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I watched an interview on CNBC with John Carter a few weeks ago, after the market took the big dive downward, and I thought his comments were timely and unique, compared to a lot of the stuff you hear on TV these days about the market.

Then I red his book, which I'd been meaning to do for a long time. And it was fantastic. I rarely read straight-up trading books these days -- you know, books about entries and exits and indicators. But this one was different and has made a positive impact on my own trading. Here's a link to the book:

After reading the book, I wrote to John and asked him 5 Questions. Here they are:

You mention on page 77 that you have observed that high frequency forex trader's don't last very long in the markets. Why do you think that is?
By high frequency trading I mean “lots of scalping.” I see this more in the stock index futures where it can work, but when the same strategies are applied to the forex markets the spread tends to eat into all of the profits. To clarify, this is for trades where people are trying to get in and out in less than 5 minutes. What I’ve seen work more consistently in the forex markets are moves off 60 and 120 minute charts that tend to last 30 minutes or more. Also, I think most people who are trying to scalp and do a ton of “little trades” get way too over worked psychologically and this works to their disadvantage. They can make money 10 times in a row but it’s the 11th one where they end up giving it all back and then some.

The book told about a trader who found it helpful in some cases to celebrate a losing trade, or shrugging off a winning trade. Why?
He found that people who did just the opposite tended to lose money – so he wanted to do what “they weren’t doing.” For a losing trade, he looks at is as a good thing because he is protecting his capital. For a winning trade, its not a big deal because his main focus still is on protecting his capital. The idea is by focusing on protecting the capital, the profits tend to take care of themselves.

What's your take on the increase in volatility lately? Has it changed your trading in any way?
As a trader I like the volatility but I have cut my position size in half and doubled the size of my stops so I can stay in the market “wiggles” while still risking the same dollar amount.

Is there one trade in your life that stands out as a major positive or negative experience?
The trade that stands out the most is one I made trading OEX options in the mid 90s. I had a $150,000 account. I had just bought a house and had agreed to a $30,000 down payment, which I would take out of my trading account. About 2 weeks before the closing I decided to “do a trade that would make me 30K” so I could keep the entire 150K in tact. I look at the charts that night and see that the markets are coming up to key resistance. If we can get up to that level the next day I decide I will buy puts.

The next day we get there and I buy 100 OEX puts at $8.00 ($80,000) or just over half my account. The markets chop around here for a bit then push higher. Now the options are priced at $7.00. What a deal! I go ahead and buy 100 more ($70,000) so now my entire account is in this position. The markets close near their highs, which is right near those resistance levels. My options are worth $7.50 so I’m “break even” on the trade as I go to bed. The next morning the markets gap up and never look back.

At this point I start thinking “well lets just let the gap fill and dump my options there for about breakeven.” The markets close near their highs on the day – and keep rallying for 4 days in a row. This was a monster rally. I’ve never really seen a rally since then. I finally can’t take it anymore and close out my position for about 75 cents. I lose $135,000 on the trade – not only wiping out my account but now the money for the down payment has evaporated. It was the “worst nightmare” scenario. I ended up getting advances on my credit cards so I could get the house. Then I spent the next 6 months trying to figure out why I let that happen. I cam across Mark Douglas’s book, “The Disciplined Trader” which I loved and also spent time sitting next to other successful traders. This who journey got me to my current trading philosophy which is setup and money management based instead of “profit” based. This made all the difference in the work for me in terms of consistency.

Your book is done. If you could add one thing to it, or one more piece of advice to traders, what would it be?
Besides the typos and things like that, I would add more emphasis on market internals for anyone trading stock index futures. The setups described in the book for stock indexes are not mechanical and depend entirely on the reading of the market internals (there is a chapter on market internals). I would also add in the concept of “anchor charts.” This means if you are trading off a 5 minute chart, use an “anchor chart” of say 15 minutes. If the 15 minute is bullish (positive moving averages crosses, etc) then on the 5 min chart I’m going to ignore short setups and focus only on the long setups in the direction of the 15 minute charts. This whole concept cuts down on choppy results.