Introduction from Chris
In this interview, James tells us how he got into trading, the mistakes and frustrations he had along the way and what it’s like to trade at home for a living. As well as providing a useful anecdote where we should be thinking about the market as a game of collecting pips, rather than focusing on the monetary value of trading in the beginning, he explains that it’s about setting realistic expectations, building a confident mind set and mastering the psychological difficulties of trading.
He also reveals how he dabbles in a bit of light exercise in his down time, in the form of walking to the pub…which is a legitimate form of exercise in my book! Without any further delay, let’s get into it.
- First off, how did you first get into trading and FX specifically?
My father was an enthusiastic retail trader and was always reading books or watching online tutorials and gradually I became more and more interested. I started reading the books and looking at some of the online stuff and my passion grew from there.
- I know you deploy both technical and fundamental analysis now in your trading, have you always looked at applying both or did you prefer to use one over the other in the beginning?
Good question. One of the very first strategies I tried was an ultimately-doomed news trading strategy where I just tried to trade in the direction of the expected number (and my anticipated response) just ahead of a release. At this stage my knowledge of trading was extremely limited and although it was fun and exciting (as well as eventually heartbreaking) it led me to deeper research. At this stage, probably around 3 – 4 months in, I started to look at purely technical ideas which I ran with for quite a while until I built a better understanding of fundamentals and the Forex market in general and started to integrate the two to find success.
- A question which provided an eye opening response from Sam, but have you blown up any accounts? If so, what lessons did you learn?
Ha – the blood and guts question. The only accounts I ever blew were small spread betting accounts of around £1 – £200 where I employed my news trading strategy.
- Do you remember the moment when you thought that all the hard work had paid off and you had finally reached the point where you could pull profits from the market consistently?
I had been studying support and resistance specifically for a few weeks and was undertaking the classic exercise (of which I am a big proponent) of marking my areas on the charts for the week ahead and journalling what I expected to happen (e.g. bounce from this support level, reverse from this resistance etc.) and after a few weeks my analysis was starting to pick more correct ideas than incorrect ones. I knew at this stage that if I continued with this and really focused on building a solid trading method around my ideas then I could be successful.
- Knowing you write a lot of analysis around the fundamentals, how long did it take you to get to grips with? Was it something that clicked with you or was it the result of hard work and studying?
I can’t remember specifically and I think that it’s a constantly evolving thing but certainly an awful lot of reading and studying and speaking with people. What I find so interesting about the FX market is the clear difference (a lot of the time) between economics in theory and economics in practice and the huge role that market expectations and reactions play in determining the path of currencies. I think also it’s important to note that you can have an “understanding” of the fundamentals and still get it wrong a lot. It’s like having a solid trading strategy that you understand and rely on, but has losers 40% of the time. A good example of this is just how often the Banks get it wrong on big calls such as rate decisions, employment data and broader issues such as the Cypriot and Greek crises of recent years. A lot of macro-funds took a beating last year as policy-divergence dried up.
- How important do you think it is to have some sort of understanding of the fundamentals to trade even if you don’t use it in your strategy?
I think it’s important to the extent that an awareness of key risk events should be built into your risk management. It can also be helpful to have an understanding of the fundamentals behind certain moves/trends because then you can keep an eye out for signs that the moves may start to end. An example is the bullishness in Cable during the early part of last year was premised on rate-hike expectations building as data was improving. Once wage-growth data started to stall and reverse and CPI missed, it was a good sign that it wasn’t going any higher.
- You have previously worked for another FX company writing articles and analysis before joining LFX, can you tell us a bit about that? Where there any important lessons you took away from this experience?
My role in that group was pretty much the same as it is here, working in trading and analysis. I got to work with some really great and knowledgeable traders who helped me a lot – especially in terms of delivering analysis and honing my understanding technical and fundamental trading. The most important lesson I learned was that success in trading requires far more than just a winning strategy; mastering the psychological difficulties involved in trading is key to success.
- I understand that same company then went on to deploy more mechanical systems. Would you move towards automated trading strategies at any point or do you prefer to be a discretionary trader?
Hmm that’s a good question. Automated systems are definitely interesting and I think from a time perspective it would be nice to be able to step back from the markets a bit. That being said, I’m not sure if I would ever be able to step back fully and think I would miss manual trading too much. I guess maybe a mix of both would be good; to have some automated strategies and some discretionary strategies also.
- Can you tell us a bit about when you joined LFX, how long had you been trading at this point?
I had been trading for around four years at the point that I joined LFX. My time with my previous employer came to an end due to them moving out of trading and analysis and purely into managing money using automated systems. I actually can’t remember where I first saw the advert for an FX analyst role, I think it was a Twitter post. So yeah, I got in touch, provided some example work, attended an interview then underwent a trial period and I’m still here 17 months down the line.
- In your LFX Bio it mentions you had some tuition from Sam, how did this effect your trading?
Enormously. I guess at the point I came to Littlefish FX I was almost there with my trading but Sam was really instrumental in ironing out a few flaws that were still hindering me from progress. I had had help from other traders in the past but that was really more at the stage where I was figuring out how I wanted to trade. At the point that Sam helped me, I had been working with my chosen style for around a year and was making great progress but he really helped me overcome the last few hurdles. I think for anyone who feels a little stuck with their trading or if they aren’t quite hitting their stride, that seeking some outside help from a professional trader is really a game-changer.
- What’s your take on the ‘Random Walk’ theory, where the market can’t be predicted as all known information is reflected in the current price, therefore you can’t take advantage of under or overvalued prices?
I strongly believe that the market doesn’t operate in that manner and that there is a degree of predictability. I tend to focus less on predicting the path of price or future prices and more on identifying conditions where I feel a certain outcome is likely to happen, such as price reacting from a key support/resistance level, or trend line retest for example. I think the prevalence of technical trading systems, whether operated on a discretionary basis or an automated one, is clear evidence that there is a degree of predictability that can be exploited.
- How do you manage your risk in each trade you take and in your account overall?
I am pretty conservative with my own trading and stick to 1% per trade where my stop is 100 pips or more and if my stop is say 30 – 100 pips, then my risk is 0.3% to 1%. Risk on account is max 3% risk at any one time.
- As you trade for a living, is there a certain % you take out of your account per month? Or is your aim to build up your capital?
My aim is still to build capital and fortunately, as I have another income I am not totally reliant on trading profits. I think this is probably a big hurdle for many new traders who turn to trading when they are out of work, or a student etc. and have no other income and end up forcing their trading because they are eager to make money. Feeling like you absolutely have to make money is enough pressure later on, but to be saddled with that while you’re still learning can be a huge wall.
- You work from home most of the time. Are there any elements you would say are good or bad about working from home? Trading related or otherwise.
I actually find it easier to stay focused working from home, especially when it comes to trading. The idea of trading in a room full of people has never appealed to me. There are times when it can be a little lonely, a little bit of office banter is always nice – I just have to settle for the digital version!
- How do you cope with the psychological aspects of trading for a living, do you ever feel the pressure of having to make a certain % target each month?
I think that having been trading for a while and having a good understanding of the type of returns I can consistently achieve makes it easier. Certainly starting out, if you aren’t hitting 500 pips a week you might feel like a failure because you have this idea that you need to be making thousands of pips to be successful. Setting realistic expectations is key to progressing and building a confident mindset. Definitely be ambitious but focus on consistent profitability first and build from there. If you can hit 50 pips a month most months, work on getting it to 100 and so forth.
- Do you even have set weekly / monthly targets? If you do, do you stop trading if you hit that target early?
I aim to hit 2% a month and if I hit 2% clean I either stop or scale it down for the remainder of the month. For example if I come out of some trades and I’m up 4%, I would risk the extra 2%.
- What are your working hours like? Are you always watching the markets or undertaking analysis? How do you manage the work / life balance?
Tough question! In terms of my work providing content I work from 6/7am through to 4-6pm depending on what needs to be done but then I am usually back and forth to the charts over the evening. Trading can be a very all-consuming thing and it really is difficult to manage that balance. I often find myself away from the screens checking prices on my phone etc. or thinking about the markets when I’m out for dinner. So yeah, striking a balance is tough.
- Nowadays it’s fairly easy to trade anywhere in the world with a laptop and Internet connection. Where was the furthest or strangest placed you’ve placed a trade?
Well I am actually nowhere near as well-travelled as I would like to be and far from the marketing-produced image of a trader on a beach. So probably my kitchen!
- Do you believe anyone can be taught how to trade or do you have to have a natural ability?
I think that anyone can be taught a strategy and have an equal shot at being successful. I don’t so much believe in a natural ability but more the right mindset. As I mentioned earlier, mastering psychological difficulties of trading are really the key to success.
- What has been the toughest part of your trading journey?
I think once I started to get a handle on the technical methods I use to trade and started to see some consistency, it was very frustrating to essentially just tread water for quite a while. I spent the best part of a year seemingly taking two steps forward and two steps back in terms of hitting winners then immediately giving them back. So whilst I wasn’t losing I wasn’t winning either but I struggled to see how I could move beyond that period to being consistently profitable. I found that far more disheartening then the initial stages where I was incurring losses because initially as I had no experience I was just fuelled with hope and dreams of winning big but once I had been trading for a while and was struggling I started to think “what if this is as good as I get?”. In the end I learned to be far more selective with my trades and far more patient and also not so tough on myself. Hindsight can be a great tool but also a bitter pill.
- Was there one thing that you tried or changed that then went on to make a big difference in your trading? I.e. keeping a journal etc.
Journalling absolutely. I really cannot emphasise the importance of journalling enough and anyone who isn’t journalling regularly is just winging it. Recording your analysis, your trades, trades you didn’t take, thoughts, feelings, observations etc. is a sure-fire way to upgrade your trading and allows you to look back over your performance and tweak where necessary. Noting observations can help you uncover new trading opportunities or improve existing ones.
- Is there any advice that you’ve received over the years that you think would be useful for aspiring traders that want to trade for a living?
I think as much as possible you need to avoid thinking about the monetary side of it and just focus on trading the charts and collecting pips, almost like playing a game.
- What do you like to do outside work to relax and take your mind off the market?
Drinking with friends is always good. Some light exercise too…walking to the pub? I’m probably giving the wrong impression here…
Quick Fire Questions:
“Everybody has a plan ’till they get punched in the mouth” Mike Tyson.
Favourite Financial Themed Movie
One book that everyone must read (trading or non-trading related)
The Ginger Man – J.P Donleavy
One financial / trading themed book that everyone must read
Ari Kiev – Trading To Win
Favourite currency pair at the moment
Favourite holiday destination
Anywhere with hot, sandy beaches
Lager or Ale man
Having thoroughly researched all areas, my conclusion is Vodka!
Conclusion from Chris
I would like to thank James for sparing some time in his hectic schedule to provide us with great and honest answers. I’ve also taken away a lot from this interview and by having a good think about some of his answers; it will no doubt help me improve further on my own trading.
Christoper Johnston is a Littlefish FX course-user and long-time reader. You can keep up to date with his weekly blogs at http://enigmaforex.co.uk or contact him on Twitter at @enigma_fx. If you’re interested in seeing your Forex blogs and content published on LittlefishFX.com, read more here.