suddenly it's down thirty. You know, and a lot of it's volume. You know, that's that's an easy thing. It's kinda like this is a special move. I mean, the volume is just exploding on the

Uh so that helps. Um but it's also just understanding it's understanding I mean, that's the the easiest way I can describe it is just a special situation. So you know, when um a stock, you know, breaks it Especially especially when Something that everybody thinks this should happen isn't happening. And I remember that because Tesla had fallen, fallen, fallen, fallen, fallen.

Everybody thought it was overvalued. People were writing articles that it was dead. And then all of a sudden it's like wow, it's having this huge reversal. So all these people and by the way, the biggest moves happen when a lot of people are wrong. So big moves don't happen when a lot of people are right.

When a lot of people are wrong and they have to get out of that position, that's what causes big moves. So with Tesla, you had this reversal. You had a lot of people who are wrong who were forced to get out of that position. And so you kind of recognize that and you're just like, wow. These people's pain is my you know, it's for my benefit.

And we've all been in positions where we keep holding on and holding on to the pain. And if you can get on the opposite side of that, you know, people are stubborn. They're gonna keep holding on and holding on and Um, but that's how that's how the markets work. When there's a lot of people on the wrong side of a position and they all realize they need to get out, that's when big moves happen. And that's what happened with Tesla. And um, you know, you kind of look for those kind of opportunities.

Okay. So I'd like to ask you, was there anything about this particular trade that changed the way you traded moving forward? Or is there anything about it that you you've specifically tried to replicate? No, I wouldn't you know, it's interesting. I guess maybe the m the main thing that probably kinda tweaked how I traded going forward was it's very rare these days that I'll have say like, you know, eighteen different positions on I actually prefer to wait. And it's like, all right.

I want to see I I would rather have three or four larger positions on than eighteen smaller ones. Now conventional wisdom will say, well, if you've got eighteen smaller positions, you're diversified. But I forgot who said this and maybe it was even Warren Buffett who just said, you know, essentially diversification is for people who, you know, don't know what they're doing. If you're diversified, then your account's not gonna change because you got some bullish positions, you got some bearish

If you see something that you like, then get in and focus on it. And so it really just kind of changed my out my outlook to want to focus. You know, instead of shotgunning and hoping for the best, it's like, you know what, let's be patient. Let's miss on things. But when this comes together, let's press it and, you know, let's focus. And it doesn't mean, you know, buying a thousand contracts every time.

But you know, we just did uh we just closed out a Facebook trade where we had three ha three hundred contracts on. It was a nice, you know, a hundred and or what was that a like an eighty thousand dollar trade. Great. You know, it's not a Tesla trade, but it's not having 18 different positions, some are up, some are down, and so your account value doesn't change. Okay. That's a great point. That's a really great point.

All right, John, well let's do one last question here to take us out. I'd like to ask you, after twenty years, I'm keen to hear how have your goals and outlook on trading changed um in the market, like as opposed to your earlier years. Yeah, in the early years I felt a big pressure to make a big trade. Like, I've got to make a big trade. That's freedom. I can quit my job.

And I think, you know, the main difference now is after doing this for a while, you start getting confidence in your skills. So it's not like, well, you know what, I didn't make money today, that's fine, the markets will be here tomorrow. And I y it's just this confidence of, you know, if if at the end of the day

You know, I lost everything and could scrape together, you know, sell a house or something like that, that could scrape together fifty thousand dollars. I'm like, you know, the idea that it's like, okay, I can make a couple thousand dollars a month trading. As opposed to having to go wait tables or something like that. It's like I've got that that confidence where it's just like, okay, I can always do that.

And that just comes from skill set and that's just it's it it's it's it's interesting with the markets because the I and I admire anybody who wants to try the Uh to do trading for a living, because this is the only profession on the planet where you have to develop confidence. In a situation where the result is always uncertain

Okay, there's no other profession in the world that's like that. And so if you can get to the point where you master that and you feel comfortable being uncomfortable, that's a good life lesson too. And that that's just something where that's just kind of the overall idea and you know so I look at trading as kind of a obviously it's a monetary thing, but it's also a philosophical philosophical approach.

And just kind of attack it from that vantage point. Awesome. Awesome. Okay, John, well, do you want to share with listeners where they can go to find out more about you?

Sure. So we've got a our hub website is uh www.simplertrading.com. And if you go there, you'll see different sections. There's options, futures. Stocks and Forex. I primarily trade options and futures. Uh we've also got other traders that we work together with.

Probably our most popular thing is that if you go to Simpler Options and enter our gold room, the gold membership trial, in that room we've got about a thousand members. We trade options and futures and it's a lot of fun. So we're committed to helping each other make money. uh you know, teaching and uh it's great. I mean I I can't imagine doing anything else. Awesome. And you're also on Twitter as well. Do you want to share your handle?

Yeah, it's just uh you know, the at symbol then John F. Carter. And, you know, I I don't I'm not like a you know, I'm not posting twenty things a day. It's more kind of every once in a while I'll do like a market observation, but Uh you know, I like to post kind of market turning points and things like that as well. Okay, good stuff. Well I'll be sure to include all those links at chatwithraders.com um in the show notes.

So John, once again, thank you very much for doing this. It's been a lot of fun speaking with you. Thank you very much. Absolutely, Aaron. Thanks for having me on the show. You've reached the end of this episode of Chat with Traders, but rest assured there are more And zero.