From the March 01, 2009 issue of Futures Magazine • Subscribe!

On the art of a trade

Before Jason Alan Jankovsky became a forex trader, he traded Chicago Big Board corn, calling his orders in to his broker. But his trading didn’t really take off until he began to understand the relationship between buyers and sellers. When his broker explained the concept of short selling, it dawned on him that he could make money as the market rose or fell. “That was a huge stepping stone to becoming a full-time trader because then every market opportunity became my market opportunity.”

Jankovsky was hooked. He became a registered series three broker in 1987, trading the market of the moment, switching from grains, to oil or gold. And in the days before electronic trading, it would take days or weeks for the market to make a move for him or against him.

“That was wonderful when you were on the right side , because there were days or weeks of price action that would work for you. When I was on the wrong side, it was constant anxiety. I would watch the news or read the newspaper and see that beans were down 10¢ and I’d be like, ‘Oh my god!’ Figuring how much that means to me.”

He made the switch to forex trading in 1997, prompted by the advent of electronic trading. His first impulse was to trade very short time frames, making use of instantaneous execution. But as he gained experience, he came to realize that analyzing order flow in multiple periods allowed him to see the activity of all market participants, and most importantly institutional traders. “You may trade short time frames, but you need to know what long time frames are thinking. The larger time frames are what drive the trade,” he says.

Markets are zero sum transactions, he explains, everyone who executes has to use an opposite side transaction to liquidate. Traders liquidate for a cash loss, or liquidate for a gain , and that order then join s the dominant order flow, adding to the momentum. “Everyone piles into one side and what we see as price movement is the liquidation of losing positions. That was never explained to me.”

Another implication is that liquidation is what drives the market. For example, in a rising market, Jankovsky says the best place to buy is a long-liquidating break. “You want to buy just about where the selling orders are running out.

“People are taking losses and decide to liquidate and that’s the dominant order flow. When that runs out, then the market moves the other way. What we see is the ebb and flow; we are trying to buy low and sell high but what is typically happening is people are buying high and selling low. To participate, you have to know where the losing order flow is.”

To date, the most import lesson Jankovsky says he learned came from blowing out his account on Sept. 11, 2001. “There was no way you could have prepared for that and that is what was so debilitating for me. What I learned is that there is no way to predict when the market will reverse and what you need to do is be prepared for that every day.”

After taking some time off, he returned to Chicago and to trading as a broker and educator at Infinity Futures, where he put those lessons to use. To protect himself, Jankovsky is always moving his s tops closer to the market , and when he is adding to a position, he has already picked his ‘get - me - out point,’ so if the market reverses, his orders will be the first initiated.

“I am always available to reenter the market, which is something most traders don’t do. They put a position in; if they get taken out, they move on to the next trade. There is no next trade. It’s all one trade. It’s always happening. The bottom line is you always have to be thinking about catastrophe because sooner or later that’s going to happen and you w ant to be flat at that point.”

It all comes down to being prepared to act and appreciating the difference between what you can and cannot control, he says. “I don’t care what the market does; this is what I am going to do to protect myself. If I am on the right side of a big kill, that’s wonderful. In the mean time, I can’t lose any money. My effort is to protect my money through the day and start tomorrow with a new position.”

Jankovsky started Core Financial in 2003, trading his own account and mentoring clients. He has written two books, “The Art of the Trade” and “Trading Rules That Work.” He says that he is completely absorbed by the markets and for him to enjoy anytime away from his trading desk, he needs to be flat. “My entire world is the markets. If I am not trading, there is some reason that has to do with getting better at trading,” he says.

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