Issue 20

Walk Forward Tested System Is Better than the Best
Optimized One - Larry Williams

It looks like the history of technical analysis has been largely influenced by optimization. That is, we studied the past, found something that looked significant, then optimized rules and procedures to trade the observation in the future.

Sometimes that has worked. Often it has not. That's our dilemma. What are we to do? In the past, we answered these questions by doing more optimization, more curve fitting. Indeed, we treated historical data like prisoners of war. Our thesis was, if you beat them often enough they would reveal anything. Which is true, but you want them to reveal everything, not anything.

This brings me to one point. I think we will all make much more headway with system development by spending less time on optimization and more time on walking systems and procedures forward.

If on a walk forward test, the system holds up, we probably have something. And for sure, what we have will be better than the very best optimized system when it comes to real time trading. Hence, let's see what we can learn from each other about conducting walk forward tests. Any ideas will be appreciated by all, I am certain.

When You Get a Hit, Keep Running Until You Are Tagged (Stopped) Out - More on How 90% Winning Trades Are Possible Selling Commodity Options - Robert Edwards

Well, it is early Wednesday, 12/21/ and I have already liquidated my S&P500 "Christmas trade" which I bought on the close of Monday, 12/19, and it is not even Christmas. Yes, I made just enough to pay my commission with a little extra to go out to dinner, leaving the big dollars sitting on the table. After buying, I placed a $2,500 stop. I was never losing even $1,000, yet I'm already gone. Another potential home run wasted. Why didn't I make the market take me out of trade? I cut my losses short, but seem to consistently cut my gains even shorter. I watch the daily gyrations of the market and can get better fills than guys with their Hotlines and market calls. But when the market makes a small profit I take it, usually in the $100 to $300 range. I tell myself I'll get back in, but rarely do. Then a few days later the market really moves and I'm not in. I recently bought the lows in orange juice, but rarely made more than a dollar or two o n the trades and sometimes took unnecessary losses.

I somehow manage to always get out just before the market booms. I'm a very short-term trader, it's just the type of player I am. In my mutual fund account, I'm up about 16% for the year, remaining almost totally in cash, except a few trades lasting a couple days here and there. The same would be true, I guess if I were playing baseball. Using the baseball analogy, several times this past year I was at the exact right place in the lineup to come up to the plate with the bases loaded and the starting pitcher was running out of gas (momentum fading). I picked the right pitch and turned the ball back the other direction, hitting it so hard and fast it was heading for the bleachers for sure. (I had picked either a top or bottom of a market and had a quick profit and all I had to do was sit back and place a stop where I got in).

The market would never have stopped me out, just as there is no way an outfielder can catch a ball hit high into the bleachers. Yet, while everyone else was rounding the bases, I decided I better play it safe and stay on first base or worse, I didn't even make it to first because I ran into the dugout and was called out leaving the base path.

This happened to me recently when I bought December Cotton at 70 cents but got out at 72 cents while the market soared up another $12 or more. This happened several times in coffee. I bought in the 70's for a 2-3 cent profit, when I would never have gotten stopped out and could have road the contracts to the moon.

Research shows that most trades (85% to 95%) are either small winners or small losers, and these tend to cancel out each other. In fact, with commissions, these trades usually result in a net loss. However, the few successful people who make it to "pro" status, put themselves there and stay there by hitting a few home runs each year.

My memory of past losses -- times I struck out at the plate, the proverbial "Casey at the bat" scenario, continues to paralyze me. I'm talking about baseball because commodity trading is the "big leagues." I've traded since 1980 and I've learned to pick my pitches as good as anyone. I have a phenomenal batting average, running between 65% to 80% winning trades. Yet like most average traders, I will make a profit for the year before commissions, but will show a small loss after commissions.

I must change my patterns. If I don't change, I know I will never be anything but a journeyman, going back and forth between the majors and minors. Just switching teams regularly every time I decide to try a new program or advisor. I will end up on a minor league bus someday heading for a town with a name no one would recognize, with hardly enough change in my pocket to buy a hotdog!

My new year's resolution is to get some "guts." I may strike out even more next year, but that is fine -- most home run hitters do strike out a lot. But they are among the highest paid players because the home runs make up for it. The same is true in commodities.

A "supertrader" is consistently successful because he or she hits a few big winners to make up for the many mistakes. The few big trades that occur in a year are responsible for the profits of the pros. It is what makes a "supertrader" claim that title and maintain it over time.

If I can just learn this one point, I know I can become a "supertrader" too! I must quit taking myself out of the market and force the market to take me out. When I hit those big hits, I will keep running the bases until I am tagged (stopped) out!

To diverge a second from baseball, I read that every time one takes on a position, it's like throwing an opened pocket knife in the air and catching it with one's bare hand. Eventually, one gets bloodied pretty good. With every throw, the chances of getting cut are increased. You don't want to make any more throws than you have to, and likewise in commodities you want to limit your trades and respective commissions.

The more you trade, the more chances there are of making a mistake. If you trade, you will error. And yes, every trader gets bloodied. The laws of physics work the same, whether it's a "supertrader" throwing the knife or just me.

Although everyone gets bloodied, the super traders have made enough money to buy themselves some padding, so the blade never actually pierces their hand. They rarely feel the pain of the loss. They have the confidence to keep throwing the knife, when I will have already given up. I may lose next year. If I do, it must be, it will be, because a better team beat me. It will not be because I beat myself.

Recently Dave Green called me for the first time in several months, on my birthday. During that call, I explained to him that I had recently been quite successful selling out of the money calls and puts in the Cattle market. Although I was intermediate term bullish on the market, Cattle was in a short-term correction going down. It just happened to bottom the day Dave called. I had sold calls in the February all the way down to the low that was hit that day, while selling additional April Cattle puts at higher and higher premium values. Because February Cattle was falling faster than the April, the profits I was making on the 12 short February calls was equaled to the short-term losses I was experiencing in the 20 short April puts, although none of the April puts were ever in the money (I sold April 64, 66, and 68 strike puts and April Cattle bottomed at 68.20).

With cattle bottoming on 11/30, I took profits on all calls the following morning and bought 2 April Cattle futures contracts and went long a January Feeder Cattle. Now, all I had to do was hold the short April puts and hope the market held the low. The market more than held up, it rallied strongly in my favor and on 12/5/94 I was now at near break-even on my April puts, so I dumped them all and also took profits on the 2 long April futures, and Jan. Feeder Cattle.

Even though it looked like a good move for one day, based on the drop that occurred on 12/6, the market has since rallied greatly and I never got back in. It took several days to put that position on and I could not get myself to ever get back to selling puts to put it all back on.

The $9,000 total dollars of put premium I received when I sold the April puts, has dropped to less than half of the original amount, to about $4,000. If I had waited to liquidate the position today, I would have a $5,000 profit in only 3 weeks. With the rally present in Cattle, it is likely April Cattle will close above 68.00 and all puts will go off worthless. It appears likely I could have kept all $9,000.

I told Dave Green that day on the phone, when cattle happened to be at the bottom, that selling the 64 April Put for over 60 cents ($240) was the best trade on the options board. Editor's Note: That is correct, Bob did say that on Nov 30!) Today, three weeks later, the 64 April Cattle Put is trading at 20 cents ($80). It looks like the option will expire worthless. Another home run wasted.

I wrote an article explaining that 90% of options buyers lose, and 90% of options sellers win. I don't think there is any better trading strategy in commodities than selling out-of-the-money puts and calls. But I am still working out the bugs.

Don't Judge Trading Info By Its Size But By Its
Content & Value - Bill Adams

As a new subscriber to CTCN I received two inconsequential Special Reports. These little two page throwaways are "inconsequential" in size only - content is what counts and there is real merit to both the Swing High/Swing Low concept and the Drawdown Minimizer Logic.

As I studied the Drawdown Minimizer Logic, which basically determines the maximum adverse excursion (intra-trade drawdown) experience for all profitable trades in the study universe, to help determine a logical money-management stop loss placement, I had a thought.

Instead of placing your stop based upon a maximum adverse "dollar" excursion, why not use a more logical maximum adverse "percentage of recent volatility" excursion? If the latest 10-day average true range is a small number, a $500.00 M.A.E. might be meaningful, while such a small amount would be of no real significance in the recent coffee markets.

Obviously, this could be confirmed by some of you talented programmers out there. What do you (and your computers) say?

After My First Year I Have Made Money & Some Comments on A.Elder/ J.Murphy/Investograph/L.Williams/ Commodex/Synergy - Lee Taylor

I have just completed my first full year trading commodities. I consider it a success, since I have more money than I started with. However, my equity curve leaves a lot to be desired. This is because I tried several advisors and systems.

It seems to be human nature to search for the Holy Grail or a commodity guru to tell you all the right moves to make. In reality, you are in a battle with your own personality flaws, which if not kept in constant check will doom your trading regardless what system or advisor you are following. Here are a few of the books and advisors I have encountered:

1. Trading for a Living by Alexander Elder - The best book on trading, if I had to pick one. The author is a psychiatrist in addition to a trader. The book delves into the mental barriers that cause trading failure. The basic technical analysis is covered, as are some trading systems. I use a variation of his triple screen and have found Elder Ray to be effective.

2. Technical Analysis of the Futures Markets by John Murphy - A lot of excellent information on analysis. I consider Dr. Elder's book more balanced, but Murphy's perspective is also valuable.

3. Investograph Plus Software and a New Look at Technical Analysis by Robert McCullough - The book is more effective if you own the software, which I do recommend. A lot of the information I have not seen in any other book. I most enjoyed trend channels, oscillator patterns and look-ahead envelopes. Investograph Plus Software has an oscillator called formula X that is detrended. It is the best I have ever used; most closely resembling slow stochastics, but doesn't get pinned into OB/OS range. I definitely suggest checking out the demo.

4. Larry Williams Commodity Timing - The monthly newsletter is extremely informative and the subscription price is reasonable. Larry is a nice person and excellent trader, but trading his nightly updates are like trading black box signals (unless you pay $1,500 for a video of his seminar, which I didn't do). I spoke with Larry and told him I had read his book "How I made $1,000,000" and made some good trades using his %R oscillator and moving average. He chuckled and said that stuff is too old. Larry did call some profitable trades, so I took one shorting sugar. That's when I realized he doesn't tell you what you're risking until the next night's update. Needless to say, the market came down just enough to stop me in and head straight up.

The stop loss point was almost 10% of my account! What's worse, Larry kept moving the stop farther away! I now recognize the range volatility concept of his trading, but you can imagine how I felt when I was in the trade. I was too busy looking for a guru, to see if I was comfortable trading the system. Know the system you're trading; know the risk before you execute the trade (you could lose more than you risk, but that is beyond your control).

5. Commodex - This advisory illustrates how technical the markets have become. Once upon a time it called 100 wins in a row. Nowadays you are whipsawed to death. The cost is prohibitive and the bottom line is that Commodex does not teach you how to trade. The records of Commodex are deceiving because it assumes exit with no slippage and ignores gaps, limit moves, etc. The stop loss is close only, which I consider suicidal.

6. Tom Bierovics Synergy Fax - Tom uses a combination of moving average, oscillators, Japanese candlesticks and chart patterns. The bottom line is that everything is spelled out to help you learn to trade better. Another interesting feature is the goal of every trade. Tom exits at 2 times the risk, which works out better than it first sounds. This exiting method works incredibly better if you trade optimal F (2% of your account risked on every trade). Tom has answered my every question and has taught me more about trading than any other person or book.

To the novice, I would recommend "Trading for a Living," Investograph Plus Software and a few months of "Synergy Fax." I also suggest that when you paper-trade a new idea or system real-time, you print the charts and give them to an associate with a full explanation of entering, exiting and risk.

After Big Profits My Broker Then Denied Me My Fill - R.C. Meaders

I was working full-time as a corporation executive and trading, hopefully to make money, but somewhat for entertainment.

I purchased 38 contracts of cotton. In the next four days, cotton made a vertical rise. On the fourth day, I flew 2000 miles for a business meeting. Before the market opened, I phoned the broker to tell him I could not properly handle my responsibilities in the business meeting with Cotton in my head? I told the broker to get me out by three orders.

At a break in my meeting I called the broker. He said that one-third had been sold on the opening, one-third three minutes later and the final contracts six minutes after the market opened. For the next 2-½ hours cotton never sold as low as the highest price I received.

The market was closed about an hour early, because it was inundated with sell orders. At the normal two or three days later, I received the standard profit and loss statement by mail. A couple of days after the cotton transaction, I sold lots of corn. Sufficient to require a major portion of the cotton profit for corn margin.

Three weeks later, I received a letter from the executive VP of the brokerage firm stating the cotton transaction had not been executed for my account. What did that mean? I had lost a lot of profit; the broker had carried short sales in corn for three weeks without proper margin; the broker had waited for the mail to reach me to make the claim that no sale of cotton had been made. Another result was an elevation of my temperature!

I was very busy in my job, so I really could not spend a lot of time on the matter. As a matter of fact, during the next 2-½ months, I flew three round trips from Toronto to Switzerland. We reached an agreement at less profit. Strangely enough, I did not continue an account with that broker. Warning to the novice. Only believe half what you hear, and one fourth the systems you buy!

Trading Advice From A Trader Of 30+yrs - Is the Secret To Success Every Week & Only After A Big Move Takes Place On Long Term Charts? - Max Robinson

Hey, I like your newsletter. You are doing a great service to a lot of people. You responded very quickly to my order and subscription to CTCN. The material that I received had some really valuable information in it. The two special reports had information that is very hard to find anywhere else.

I have traded and studied commodities for over 30-years. My real problem is that I am looking for the Holy Grail. I cannot stand to be wrong 5 out of 10 times. Also, I am looking for something easy!

If someone wishes to trade on a long-term basis, I do not believe there is any better way than the Swing High and Swing Low Trading Technique.

I have bought many systems over my 30-years, most of them were all hype. I bought the system that named Club 3000. However, every system had at least one point in it that was valuable and when you put them all together, you may begin to see some light. In other words, if one wishes to succeed, he has to keep trying. But watch out, because the price for success may be more than you want to pay.

By the way, I have found no broker over the years that could help me make money. I have found only one money manager who could make money.

I have two friends who are farmers. They don't study charts and make fun of me. One of them tells me you can't tell a thing about the market. There is no way of telling what it will do. One farmer makes money nearly every year hedging hogs, and the other sells 500,000 bushels of raised corn at a price that is very near the top of the market every year, so it must not be the system, but the man.

These two farmers' success comes from not trying to trade every week. They only get interested in trading after the market has spent its time going up, and is near the high end of the long-term charts.

Try rereading some of the information that you bought 5-years ago, you'll be surprised at what you did not see the first time you read the system.

Two of the best cheap systems that I have read are Spike-35 and the Colver Trading Method.

Spike-35 is the only truly mechanical system I have ever seen that might work. It has a very exact way of defining the trend. This is the only information I have ever seen that defines trend. These systems are available from Windsor Books.

Here is a truly mechanical method of entering and exiting the market I have developed. Gann stated, "expect a trend change or an acceleration on the 7th, 14th, 21st or 28th of each month." I believe the 14th and 28th are the most important. However, the 7th and 21st are interesting.

Simply watch the market establish a range on the 14th or 28th. Then buy a close that closes above that range. Use a stop that is the first daily close under that range. The market seldom reverses more than once.

Do the opposite to sell. If the 14th or 28th occurs on Saturday or Sunday, use the previous Friday's range. Point: the 14th or 28th is probably the best time to apply your best trading system.

By the way, if the market is near the top of the chart page and has spent three to four weeks in congestion - sell it.

Point: Most people who have enough money to trade the markets, are not in need of money to buy food. So the important thing about trading is not how much money you will make, but how much money you do not loose. A big loss could even hurt your food supply.

Really, commodity trading for most people is just a toy to play with. The only difference between men and boys is the price of their toys. This toy can get very expensive and devastating, if proper money management is not followed. The best way to loose big money is to risk big money, while trying to make a killing.

V-H Indicator Can Help Identify Trend Near Its End & A Trading Range Near Completion - Adam White

I would like to share with my fellow CTCN readers three insights about the VHF (Vertical-Horizontal Filter) indicator that I devised a few years ago.

VHF is a "trend intensity" indicator, similar to ADX in aim but simpler in design, It is now included as a packaged indicator in MetaStock 4.0, but as review, here are the four steps in its calculation:

1. Select a period, i.e., the number of bars used to calculate the indicator.

2. Calculate the range of the period: the highest close minus the lowest close.

3. Calculate what I call "progress": the sum of the absolute value of the consecutive close to close changes of the bars that make up the period.

4. Divide value #2 by the value #3.

This calculation returns a value between zero and one; in practice the VHF usually stays between .2 and .6. Like ADX, the VHF climbs during trends and falls during trading ranges. By implication, relatively high readings can suggest a trend is nearing its end, while low readings can suggest a trading range is nearing completion.

Here are my three latest insights about the VHF:

1. MetaStock defaults at a 28-bar period, but I now prefer a shorter period, for example a 18-bar maximum.

2. Above I mentioned that VHF resembles ADX; actually, it more closely resembles DX because it is so sensitive and does not generate a very smooth line. Smoothing the raw VHF with a moving average gives a perhaps more meaningful indicator that more closely resembles ADX.

The smoothing moving average need not be the same length as the VHF indicator itself. For example, a six-bar moving average supplies enough smoothing without suffering too much "lag." ADX is simply a smoothed DX, but the smoothing factor always uses the same period as the indicator period. In this regard VHF offers more flexibility than ADX.

3. Finally, the absolute value of the difference between the period's first and last closes can be substituted for the period's range in the first step of the calculation. Obviously, this value tends to be higher during trends than during trading ranges.

The values of these three insights are of course relative to the trader's style and technical needs. That is why I always look for flexibility (without sacrificing simplicity) when designing new indicators.

Both Positive & Negative Points Regarding Essex Trading Co Futures Pro Software - H. K. - Houston

This is in reply to Steve Burningham's request last month for info on Futures Pro: As an owner of the system here are my views. "Futures Pro" is a breakout system program by the Essex Trading Company and combines their former programs - "Eurotrader, Tradex 21 and Ace System"; Long, medium and short-term respectively.

What you are basically buying is a core system. You then have to add the markets you are interested in, i.e., Currencies, Grains, etc., long, medium or short-term are all extra. Usually about $200, sometimes on sale for $100, or some package deals. In other words, for $200 you get all the currencies for long-term only, or medium-term only, or short-term only, or $600 for all terms. I would strongly recommend, if interested, to call and ask for their special deals - (800) 726-2140 - since my information may be dated.

The positive points about the system are: 1. The company has been in business for long time. 2. The people are efficient, courteous and will answer your questions in a professional manner. 3. The software works under "Windows" and is a joy to manipulate, with orders as you would read them directly to your broker. 4. The manual is executed in a professional manner and the best in line with "Omega" manuals,

The negative points about the system are: 1. The data bank is their own system including rollovers, which are automatic. As a result, in my case I cannot use my 35 commodity CSI/Trendx data bank to feed Futures Pro. Of course, you may get data from CSI and other vendors. Also, you can update it manually, which is a real joy. 2. My biggest concern is the parameters with built-in filters. The company provides updated disks every three or more months for an extra charge. The parameters seem to be tested on 10-years or so of data. Over the long haul, I am sure it is a money maker. The drawdowns meanwhile are tremendous and suitable for huge bankrolls, which leaves me out. For this reason, I have stopped using it except for confirmation. In all fairness, I have not tried to calculate parameters myself for shorter periods of testing time. The company believes in 5-years minimum testing time.

That should about cover it. Again, these are my opinions only, and I hope that you get more input on this matter from other users.

How I Have Tried To Keep Futures Truth In Business & Out Of Trouble
& How They Have Wronged Me - Kent Calhoun

Everyone knows the pathway to hell is paved with good intentions. This applies to my letter to try and keep Futures Truth in business. Mr. Hill has "forbidden" me to contact him or his office over the letter published in CTCN.

I discussed the facts of my letter with John Hill over a year ago. He ignored them. I Faxed him a copy of the letter to be published in CTCN, so he could respond at the same time it was published. Mr. Hill assumed this was to be a personal attack on him, it was never intended to be so.

The following is part of a letter I sent to John Hill.

Per your wishes this will be my last communication with your office. My recent contribution to the (CTCN) newsletter was intended for you to seriously consider an issue I raised over 12 months ago. The issue is your questionable business practice, which John Fisher stated you had stopped, the acceptance of vendors' trading systems and profiting from them without their permission.

You have left Hill Financial, Futures Truth, and John Hill legally vulnerable for litigious action that some vendor is now trying to capitalize on. You are responsible for this situation, since you choose to conduct business in a questionable at best, and possibly at worse an illegal manner.

The legal questions I raised were excellent points you should consider. If you want to stay in business with Futures Truth, perhaps you should review the manner you conduct business.

You may have forgotten a few facts, like the way Futures Truth once reviewed my systems. You gave me your word, I would be able to review your trading results of my 5 VBTP before you published them. Based on your word, I invited you and John Fisher to my seminars.

At my seminar, I gave you the fact the Dow would drop 100 points in one day, and a Monday day trade that made $550. I bought you three meals, allowed you to address my attendees and accorded you every possible respect. In your absent-mindedness or arrogance, you never thanked me.

Later that year, I Faxed you daily my actual trade results the exact week the Dow again fell 120 points in one day. (I never did that before or since then.)

When I received your results of my system, I immediately recognized you had not calculated any price objectives or knew the difference between the standard or conservative 5 VBTP strategies. It was too late you said. The Futures Truth issues "were already in the mail." So much for your word. I forgave you.

You convinced me to send you $2,000 for programming to improve the 5 VBTP and I did so. After spending over $10,000 with you and turning the 5 VBTP into a system that made over $1 million on an equity drawdown under $40,000 (your numbers not mine) you wrote to magazines trying to get them to delete (the name of) Futures Truth from my ads. I forgave you again for trying to suppress your own "Futures Truth," related to the 5 VBTP advertising.

I paid you to run the results on Ultimate II to help me in a lawsuit (I won.) Yet when you created the Universal Trading System someone took the Ultimate II volatility protective stop and changed it by one tick for your stop. I forgave you.

In 1983 you sold me a copy of "Serial Analysis," for $35. I had already bought it from another vendor for $25. As a contrast, I gave you Ultimate II for S&P's for free. I had made $5,000 the month before. It made over $25,000, including a $13,300 day trade in October 1989, during the next six months.

Your diatribe ranting against all system vendors' results in Club 3000 also backfired against you, since it offended all who read it, including Peter Aan (who responded to Hill's allegations.)

I opened up an account with your trading company and was overcharged the commission fee you stated we had a deal on. It was never rebated to me. I forgave you again, John. I forgive you again, John, for not knowing the true intent of my letter was to keep you in business, because your business benefits my business. I forgive you for not realizing the only difference from a vendor's viewpoint between you and another system vendor (you are reportedly trying to save the world against) is that he sells the rules and you do not. You both profit from vendors' systems without asking permission, without paying for the work.

By the way, you never called, wrote or thanked me for helping you beat your lawsuit. You have typically used every trick in the book, to nickel and dime me, to undermine my credibility, and berate me for years John. I forgive you.

You were once kind to me and invited me to a seminar when no one knew my name. You gave me good advice about many things, including life. When I moved to Chicago, My floor trader friends ordered your books daily. I paid homage to you in my first article praising your trading expertise and books.

I choose to remember the John Hill who risked $500 on a trade that made $8,400 the first week I had ever heard his name. Not the petty, vindictive and foolish man who sent me an angry FAX. I wish you nothing, but good fortune and health throughout the rest of your life.

When you someday realize you were wrong, call me and apologize. It takes a man to admit he has made a mistake and you have John.

I have only two regrets concerning John Hill. First, you did not recognize the true intent of my letter was to seal any legal loopholes you leave exposed whereby some vendor might sue you.

And the second regret is that you will never know how much I truly respect you as a teacher, trader and human being. As a human being who raised three children to become successful adults, and raised himself from nothing. The John Hill I choose to remember is like the father I never had, I will never forget your kindness, and always hold you in the highest regard. God Bless you and your family and have a prosperous New Year.

Opinion On Rickerson's Market Optimizer - C. Collee From The Netherlands

This is for Kenneth Phillips who is interested in comments on Jeff Rickerson's, the Advanced Market Optimizer II System.

The track record that goes with this program is too good to be true and that is the point, it is not true. It is a program that gives buy signals after each swing high and swing low. There are some vague rules to interpret the buy and sell signals. I had to ask twice to get the track record (it was handwritten and hard to read).

After several times asking for the exact rules for entry and exit, I did not get the rules. Also the brochure stated the track record was easy to check with the software. I could not and Mr. Rickerson has not explained it (after several requests). So, I would strongly advise not to buy this program.

Should FT Have Canceled CTCN's Ad Because They Didn't Like Criticism of FT's Policies Being Published? - Dr. Ken Wozny

It is ridiculous for Futures Truth to both cancel the ad in their publication and their editorial recommendation of CTCN, because they did not like Kent Calhoun's article being published in last month's issue. It would have been censorship for CTCN to not publish it.

I Bought Omega SuperCharts To Program My Own Methods - George Cooper

On December 4, I purchased the Omega Super Charts program. I purchased this program for just one reason, Omega's assurance that by using their new program, I will be able to write and program my own analysis methods into a computer.

I am assured this one feature of their program will enable me to develop and use my own analysis indicators. Over the years, I have developed and successfully used my own "home grown" analysis methods (manually) to spot reversals. I am anxious to see these methods work by computer!

Members Have Knowledge - Mike Coleman

I want you to know how much I value your publication. I look forward to reading it when it arrives each month. It is refreshing to know there are people out there like you, who care about and are looking to protect the public from all of the pitfalls of commodity trading. It seems that you have a very knowledgeable membership and I believe you put out a top-rated publication. Keep up the good work.

More on SuperTraders Books - H. Lowell Huber

The books of Spirals are now available.

For those of you who ordered the book of Trend Changes, this book will now appear as two books - the Book of Numbers and the Book of Ratios. The Book of Numbers is at the printers now and will be shipped at anytime. The second book will follow somewhat later, because they have to get Frank Taucher's SuperTraders Almanac out now too.

As for comments on cattle trading - maybe now that congressional motivations have changed, we may all have the opportunity to learn the Hillary System of cattle trading. If not, I would think she is missing a tremendous opportunity to market a "very successful mystery system" used in making her own calls, especially now that she left the realms of cattle futures trading.

Are There Reliable Trading Systems So I Can Make A Steady Income? - Wade Geary

I recently started receiving the newsletter and back-issues and have scanned through most of the back-issues. Your newsletter is excellent and I found it all very interesting. Your willingness to offer advice over the telephone is particularly commendable.

I have many questions that you might be able to help me with, considering all the years of experience you have had trading, and the fact that you are on a first name basis with many of the great traders, such as Larry Williams.

1. In your opinion, is it possible to trade commodities with a small account, such as $25,000 and predictably make enough money to rely on as a yearly income? The reason I'm asking, is I'm contemplating taking an early retirement and will need a supplemental income to survive.

2. Are there trading systems that are reliable enough to consistently make money over the long run, if followed with a disciplined approach? How can a neophyte trader such as myself evaluate the many systems on the market?

3. Will any system accurately catch the "big" yearly moves in futures?

I have been trading about 1-½ years now, primarily following Ken Roberts and the Larry Williams Hotlines. I really can't say that I'm ahead of the game using either one of these Hotlines. The Ken Roberts' stops in my opinion are unrealistic and have wiped out most of my profits.

In the Larry Williams program last fall, I received a margin call because of the sudden drop in European currencies. I was in 3 currencies at the same time and in one day I was down about $4,000. In retrospect, I don't believe I should have been in 3 currencies at the same time with my small account.

I find the futures field fascinating and love to trade. I read every book on technical analysis that I can get my hands on. I would greatly appreciate any advice that you (or CTCN Members) could offer me in this area.

Hard Facts on Day Trading - TTB - Part 2

Maximizing Profits - Day traders, as we discussed, are constantly faced with the problem of capturing as much profit as possible from a relatively small range of prices. This situation naturally leads traders into the strategy of buying dips and selling rallies rather than attempting to follow trends.

Most trend-following strategies tend to be much too slow for day trading. Counter-trend strategies seem to be the logical choice because they offer the potential of extracting the greatest profit from a small range of prices. However, counter-trend strategies as a general rule tend to be less reliable than trend-following strategies. Correctly and quickly spotting turning points in prices is much more difficult than simply trading in the direction of a trend.

We have observed that the best day traders manage to incorporate elements of both methods. Successful day traders try to buy dips within an up trend and sell rallies within a downtrend. The day trader who consistently makes money must be good at defining trends and good at finding short-term turning points. Most traders lose money because they are not very good at either task.

We will look at examples of possible day trading strategy. We have tried to explain the potential pitfalls of day trading, the realities that cause most day traders to fail, and {next month} something of the methodology of those that we are aware of that have to some extent succeeded.

Similar to other phenomena in the world of trading, day trading, which seems at first glance to be one of the easiest, most productive methods of trading, turns out to be not so easy and not so productive. We know that despite our warnings most of you will try day trading for a while to see if you can beat the odds. We hope our basic advice and observations will help you succeed.

Tidbits on Financial Astrology - Carol Murphy

Free advice and help with Financial Astrology is available to CTCN members.

Too Many Data Formats & Problems Michel Gourbault
from Canada - Part 3

5. Michel creates a new continuous contract directly from the CSI-supplied files that worked fine. He does this using a utility from EQI that can convert from ASCII, Lotus 1 2 3. CSI and a few other formats. He converts it to the MetaStock (MS) format. Tries the new contract. No luck: The same darn blocking message appears.

6. Now he reasons there is "no bloody way" the program designer-supplied CSI file, which worked in the CSI format, could be of "insufficient length" or could "contain zeros" in sensitive areas of the data. There's got to be something else.

7. He disconnects his FM receiver, and even his internal modem/Fax card telephone line connections. Just in case - against all logic - they could interfere somehow with this particular program. Tries the MS contracts again. Nothing doing. Same message.

8. Noticed earlier that his drive b:, from which he loads most of his programs has been sticking lately. So he takes the CPU to the shop to replace the drive b: system, taking this opportunity to also turn his 386 system into a 486 with Math coprocessor. Tries out the new monster. Removes the bugger of a program and reinstalls it completely, including original CSI portfolio. Tries out the MS contracts once more, and again gets the sentinel message that refuses to let him pass.

9. Then, one Sunday when he has a little more leisure time, Michel tries the same MS files - different contracts - and... incredible as it may seem, without having done anything different than before, the sentinel lets him pass! The program runs fine on that one file he tried. Exactly as on the CSI contracts. Hurrah, he shouts! (Little did he know the sentinel-message just had a little snooze at that time.) One hour or so later, he tries out the same file again - and here goes that blocking message again. And again, and again, on every other MS contract he tries to get through.

10. No, I won't tell you the end of the story. By order of my sponsor and, in any case, because my sense of ethics requires that I protect the identity of the guilty parties.

Member Requests

John Jenkins and two other members want information on Precision Day Trading System.

Dr. Sid Schuman wants to trade currencies and wants to know which is the best system to buy. Your help is appreciated.

New member Mike Diaz would like to be in contact with other traders in the Siloam Springs, located in extreme NW Arkansas via CTCN.

Neil Sterritt would like opinions on Bruce Gould's Money Machine.

In your "Member Requests Nov. 94" Ken Periso asks "How to create continuous contracts and where to get software? I, Christian Holzner offer a program which, among other things, can do that for CSI files.

Also, I would like to get in contact with other CTCN members in Austria, Germany and Switzerland via CTCN.

Editor's Comments

This is our Special End-of-Year Expanded Issue, which covers 12 full pages.

Some exiting new things are planned during the new year, including an optional Computer Users Group. This optional group will concentrate exclusively on the use of computers in trading. It will not detract in any way from your Commodity Traders Club News, which will continue with the same content matter, including occasional articles on computer related matters.

Some other important news: By the time you read this, Commodity Traders Club will be incorporated as a nonprofit educational organization. That will result in you qualifying to receive several important and valuable new benefits. Benefits we are considering include, random drawings for free computer software, educational publications, educational seminar invitations, etc. These extra benefits will be funded with any extra income we have as a result of our membership fees and advertising revenues. In other words, all profits will be passed on to you, the members, thanks to our nonprofit organization status.

About Larry Williams' contribution in support of Walk Forward Testing. Whatever Larry says has great validity, as it's coming from probably the most famous and most knowledgeable trader of modern times.

It's certainly correct that if done properly, walk forward testing has great value. For those of you not aware of walk forward testing, it's first setting your system parameters and then testing the results in the future using those pre-set parameters without benefit of additional or new optimization. Some people refer to that as "hypothetical real-time trading."

However, walk forward testing can in fact be a trap if done incorrectly. That's because there's a problem in deciding what pre-set algorithm or parameters to use prior to the so-called walk forward test. If we arrive at those parameters by an optimization process, then we may be guilty of optimizing the walk forward test without even realizing we have done that. Another pitfall, is the great tendency to optimize the walk forward testing time period itself.

Possibly the only way to do it correctly, is to first arrive at a set of parameters and algorithm based on logic, experience, or sound trading principals that won't be subject to change. Then do a walk forward with no attempt to improve results via optimization.

For the last 4-months, CTCN had a small paid display ad running in the FT publication. In addition, John Hill recommended both CTCN and a similar competing newsletter to his readers.

Unfortunately, John Hill, the owner of Futures Truth, was very upset over CTCN's decision to publish Kent Calhoun's article. John believed we should act as a censor and not publish the article because he considered it negative against him and Futures Truth.

Your editor did not take sides or indicate he supported Kent's allegations. In fact, he openly praised John Hill and George Pruitt for their honesty and integrity in last month's Editor Comments section. However, that did not satisfy John as witnessed by his surprising decision (done without any notice) to yank our paid ad and no longer endorse CTCN from an editorial standpoint.

John Hill's action is most regrettable. He seems to be implying by his actions that he can criticize vendors and their trading systems as much as he wants by publishing their negatives, but he cannot stand any criticisms himself.

This unfortunate dispute does not detract from FT's valuable work in testing systems. FT serves a purpose and is an asset to the futures industry. Their system testing and maintaining track records is a difficult and at times a thankless job.

However, the truth is that FT should not be so sensitive in that they can dish-out negative (and positive) statistics on vendors' systems for many years, but can't take a very rare negative opinion of some of their operations being published about them!

I am not judging the issues Kent has raised, but at the same time I tend to agree with him on some issues involving legalities and moral issues.

You should also know that John Hill has told me FT has now ceased doing some of the things Kent refers to or is critical of, including selling their own systems and accepting copyrighted and non-disclosure systems from system owners.

It is interesting to note that I have been informed by several sources that a competing newsletter refused to publish Kent's article. As an interesting aside, and a subject to be discussed in an upcoming issue, you should know the so-called competing letter has in the past refused to publish a number of articles and contributions about or authored by various vendors, both negative and positive articles.

What do the CTCN Members think about this situation? Please reply via CTCN, so your opinions can be heard in our next issue.


Special Note: Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News. Without you it would not be possible. P.S. - Remember, as a special reward for making just one contribution/submission per year, you'll receive an automatic 50% price reduction on your renewal. Submissions can be any length, long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing your information and knowledge with other traders. Please make a contribution about your experiences, both good & bad with systems, services, advisors, data vendors, and other trading related product.

The reproduction, copying or publication of any part of this work beyond that permitted by Section 107 or 108 of the United States Copyright Act, and also World-Wide International Treaty Provisions, is unlawful. All Rights Reserved. Written permission from the Publisher/Editor is required for reproduction in any form (with proper credit to CTCN, including our address and phone number being required), and may be withdrawn at any time. Commodity Traders Club News (CTCN) is a 'Clearing House' or 'Information Exchange' for members only. We do not verify, (and we have not) verified the accuracy of the mathematics or numbers published herein, or accuracy of comments and remarks made by the authors. All information and remarks in the contributions are the opinions of the author or contributor, not the Editor or CTCN. You should be aware that P&L reports and advertisements are frequently based on hypothetical (not real-time/actual) trades. Article headlines or Sub-Headlines sometimes may be changed or written solely by the Editor, using verbiage the Editor believes highlights important points being made by the contributor. CTCN Membership, which includes our bi-monthly CTCN newsletter is "Your Guide To Profitable Trading and How To Save Money Along The Way." It's regularly priced at $100 (US) for 1-year. . . and includes free postage within USA & Canada (add $20 for Overseas Air Mail). Publisher:, D.B.A. Our E-mail address is: Our Website address is Editor is Dave Green. The opinions and recommendations are those of our writers and not those of, CTCN, or its editor. (Note: There is high risk of loss in futures trading and past results may be difficult to achieve in the future and also may be based on hypothetical trading, with benefit of hindsight, and not actual trades) Note: We operate open member forums and consequently reserve the right to publish e-mail and other communications received. Therefore, please indicate "confidential" or "not-for-publication" on any e-mail or other correspondence sent us which you want kept private. Please contact us if we publish your comments and you object. Thank you.