I have an "out there" theory, but at the same time, it oddly makes a little bit of sense.

Grandma raises three children, Kristina, "John" and another girl that is dying.  She takes the dying girl to the carnival to see the "boy wonder," who gives them false hope.  Out of revenge, Kristina and "John" plot their revenge.  "John" visits the carnival, meets Jane and also develops his "mentalist" abilities.  Kristina professes to be a psychic, while "John" becomes Red John.