Tramline Trading. John Burford

      John trained as a physicist and holds a PhD in Physics from the University of Toronto. He worked for a time for NASA in Washington D.C. in the Manned Mars Exploration Team. After leaving, he discovered the financial markets and has been involved with them on and off for over thirty years. John was a Commodity Trading Advisor for a period at a Los Angeles commodities trading firm.

      He has started and sold several real businesses, and now devotes full time to training, writing, trading and consulting on the markets.

      John is Editor of MoneyWeek Trader, an email service aimed largely at UK-based spread-betters. He also operates his personal blog at tramlinetraders.com.

      Acknowledgements

      I wish to gratefully thank all of my early-year school teachers who helped shape my life, all the while suffering my in-born contrarian nature. My very first school report at the tender age of five definitively stated: “John is very erratic.” I have been striving to rein in the most extreme manifestations of this trait ever since.

      In the same spirit, I wish to thank all of those many traders who extracted my trading tuition fees from my early accounts. I’m sure they did not realise it, but they were performing a great service to me. Perhaps those very same traders went through an identical process themselves and considered their success also was based on their own early expensive lessons. Is there anything new under the sun?

      But my most vivid trading lesson was given to me by Mark – a fellow commodity broker – who managed to short the S&P on the Friday before 19 October 1987. When the market opened on Black Monday with a huge gap down, he added to his shorts. By the close of trading, his $30k account had swelled to over half a million dollars. In 1987 that was real money! However, when the market started up on Tuesday he kept shorting on the way up. This was a fatal mistake, because the market recovered so far that he was wiped out.

      So, thanks Mark, for having taught me that when I have a massive windfall profit, it is best to take at least some of those profits off the table. Also, I learned then that it is fatal to fight the market, no matter how strong your belief.

      A further early lesson was provided by another former colleague, Peter, who taught me that the art of market forecasting is a vastly different skill from that of trading. Peter was an excellent predictor of trends, but constantly lost money when he traded. This was because he did not have the courage of his convictions at the right time and was always getting in too late just before a big counter-trend move.

      Both Mark and Peter were futures brokers at the same commission house in Los Angeles where I cut my trading teeth. This gave me the invaluable opportunity of observing at first hand the many destructive habits that some of the firm’s customers were prone to.

      That was yet another lesson I learned – that trading is unlike a more conventional activity, such as being a doctor or lawyer. So my thanks to all of these customers who showed me that I had better get a proper understanding of how the markets really work, which is still today appreciated by only a fraction of people.

      Finally, while writing this book I had the loyal companionship of my Jack Russell Dixie, who provided critical approval of all I wrote. All she asked in return was a daily walk at 9:30 am, prompt.

      Preface

      What this book covers

      I am reading a book on day trading at the moment. It is full of complex indicators that may be suitable for some traders. But it is not for me. Following all of those indicators would be too confusing; I would tie myself up in knots keeping track of what all of the indicators are doing!

      My method, on the other hand, allows you to have a life outside of trading. I use stop or limit orders for nearly all my trades. These can be entered in advance. And when adjustments are indicated, these can be made when you return to your screen. The market order becomes a rarity if you wish to trade in this way.

      This approach has the added benefit of keeping you away from your screen where you may be tempted to change your mind (in technical jargon: to fiddle with the plan). How easy it is to watch the market move down towards your stop and exit prematurely to avoid further loss, or (an even worse sin) to widen your stop to give it a little more room. Staying away from your screen forces you to keep disciplined – an essential trait in all traders.

      My tramline method should appeal to the more conservative part-time (yet serious) trader, where winning swing trades typically last for some hours to a few days at a