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Going beyond price to develop key indicators

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During more than 35 years of trading, John Person has refined indicators that reflect how today’s traders should view the impact of volume and support/resistance on price levels.

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Tim:

I'm here with John Person, he's got thirty-five years in the trading business and has known the Mendelsohn’s and Louis Mendelsohn for a long time. We're going to talk to him today about his trading, with some of his indicators exclusively available on TradeShark. So, John, you've got a lot of years in this business, a lot to talk about here. How do you kind of describe yourself and your trading today? What is the basis of how you make trading decisions?

John:

I'd be honest with you, my trading decisions haven't really changed all that much except for a few new things that have adapted to the style of technology that's changed, which namely, no more open outcry trading. We've lost an edge by the noise level on the floor to looking at specific indicators, which have changed. Back in the day, when I first started, we used bar charts. Then, I switched in the mid-90s to candlestick analysis.

One of the things that have changed in this new millennium is the influence that, I would have to say, people have been struggling with volume analysis. I think one of the logical explanations is that we've seen an increase in dark pools, self-clearing for institutions, for one. Another influence is that more traders and institutions have implemented options strategies. An "option" is simply a derivative of the underlying market, and therefore if some traders are using options, they're deterring from that volume from the underlying security. So while a market might go up, that volume could be masked and not show up in the traditional volume histogram.

Tim:

So in thirty-five years of trading, you've seen a lot and seen a lot of different types of methods of trading. You've developed some indicators that are exclusive in TradeShark, one of them is the person-volume indicator, can you talk about how that works?

John:

Sure, it's a fabulous indicator that actually tracks the trend of volume changes. This, I think, helps uncover that hidden volume change that a lot of traders have been struggling with in the last eight to ten years.

Tim:

Okay, what is it about volume that tells you something is ready to go up or ready to go down.

John:

In this day and age, I think the person-volume indicator, what distinguishes it from other volume indicators is it helps to determine the trend of the volume and rather than look at actual volume like volume histogram. That's where I think a lot of traders have really ... if you look at a lot of charts, you'll see like in the last two years where we've seen massive rallies in the S&Ps and the stock market especially as the Nasdaq broke out to all new-time highs, you see that volume histogram is showing that divergence where the rallies on lighter, lower volume. But you'll look at my volume histogram and my volume component indicator and you will see that it matches that rise in price. I still believe that volume is the life-blood of the market. Also, in addition, that old term that volume proceeds price and that's what my indicator helps uncover.

Jim:

Now, there are thousands of indicators out there these days. The difference of yours and the ones that are exclusively available in Trade Shark, how are they different from all the other indicators, and all the other choices the traders have out there?

John:

Right, a lot of indicators are all price-based. Even my original mentor in the industry, the father of stochastics, George Lane. Many people might not be aware, but he was the one that really popularize stochastics. In stochastics, as well as the multitude of indicators, are all price-based, and yet I think that what people struggle with is the volume in recent years. We have seen a dramatic change in the reliance and the reliability of volume and volume-trends using a histogram. I think part of the logical reason behind that not working as it was supposedly written 100 years ago or 50 years ago and all the technical analysis books of days of old, if you think about, how can we trade the S&P500, the largest, the benchmark of all of the US Stock Market. You have OEX, you have the spiders, you have the e-mini S&Ps. You can still trade the big S&P. You can trade options on all those various products. We have diluted how one can trade even one simple stock index.

If you think in that terms, if everyone's trading various markets of one single product, then you are going to dilute that volume, but my volume histogram actually tracks the changes, the net changes and then smoothes out a moving average. Then we have a diffuser histogram that we can easily see probably one of the best concepts of trading, and that's convergences and divergences. Convergence sits at the bottom. Price makes a newer low. If it comes on a lighter volume, we can see that the market's actually sold off on that lighter volume and that it might be getting ready when we get a buy signal for a bigger pop to the up-side and of course the inverse is true for looking at tops in the market.

Tim:

All right. Another indicator you've got is the support and reversal indicator, also with TradeShark. Talk about that.

John:

Right, very exclusive. This is another top secret that I use in my own personal trading repertoire and I don't really talk about it, nor have I had this released in other indicator packages. Mainly because I don't want everyone to use it or know about it, quite frankly. This is one that helps us to determine whether or not ... you've finally got your entry price, where do you place your stop and at what point do you trail your stop? Then, if maybe your stop's too far away, what point do we see a reversal occurring so that you can get stopped out rather than reentering and you can see a trend change.

It works for both things, trailing our stops and knowing what our risk-factor is. That's real important for two things. "What's my risk when I get into trade?" Everyone looks at great opportunity, fantastic trade opportunities, but what did that opportunity come at the cost of risking? That's where this indicator helps us to determine from the point of entry: where does my initial stop, where should it safely go? Therefore, it does two things. It tracks how to initially put your stop when you get into a trade, how to trail your stop, and also a reversal point of when a trend starts to go from up to down or vice versa.

Tim:

Which is huge for traders, because we all talk about when to get in. "When's the right time to enter a trade?" But maybe not so much about, "Now what do I do now that I'm in it? How do I management? Where do I get out?" Sounds like this will help.

John:

Not only that, but that is a key element, managing the trade. The volume combined with the support and reverse indicator helps us to see "Is there momentum behind the market? Is the trend have more legs left in it? Is this trend running out of steam?" That's where the volume indicator's going to help you. Number two, the stop levels that are implemented on the actual charts, that helps people to really uncover, "Hey, if I got in here and the market's there and this is my levels where I'm trailing my stop, and it's starting to run out of momentum, that I can manage that trade a little better."

Tim:

You've known the Mendelsohn’s for a long time now. Why TradeShark? Why work exclusively with them?

John:

Yeah, I've known the Mendelsohn’s for several decades and clearly the reputation. Number one, the great nature of their passion in the industry, number two. And helping traders succeed. Their product, TradeShark is as easy to use for any novice as well as even an advanced institutional level trader.

Tim:

Thanks John, for your time today.

John:

Thank you Tim.

Tim:

We've been talking with John Person about his indicators available exclusively on TradeShark.

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