Gregory Harmon is one of the reputable experts within TradingView.com community. With over 25 years of trading experience having worked in such prominent institutions as BNP Paribas and JPMorgan, Gregory spoke to Gita Evele, EXANTE’s PR Manager and shared his trading experience as well as discussed some of his trading ideas using stocks and options.
I know that you have been in the financial industry for 25 years and that is pretty substantial! Can you tell us more about how you actually got started and what was your first motivation?
Well, as you said, I have been in the business for over 25 years. I started at Chase Manhattan Bank, now JPMorgan Chase. My beginning was really kind of odd. I was a mechanical engineer in college and captain of the swim team. One day, I was going to visit a friend who was the captain of the team the year before and was working at JP Morgan at that time. He told me “I am leaving my job. I am not happy doing what I am doing here”. I was working at the copy center at that time, making copies. He said: “Why don’t you come in to the interview for my job?” So I did. That was 1986 and I sat down with the people dealing repo's and securities lending at JP Morgan and I ended up starting to work there the following week. Repo’s very different from what I am doing now, however I learned a lot about markets there.
I know that you are a technical analysis trader who rarely uses fundamentals. Considering that many traders and financial experts wait for ECB or Federal Reserve announcements to see how they actually shake the market. How do you decide that technical analysis works for your trading, considering that we have those major macro events?
There are 2 ways to deal with that. One is to ignore those macro events and say that they are going to happen. You see a trend on a stock, you follow the trend and keep playing with it.
The second is to take advantage of what information may come out of that macro event. Be it the FED open market committee making statement or ECB: all these can be market movers – depending on what stocks and what type of securities you are trading. So there are two ways to look at the events. Either ignoring them for the long-run or looking to take advantage of them in the short-run.
Which are the main technical indicators you use for your daily trading and how did you select them? There are numerous indicators and each trader has its own for certain reasons. When it comes to you, which indicators are the best ones for you and why?
For me the best indicator and the only real thing that I use to start off, is the price. I am looking at the price action itself. Being a top-down technical trader, I am looking for how to identify the trend. When looking for what is happening with S&P 500, the Russell 2000 and the Nasdaq – once I go through to determine the trend I am looking at things that might influence that trend first. Those are, for me, Markets as opposed to events. Some look at things like Gold and Oil, the Dollar. I am looking at volatility, treasury bonds and at foreign markets. But at the end of the day, I am looking to find the best stocks I can trade with that trend. To take advantage of stocks that may outperform the trend in the short or long run. So, after identifying the trend, I am looking for individual stocks. I have some kind of myriad of different types of technical analysis I am working on. The traditional, classical stuff like Horizontal Support and Resistance Lines, Trendlines, Patterns like “head & shoulders” and “triangles” etc. But also a Fibonacci, strict Fibonacci, Elliot waves and harmonic patterns. I also follow Japanese candlestick techniques, as this sometimes may be an early indicator of what is going on on the marketplace.
Regarding the patterns, I do not discern between them. I am not looking just on only one pattern – I am looking for everything: bear flags, Heads and shoulders, diamond top, triangles and channels. In terms of indicators that I use, I have mentioned that the price is a big thing for me, so I am looking on what is going on with the price and see how it fits in. But indicators to me are useful in confirming what the price actually might say to you. I keep it simple and look at RSI and MACD on every chart – those are momentum indicators and I don't look to them as a signal to buy or sell. It is just an indication to me whether or not the trend that I see and the price can actually confirm the momentum. I also look on short interest in the stock – a potential catalyst for movement. Also, if there are any events coming out, like earnings report or splits on all volatile stocks now etc. Most of the trades you see me post are for swing and position traders. I am not a day trader and I am looking for things that move over a couple of days to few weeks and sometimes even longer than that.
I know you hold most of your positions for a couple of days, or a couple of weeks, while at the same time the significant part of your portfolio is from 6 months to a year or more. So, how do you decide which financial instruments you are going to hold for a short period of time and which one for a longer.
I look at solid and big market capitalization companies and those that have a good trend like Disney Company. Such company stocks I would hold for a long time. Another one for me for past couple of years has been Casco. Things that do not have a lot of volatility are not the playground for momentum traders on a daily basis. I am not looking to buy TESLA because it moves that much overtime , day-to-day. That is not my style. I am more looking for something that have a good long-term trend. I look on its weekly charts, sometimes on a monthly chart to see where stocks might be headed. Those are the ones that I would hold for a long period of time. The one that I look at today and the one that might be useful right now was TJX, the company in the US, owners of T.J. Maxx. I put up some ideas in my blog how to trade around that.
Depending on the holding period whether it is short term or long term, do you also have different indicators that you use for those stocks or options?
Actually, the only difference between how I look at finding and determining the trade idea, long term or short-term position, is the time frame that present itself in the chart, in terms of the price action. So if the price action looks good on the short-term basis, I will look at it again on the longer-term basis to see if it makes sense to hold it for a longer-term period or to develop the trade that might work better.
Based on your portfolio on TradingVIew, you mainly trade stocks and options, not so much FOREX and oil. We would like to know your opinion on oil and FOREX, why so?
Yes, mainly stocks and options. I do occasionally ETF’s on forex exchange, like FXE for the Euro, FXY for the Japanese Yen or USO for oil. I tend to use those more as indicators of how things in the US might be happening in the stock market and not as actual trading opportunities.
I think it is very important to mention that when you start trading you need to develop your strategy and not just believe that making money is that easy. So, what is the strategy behind selecting the stocks and options you trade and how long did it take you?
It probably took 4-5 years to develop my strategy, it always get to it. The most important here I think is to pick a strategy, to see what works within that strategy and what is not working, and keep doing that. Then, use those things as learning opportunities, to see how to adjust overtime. Most important to me is to have a plan and stick to that plan. And I find for me, that I need to write down that plan in order to stick to it. So if things are getting heated in the market, positions are moving harder against me, I need my notes in front of me. Keep a plan and find out what works best – those are probably the two things that are the most important.
When do you make the choice to either trade a stock or trade options on the stock market? How do you make that decision?
This is usually a pretty clear cut decision. And there are 3 things that come into play. One, if I am looking at the trade for a longer term or shorter term – that is an indicator of consideration whether to pick a stock or an option. Second, whether or not the stock pays a dividend for a longer-term trade? If it pays the dividend then I want to own a stock not the options, because I want to collect the dividends. Typically for my shorter-term trades the dividends are not really into big consideration. Another fact that can come into consideration is liquidity in the options as well as liquidity in stock. If a stock has a 100.000 share volume on average and can move in 4-5% ranges, I would like to have this stock and take advantage of those moves as well as some options in protection against the stock going down overnight. It really depends on the stocks itself and the characteristics that they present to me.
I’m personally interested in the emotional side of things because I am sure some traders from time to time might experience some emotional barriers. Have you personally faced the same problem? How did you manage them?
Whenever I lose in a trade it sucks and I hate that. But it happens and you have to work through that as well as realize that overtime you do lose. In this profession, generally, if you are between your 55 and 70 % great, you can make a lot of money. You have to deal with being wrong and shake it off and just move on to the next trade. One way I cope with that, after I take the trade and trade is complete – I take it off from the screen and I don't want to look on it until my next review session. The trade is done so it is a time to move on to the next one.
What advice would you personally give to the traders?
First, get the “Trading Options” book that I wrote and read it. Beyond that, the most important thing , there are many many different styles of trading. You need to find what works for you, what lets you sleep at night, manage your risk to the point that you are comfortable and after you can’t sleep at night. Develop that process and continue to use that process as long as it keeps working. Keep being prepared. Finally, don't expect that if you are going to spent 15-20 minutes a day and be an expert in any short period of time.
Source: webinar conducted by EXANTE and TradingView on 23 March 2015.