Zak Mir Interviews - “Psycho Trader” John Piper
jp: Well, with gold it has all been about triangles.
The triangle I think is a very powerful signal; you get this coiled spring effect. A market goes into this ever narrowing range and then breaks out and bursts forward. If you get a move out of a triangle you get a tight stop as the price action is very narrow at that point, and secondly you often see very big moves. On the VIX in 2011 we have a simple strategy: buy below 20 and then get out when you see a decent move. For 2012 the strategy was not so good, we are still up overall, in that 2011 profits outweigh 2012 losses, and the current positions may still come good, but nevertheless we are wrong at the moment. For the indices, I tend to look at Elliott Wave theory with other techniques as well. As with all trading, the idea is to make good money when it goes right, and lose less when it goes wrong.
ZM:
Is there any rule in terms of saying on a wrong trade — I have had enough, I am getting out.
jp: On triangles you have a ready stop loss, of the pattern itself.
ZM:
But playing devil’s advocate, is it not that for both trend lines and triangles that there is a dependency on the subjective drawing skill of the trader as to where support / resistance may be.
jp: It is easy to become subjective and ignore
breaks in both directions. For instance, I have ignored breaks to the upside in the Dow. In fact the Dow is fascinating to me at the moment. We have had this rising wedge pattern into the recent peaks and this pattern has taken place over a number of years. We have seen false breaks of the upper trend line in the past month, which went straight through the lower parameter, and we are now testing the lower parameter again. A rising wedge is just a triangle that points up, by about 45 degrees. So we have seen this break down through the triangle of this rising wedge pattern — a sell signal. We have had a retest of the floor of the triangle which you often see, and we are now coming down.
“As with all trading, the idea is to make good money when it goes right, and lose less when it goes wrong.”
There is a lot of weakness here which ties in with an old saying that if Santa Claus doesn’t visit Wall Street with a decent rally, then watch out for the next year. In contrast, on the Nikkei Dow the situation is very positive given that it is now firmly above 10,000. But of course this is a very different situation to the U.S. market as the Nikkei has been in a bear market for 25 years.
ZM:
It seems from our talk that you seem to have many more fundamental and psychological influences on your trading than most technical traders, something which I personally have tried to emulate as well?
jp: Psychology is fascinating, and it is also worth
bearing in mind something which is not often mentioned. For instance, when someone buys a market, the market weakens — quite strangely to them. Of course, if enough people buy a market it goes up. But every time someone buys a market, the potential for them buying it has been removed and the potential for them selling it increased. So if a hundred people buy a market it goes up, but the market becomes potentially weaker as all that potential buying power has turned from positive to negative (i.e. to potential selling power). This is what happens as markets go higher and higher, in that they get weaker and weaker. But you don’t see that new dynamic; you just see an apparently stronger (higher) market.
ZM:
So in some ways you are really not a technical analyst. Would you describe yourself in any other way?
jp: Our good friend Tom Winnifrith called me, rather unflatteringly, a Psycho Trader which is perhaps as good a description as any.
ZM:
“Psycho” brings in the aspects of technical, psychological and fundamental as well. Do you think that normal technical analysts are missing out on a large element if they do not look at the fundamentals or market sentiment?
jp: Look, the key thing is does it work? If it does,
then you use it, and it is the same with trading instruments. It is a little like the situation with binary bets a few years back. As a trader and a writer I was staggered by what they offer and was quite amazed that no one else had written about them.
Editor note - Mr Piper notes in the interview that he is unable to supply a verifiable trading record of his returns.
February 2013
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