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A Day in the Life of a Trader: Adam Johnson

Schwab’s Senior Trading Education Specialist Kevin Horner talks with Adam Johnson, author of "Bullseye Brief," about his daily approach to trading.

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And now, Schwab senior trading education specialist Kevin Horner is talking to Adam Johnson, founder and author of the Bullseye Brief about his daily approach to trading. Kevin?

Kevin Horner: Thanks, Lou. Adam, thanks for taking time to be with us today. Really appreciate it.

Adam Johnson: It's great being here.

Kevin Horner: Thanks. Today's segment, this one in particular, this is our day in the life segment. Basically, we're trying to offer our viewers an opportunity to get an insight to your process, perhaps what inspires you as you work through your trading day in particular.

Adam Johnson: Yep.

Kevin Horner: Is there any one thing perhaps that you find to be absolutely imperative getting your day underway?

Adam Johnson: Yeah. The C word. It's called caffeine. Randy was just talking about going to his Bloomberg terminal, and I always start with a little Nespresso. I actually have a Nespresso machine on my desk, and I kid you not, it lives right next to me, right next to my Bloomberg. I come in, and what I typically do is I get up - I don't know, I'm an early riser. What about you?

Kevin Horner: Not early enough. Most often, my kids are the ones that drive that.

Adam Johnson: All right. There's -

Kevin Horner: Oh, here we go. See, there you are.

Adam Johnson: That's the real deal.

Kevin Horner: Perfect.

Adam Johnson: Some days it's not as pretty as others, but that's what happens. So I get up, generally home, 5:00, 5:30, have a Nespresso there, ride a city bike down to the office after I've kind of checked Twitter and gone through some things. And that's me at my desk. And you can see my Nespresso machine kind of tucked in behind my Bloomberg.

And what I try to do is just - first of all, wake up, but then I like going to top, T-O-P, top stories on Bloomberg, usually 10 or 12. They change every few minutes. And it just starts to kind of paint a patchwork of what's happening on a given day, because what I've found, Kevin, my process is inevitably, there are two or three stories that just - that dominate, where you say, oh, yeah, there's an OPEC meeting happening today and it didn't work, again, for the eighth time in eight years, right? You know, so -

Kevin Horner: Yeah.

Adam Johnson: - oil is in focus, or whatever it might be. And I just try to latch onto whatever those themes are.

Kevin Horner: Okay. So you're relying on that theme more or less to drive your decision making for that given day.

Adam Johnson: Yes.

Kevin Horner: Kind of providing you some safeguards, if you will, as you're looking at trends, you're finding opportunities. And that theme of the day really can drive your entire process.

Adam Johnson: So I have a mentor and former boss who has been in the business many, many years. He's now about 80 years old. I worked for him over about 20 years. And he would always ask the same question to people when they were interviewing for him, and this is a guy, by the way, who is totally self-made, has made hundreds of millions of dollars as a trader, and a very savvy investor, obviously.

And the question is how do you make the most amount of money on Wall Street? And the answer that would get people hired was find a theme and leverage it. So what I'm trying to do is just find those two or three themes on a given day and figure out how I can leverage them. That's my process. It starts with the coffee, then goes to Bloomberg, and then it's my thinking about what are the themes of the day and what gives me the most leverage.

Kevin Horner: You know, what I like about that is it really allows you to take a structured approach to every single day, because it's very common to get mired by numerous stories -

Adam Johnson: Yeah.

Kevin Horner: - and find yourself down multiple paths.

Adam Johnson: Right.

Kevin Horner: It's not necessary to trade three different approaches in the same day necessarily.

Adam Johnson: Thank you.

Kevin Horner: I think that that can be - you can simplify things.

Adam Johnson: Right.

Kevin Horner: We don't need to make it difficult.

Adam Johnson: Well, and the other thing is we don't always have to trade, right?

Kevin Horner: Also true. Yeah.

Adam Johnson: And again, part of my process is I find these themes and I figure out how to leverage it, and then there has to be a target. Why am I doing this? What's my target? And by the way, if I'm wrong, and I might be wrong - I'm generally right about 72 percent of the time. I track myself very closely. But on the 28 percent when I'm wrong, if I'm wrong to the tune of 4, 5 percent, I'm uncomfortable. By seven or eight, I'm most likely to just -

Kevin Horner: Just admit - admit -

Adam Johnson: Admit it -

Kevin Horner: - defeat, move on -

Adam Johnson: Move on.


Kevin Horner: Next trade.

Adam Johnson: Yeah.

Kevin Horner: Okay. I think that's a really nice takeaway, by the way. A couple of things. Number one, you know your percentage right up front.

Adam Johnson: Yes.

Kevin Horner: You know how consistently -

Adam Johnson: I think you have to.

Kevin Horner: - on or off you are.

Adam Johnson: You've got to know yourself.

Kevin Horner: I think so, too. I think it's an absolute imperative to the long term success of trading. You have to document your process, document your attitude. I'm a big fan of documenting attitude, actually. I've found in my case the attitude really drives my decision making, far more often the negative decision making than the positive decision making.

Adam Johnson: And by the way, like that goes back to when we're probably like growing up and your mom said, "You woke up on the wrong side of the bed. Fix it." Because it'll infect your whole day, right?

Kevin Horner: Absolutely.

Adam Johnson: I mean, you know, your outlook and your mindset in the morning makes such a difference. And if you can begin that morning with just some positive energy and some gratitude, figure out a way to say thank you to somebody, it just - it sort - it puts you in the right mindset.

Kevin Horner: I like that, too. Again, my day begins with that positive energy, thanks to that caffeine as well.

Adam Johnson: Yep.

Kevin Horner: One thing I did want to ask you, I'm curious, do you have a go to chart that you like? Something that actually is the one that you rely on most consistently that -

[0:27:49]

Adam Johnson: Yeah.

Kevin Horner: - kind of gives you the snapshot in the morning?

Adam Johnson: Yeah, I do. And Bloomberg users would absolutely know what I'm talking about. It's called GPO. And that is a chart that shows you a vertical line - I know there's a fancy name for that. I just call it the GPO. You know, the vertical line with the little tag on - where it opened, where it closed -

Kevin Horner: Right.

Adam Johnson: Yeah. And - because I like to see the full complexion of actually what happened during the day. And that also opens the door to, oh, I didn't realize how volatile this stock was. Because there are times when you might like a company, and you could buy it, you could buy the stock, or you might say, oh, it's really volatile. That means the options are pumped up. So you know what? Maybe the better way to express this view that I have is to say write a put, you know. Write an out of the money put -

Kevin Horner: Sure.

Adam Johnson: - down five or ten percent, capture some premium. If the stock rallies, you keep the premium, and if the stock goes down, you're a buyer lower, and you've built a cushion. So there are all sorts of different ways. But the GPO is what gives me the most amount of information in a real quick snapshot, those -

Kevin Horner: Excellent.

Adam Johnson: - vertical lines.

Kevin Horner: I also tend to agree with you. When you're considering individual equity positions, I think it's very important to monitor implied volatility, keep an eye out for that.

Adam Johnson: Yes.

Kevin Horner: And consider that there are alternative scenarios in which you could invest. It doesn't have to be long or short the individual equity, and I think that speaks to the idea of bringing options into the equation a little bit.

Adam Johnson: You know, I wish I knew more about bonds, because sometimes there's just a better trade in bonds than stocks. But they're less liquid. I know what I'm good at. I'm generally good at looking at companies, figuring out whether the stock makes sense, whether the multiple makes sense, if there's an options trade. On rare occasions I'll go into the bonds. But I will say the ETFs have given us so many different new ways to express views and to not feel so linked to a particular story, you know.

Kevin Horner: Sure. Absolutely.

Adam Johnson: Get the theme right.

Adam Johnson: And again, that goes back to - right? Get that theme right. Those two or three themes that are going to be important every day, or I should say the two or three important stories of the day that will most likely play into two or three themes that tell a narrative over a month or a quarter.

Kevin Horner: Absolutely.

Adam Johnson: Yeah.

Kevin Horner: Very good insight. I appreciate it, Adam. Thanks for joining us.

Adam Johnson: Oh, well, thank you for having me.

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