Jay Norris is a 20-year veteran of the Chicago Board of Trade, and has written two books "?Mastering the Currency Market" and "?Mastering Trade Selection and Management." Both volumes are used as text books at Trading University where Jay is the Director of Learning and a mentor in live markets for traders from all over the world.
We caught up with Jay in Chicago, home of Trading University.
Please tell me a bit about your background
I didn't have a lot of formal education at first. When I was a teenager my parents decided I needed discipline so I was placed in a private high school run by Irish priests. I learned pretty quickly that I had to be on time for class, with my homework complete or else. It was similar to trading in that you either followed the rules or you took a beating.
I paid for school with the money I made as a paperboy.
I was 18 when I started as a runner at the Chicago Board of Trade for E.F. Hutton. I also worked for Bear Stearns, and Spear, Leeds, Kellogg. I attended night school for a degree.
Where did you learn about currency trading?
I worked a lot with New York market makers, Wall Street traders, who hedged with the futures in Chicago. I learned a lot about hedging from the Wall Street guys and scalping from the Chicago pit traders . I came to the conclusion that the most important part of trading was keeping your risk low. Currencies trend nicely and the systemic risk is lower than commodities and individual stocks. It is important to carry positions overnight because obviously nobody can stay awake 24-hours a day and catch every trade so you need to catch the bigger swing trades and position trades. That means you have to carry positions overnight which of course increases your risk. It's very unlikely that a currency will move 2 or 3% when I'm sleeping, like a stock or commodity can. So currencies are the way to go for me.
And you can tailor your position because you have the smaller contracts available.
There will always be incremental moves in currencies so the important thing is to know how to manage risk.
What is your method of trading?
Buy dips, and sell rallies in-line with the dominant trend. I always trade the major currencies. I teach my students to enter trades on the lowest time frame charts, where risk is the least, yet manage a portion of the position on the longest time frame charts where the reward is the greatest. In my McGraw books, "?Mastering the Currency Market" and "?Mastering Trade Selection and Management," I cover how we approach currency markets as trend traders by understanding when markets are in counter-trend mode. To be a trend trader, you need to be able to identify when a market is trending or counter-trend trading. They are definitely "?how to" books where we provide definitive trading plans. In my last book "?The Secret to Trading: Risk Tolerance Threshold Theory" we advanced the "?why" of market movement, yet still stuck with our ‘how to" formula. I am very proud of the work we've done at Trading University on this subject.
But it all comes back to risk. Most people underestimate their own risk tolerance. Because they fear risk – a combination of being wrong and losing money "“they tend to pull out of their positions too soon. They fear subconsciously that everything is starting to fall apart – particularly if other aspects of their life are not going well -- which prompts them to exit their positions too soon. This collective behavior creates market corrections which creates opportunities for us.
I advise my students that before starting my course to stop trading and work on weaning themselves off the news which can be harmful to their correct interpretation of market movement. The chart is absolutely a reflection of the underlying fundamentals in a market. When you look at a price chart, with no preconceived opinion, the pattern, the trend pops out at you.
And it does not matter what time frame chart you are looking at, the behavior is the same. We measure the pattern on a 15-minute chart the same as on a monthly chart. It is a very simple measurement. So we measure the direction of the current pattern on what we call "?all the tradable patterns", and we put that information in a ratio that we use for trade selection. I'm sure we aren't doing anything different than many other experienced traders, we are just more organized, and transparent. For example there is nothing new about identifying say a double bottom at the 50% retracement level of a 25-day pattern which is in-line with the intermediate, and long-term patterns. What we do different compared to the old timers is we teach this.
Many people wanting to learn to trade focus on the ‘why" of market movement. We point out that it is a mistake to ask "?why" the markets did what they did. At that point, you have already missed the trading opportunity. For example a good retail sales number is released and prices jump in the first 2 minutes after the release, then start to fade as traders already long begin to take a profit on the realization that this may be the best news of the week so it's time to exit. Then prices start to fall. Amateur traders are now scratching their heads because the market just turned lower on good news. We teach that it is not so much the news but how traders with existing positions react to that news, or more specifically how price reacts.
We also cover commodities. Commodity price moves can be both a leading indicator at times, and at other times confirm currency moves. We see the current cycle as one where currencies, the U.S. Dollar specifically is leading, with commodities falling in sympathy. Take crude oil"¦the news is full of stories of the how Obama and the U.S. military will react to ISIS, the Islamic State group – off course this is not new news but something that has been developing for months if not longer -- yet crude oil prices have been falling steadily all summer. The market is telling us that between old sources – the Mideast -- and new sources – the Bakken region here in the U.S. and Canada -- that there is plenty of supply on hand, and as the dollar strengthens – crude is priced in dollars – the commodity gets marked down.
What is Trading University all about?
Trading University is an e-campus with a 6-month self-study program that combines prerecorded material and live interactive classes. The cost is $199 per month for 6-months, yet students have access to all the material we teach up front. They get access to our Core Concepts, Advanced Concepts, Graduate, and Master's Five Step program, and the past archives of our live classes, from day one. After they have completed the 6-months, they become free life-time members with continued access to everything we do. It is in our interests to continue to educate and work with our students because we know as professionals that it takes more than 6-months to become proficient at anything worthwhile, particularly trading.
At Trading-U.com students can go at their own pace, go back and review archived courses on their own time frame, and have interactive communication with myself and more experienced students.
We encourage the students to practice what they are learning. To be patient and wait for proper trade set-ups"¦and keep track of all the signals the method generates in a spread sheet. We encourage the students to send us their trades to make sure they are qualified – especially the losers. Then we go over this in the live class. The live classes are also excellent times to highlight real time set-ups and signals.
How does social media play a part in trading?
Social media is important as it is a reflection of consumers' feelings and concerns. I think, though, that Facebook etc. have gone way passed what they were meant for, with people putting their whole life story out to the masses. Regarding its effects on market movement, it's like anything new, yes it can have an outsized effect short-term, but it will always be demographics, nature, and economics that form the intermediate and longer term patterns we focus on.
What else can you tell our readers?
One of the things that I feel we have overlooked is the importance of demographics on trading. At the moment, 25-year-old males are the largest demographic in the U.S. And outside the two big media circles here in the U.S.: New York and Washington, there are plenty of young people who are settling into their jobs and moving in with their boyfriends and girlfriends and getting dogs together, and well"¦you know what happens next"¦.marriage and homes. But if you follow the East Coast centric journalists on Yahoo or Twitter you don't see this at all. In journalism I'm afraid the mundane truth does not sell copy nearly as well as fear. My point is for most of the country and I suspect most of the world, times are not that bad at all, and getting better.
Thank you, Jay, for your participation.