Welcome to The Big Saturday Interview. This week it's my pleasure to welcome John Netto. John is President of One Shot - One Kill Trading, LLC and Chief Investment Strategist of Semper Fidelis Capital Management, LLC. He is the author of "One Shot - One Kill Trading: Precision Trading Through The Use Of Technical Analysis" (McGraw-Hill, 2004).

John is a nine-year Marine Corps veteran who has incorporated a number of the attributes from his time in the Marines into his trading strategy. Along with being an active money manager, author, and educator, John spends a great deal of his free time in pursuit of his second love next to the market--poker. John lives in Las Vegas and is a champion poker player who is writing a book for playing Texas Hold 'em cash games. John's site: www.osoktrading.com

John also writes a Trader's Blog for TradingMarkets called "Netto's Numbers" which covers everything from trading, to poker, the NFL and more...

Ashton: Hi John, welcome to the Big Saturday Interview.

John: Hi, thanks for having me on board.

Ashton: Let’s start with you telling us a little bit about your background and how you got into trading because I know it’s a very interesting story.

John: Great. First of all, I joined the Marine Corps when I was eighteen, right out of high school. I went ahead and served nine years. The first four years I served in Japan. During that time I worked at the US embassy in Tokyo where I was a Marine Security Guard/Military Liaison, which entailed working late night shifts. I’d always had an interest in the markets since I was twelve, which led to me being a bookie in high school, taking bets and running a lot of action. So I've always had a penchant for taking on risk.

I got into trading in Japan during the nights, because when it's night in Japan it’s the day in the US. That's when I really got into the markets, back in 1997/98. I then was accepted for an officer program in the Marines, went to the University of Washington and majored in Japanese and Chinese. I also was the Business Editor for the University of Washington newspaper, where I kind of started the business section. I wrote a column called Netto’s Numbers back when I was a sophomore/junior in college.

From there I got attached to a hedge fund in Seattle. I worked for them as their Chief Investment Strategist, which was my break into the business. A couple of years ago I moved back to the Bay Area and continued trading. I’m now a Commodity Trading Advisor, I manage accounts and a have brokerage firm, and so I have assimilated myself into all the angles of the business.

Ashton: I didn’t realize it was that interesting.

John: Well, I wrote a book that came out last year and that was all a part of the process.

I look at buying weakness in rising markets and selling strength in falling markets and I take profits at pre-determined price points...

Ashton: Your book is titles One Shot - One Kill Trading, let's talk about it. Can you share your trading methodology/philosophy with us?

John: Absolutely. To simplify - when it comes to trading, in the heat of the battle, you need to have things that are very simple and very accessible. The essence of my book is that I look at buying weakness in rising markets and selling strength in falling markets and I take profits at pre-determined price points. In other words, I like to buy oversold in strongly uptrending markets, which is really in-line with what’s on the pages at TradingMarkets. From an ideological standpoint, there are extremely congruent thought processes that run between us.

As far as finding value, you have to put yourself in a position where you have positive value behind every trade you make. The book covers Fibonacci and other forms of technical analysis, as well as money management. It details what I use to understand the market and achieve success over time in the market.

Ashton: How long did it take you to develop your strategy?

John: To be honest, I'm still developing it. As a trader you're always tweaking, always working things out to make things better. But the core methodology probably took four years before the light bulb went on.

It took time for me to finally say, "I’m not going to sell tops on Fibonacci extensions" even though it feels so good and it's so fun to do it. The risk of loss is just too high. There's enough opportunity in finding values in underlying things. Whether betting on football, point spreads, or trading the market, in the long run it’s those that provide liquidity that makes money.

"...if the market truly is random and only the liquidity providers make money, then let's put ourselves on the side of the liquidity providers..."

Even proponents of the Random Walk Theory--those who say that the markets move in a completely random way--most of them say that only the market makers make money. So I say fine, let’s take the best of what they do - if the market truly is random and only the liquidity providers make money, then let's put ourselves on the side of the liquidity providers by buying into weakness in rising markets, which is providing liquidity for an uptrend when it pulls back.

Conversely, when the market is selling off, we're providing liquidity in a downtrend by selling into the strength, when the market bounces to key technical areas. That way you’re putting yourself in a great spot with low risk, playing the role of market maker by providing liquidity and putting yourself on the side of the trend and that’s where value is.

Ashton: That’s a very interesting approach--so you are playing the role of a market maker.

John: That's how you achieve long-term success. I have a success coach Nazy Massoud (www.life-strategy-coach.com), she's a great woman and she's really helped me develop as a trader over the past couple years. She's taught me to trade outside of my comfort zone and that has helped me evolve and grow as a trader.

Ashton: So she helps you work on the psychological aspects of trading?

John: Very much so, but not just trading...poker, life, and relationships because balancing your life is important. One thing you can't do when you trade is trade from scarcity; you have to trade from abundance. Because when you trade from abundance, you’re not worried about it and you can cut the loss fast because you know that there are more opportunities coming. But when you trade from scarcity you don’t think there are more opportunities; you feel you have to get it back right now. What happens in most cases is that the position goes against you and you take a large loss.

Conversely, if you’re in a winning position and you’re trading from scarcity, you can’t let the money get away from you and you have to book quick profits. But if you trade from abundance, the position is working you, it hasn’t reached its profit target yet, so you follow your plan and that's why trading from abundance is a lot easier. So trading with abundance is a something that Nazy has really helped me with. It has really taken my trading (and poker) to the next level.

"...Coming from a Marine Corps background has helped me, because of the discipline, and being used to the stress and heat under battle..."

Ashton: What are your strengths and what weaknesses have you had to overcome?

John: Discipline. Coming from a Marine Corps background has helped me, because of the discipline, and being used to the stress and heat under battle. One of the weaknesses I’ve brought is my ego. When you begin to take the results of the market personally, it affects your judgment and it affects your objectivity as far as how you analyze positions. What I continue to work on now, which is an ongoing process and I'll continue to work on as long as I trade, is to seamlessly pull the trigger on your analysis, seamlessly trust yourself and seamlessly detach yourself from your results. I feel like I’ve gotten a lot better at it but I still want to improve a lot more in that area.

Ashton: Could you talk us through a recent trade?

John: Sure, one thing that I’ve been talking about lately in my trading blog is gold. I've been covering it for some time in my blog; I think gold is in the midst of a secular bull market. When you see these commodities take on the characteristics of a secular bull market, i.e. above all the major moving averages on the weekly and monthly averages, institutional interest and so forth. When you see these commodities setup and the public starts to lose interest in them, it creates some phenomenal opportunities to get in. What I’m talking about is something I posted in October that I call a double top trap and I love these setups, because what’s the real difference between a double top and an ascending triangle? An ascending triangle is like a double top that fails, depending on the size of the pullback before it fails.

So gold rallies to near $480, then pulls back to $460, then rallies again to $480, then pulls back to $470 but it is still above its technical support levels. Now knowing that gold is in the midst of a long-term bull market, this creates a great risk to reward opportunity to get in to a commodity that’s in a long term bull market that’s tested its highs, pulled back, retested its highs and pulled back off those highs. You can get in with a $4 or $5 stop on a $470 commodity. So gold pulled back to $467, we went long and literally we were up $14 in two days. Then we called for price targets for $525 or so, it got up to $480 but something didn't feel right about it, I thought it was going into a consolidation phase so we got out.

The second trade we talked about was a weekly pattern; gold pulled a 1-by-1, which is a very common for Elliott Wave pattern. Gold rallied to $488, then made a 1-by-1 reflex move back (an A-B-C correction) which creates another phenomenal low risk entry. We entered long when the pattern was confirmed and moving back up and were able to take over $50 profit on the trade.

Ashton: It sounds like you combine many different forms of technical analysis? Do you have a favorite?

John: There's also a qualitative aspect to this business, apart from the technical aspects. Like, "what's your intuition telling you?" I call this your "Jedi sense." My favorite though is finding stocks in bona fide uptrends, having them sell down hard, and then waiting to see them put in a Doji reversal that matches up with a Fibonacci level that gives you a phenomenal level to buy into without huge risk. That’s the kind of trade that gives the potential for a home run without getting you clipped for too much.

Ashton: Low risk, high reward.

John: Exactly. But a stock like Apple, I have hard time getting a stock like that because the pullback is so shallow. I'd have to get in on a day trade basis and try to have it run from there. But for me both Apple and Google are going to go through three to six week corrections, the bandwagon will be off, and then they’ll go through a pullback, make a high, make a .618 or .718 retracements, then fall down hard, crack that pivot low, and then provide an opportunity that will likely end up with a great weekly chart support, like moving averages. And when you get those setups, they're extremely beneficial risk/reward trades that put you in a great spot to make some money.

"...I’m writing a book on cash games because the dynamics of cash games are different from the dynamics of tournaments..."

Ashton: Let's move outside of trading for a minute. I know you're a successful poker player and you're writing a book on poker, tell us about that...

John: I'm originally from the Bay Area--that’s where my roots are--but I live out here in Las Vegas about seven or eight months of the year and have a home in San Francisco too. I love Las Vegas, this is my home but it can get a little overwhelming at times so I head back to the Bay Area. Living in Las Vegas I play a lot of cash games-no limit cash games. Most of the books you read discuss tournament strategy; Dan Harrington has a great book called "Harrington On Hold 'em" which is the soup du jour of the poker world right now. But I’m writing a book on cash games because the dynamics of cash games are different from the dynamics of tournaments.

Ashton: Can you explain the difference?

John: In tournaments, there is a structured blind limit that increases as the game goes on. Whereas in cash games you choose the blinds you want to play. For example, the blinds are always 2-5, 5-10, etc, as opposed to the tournament which has a constantly increasing blind. There's a strategy that goes with that that is a totally different way to play than the popular TV style tournament poker.

What I've written, with the manuscript about a third of the way done, is going to teach people how to play the cash games and consistently make money playing them. It’s going to discuss all the strategies, how to extract chips from people, how to identify weak players, how to identify calling stations, how you play an aggressive player, how you play a passive player, basically how to make money consistently in the cash games.

Ashton: I look forward to reading it. What skills do you take to the poker table that others don't have that you attribute to your trading background?

John: Well I'll give you an example, I was playing a super satellite last Saturday, where the top 45 out of 478 players win a $15,000 seat at the World Poker Tour Five Diamond Classic, at the Bellagio. I was the chip leader at my table for a while, then lost a couple of pots and got down to about $9000 in chips. It’s the same kind of feeling when you go long on a stock 10,000 shares overnight and it gaps down against you, and you have the weight of the world coming down on your shoulders. But it's how you handle that pressure, how you deal with and handle your risk. Do you freak out and walk away and let your position run against you? Or do you stop yourself out and control your risk? It comes down to how you manage yourself under extreme situations. We all know how to book a winner. Gee, John, what should I do? The stock I'm long gapped up six bucks last night, should I sell it, what should I do? Nobody can screw that up. That's like getting pocket aces or pocket kings. But what happens when it gaps down, what happens when you have pocket 7’s and somebody makes a big raise from middle position and puts you all in? What do you do, call for your tournament life? If you call and you're right, you're the chip leader and you're guaranteed to take the money. If you call and you lose, you're eliminated--you walk away with nothing. You think that’s marginal, well it is. It’s handling those kinds of situations, the ability to have the courage under fire that takes you away successfully in those situations.

"...I was the chip leader at the table until the European poker champion came over with $225,000 in chips..."

Ashton: Talking about the tournament, give us an update...

John: Well, we started on Monday at Noon, and it was a total media circus. It's like a Super Bowl atmosphere, you have all these different card player magazines, the WPT is there, all the famous faces - Phil Ivey, Doyle Brunson, etc. There are 555 people there and you all start off with $30,000 in chips, the blinds are $50-$100. Each level lasts 90 minutes and we played five levels on the first day. At the end of the first day I had close to $76,000 in chips, I was the chip leader at the table until the European poker champion came over with $225,000 in chips and that was a living nightmare for the rest of the day. It's going really well, we've lost 190 players and the average stack is about $46,000. So I'm in pretty good shape, about 85th place and the top 100 are in the money.

Ashton: Sounds like a lot of fun... Last week you wrote a blog on the NFL and mentioned that you were a high school bookie, tell us about that.

John: Well when I was in high school my name was "Wall Street" because I always carried a Wall Street Journal under my arm. I always loved numbers and loved reading but I also loved sports. I used to listen to a sports show in San Francisco which was from a Las Vegas radio station, its on like KDON radio out here in Las Vegas. I don’t know how I got it in San Francisco, but it worked out. I started taking action and printing off parlay cards for people; I had like 3 high schools right in my racket for three years. And then the day I turned 18, on Dec 17, 1992, I quit because I knew I was 18, a legal adult, and I didn’t want to get prosecuted. But I ran it for three years, a lot of bets. I did parlay cards, baseball, NCAA basketball, NCAA football, Super Bowl, I had runners, and my line was ringing off the hook every Monday night with Monday Night Football. And it was a racket, a great business. For a sixteen, seventeen year-old, I was making pretty good money

Ashton: And what has changed since then and now with your sports betting?

John: Now I take the same approach to sports betting as I do to trading the markets. I look for key situations, but I bet mostly college football, this year has been a brutal year for NFL. College has been equally enjoyable, though, for me. So it's kind of one of those, “well, I've pushed a little bit ahead so I guess its worth it for the entertainment buck.”

"...the Colts are clearly the class of the NFL, and whatever their lay is in the Super Bowl, I’m going to be laying on them..."

Ashton: Do you think the Indianapolis Colts will go undefeated?

John: Yeah, I do. The only real roadblock is going to be Seattle who I think at that point, because of Chicago’s loss, will have clinched home field in the NFC, but well see what they do with Sean Alexander in that game. Sean Alexander is going to go close to 2000 yards, so if he plays, its going to be the major thorn in the side of the Colts. But if he doesn’t, I think the Colts win. But the Colts are clearly the class of the NFL, and whatever their lay is in the Super Bowl, I’m going to be laying on them. I'm going to be on the Colts in the Super Bowl, it’s that simple.

Ashton: Is there anything else you would like to add?

John: I've been fortunate enough and blessed, and I'm extremely appreciative of all the good things that have happened to me. TradingMarkets gives me a great forum to post on quite an eclectic variety of topics, so I’m appreciative of TradingMarkets for having an open mind to new ideas and things to write about and I look forward to continuing to post on the blogs and if anyone wants to get hold of me send me an email, johnnetto@yahoo.com or check out my website at www.osoktrading.com I love to talk about anything, poker, sports, trading, whatever... And I'd also like to wish everyone out there good luck.

Ashton: John, I've really enjoyed talking to you, it's been a real pleasure. Thanks for sharing your time with us while you're in the middle of the WPT tournament and trading.

John: Thanks for having me it was fun!