Miscellaneous Product Comments - Alvin Hilker
I have thoroughly enjoyed every issue of CTCN. It is the only publication that "shoots from the hip." It's hard to find information that is honest, direct and to the point.
It is common practice for someone to cry "foul" whenever someone else criticizes their product. I personally think that if my product does what I say it will do, I would welcome all comments and criticism, since I would have nothing to fear. It would seem obvious that a lot of the "Gurus" in the commodity business have a lot to fear, judging by the numerous complaints you have been receiving. I am 800 behind your honest format and hope that others will back you as I do. Don't change anything!
Regarding your questions on data-feeds: I currently use CSI (per CTC's recommendation). I have a personal portfolio of 61 futures I collect as end-of-day data. I'm very pleased with their service and await their new Unfair Advantage software.
The software I currently use is SuperCharts 2.1 and also SuperCharts 3.0. I use the former mostly as I can write my own systems much like TradeStation. I find it more than adequate considering the cost of TradeStation.
It was very deceptive of Omega Research to eliminate the programming capability from SuperCharts 3.0. I would like to hear more from people that use and build their own systems in SuperCharts 2.1 or 2.0.
Editor's Note: Unfortunately, as a result of the changes made by Omega to the SuperCharts Editor, the newer versions in some ways are less powerful than older versions. This applies to both programming power and SC's ability to run third party software. In fact, CTC's own Real Success Software is not compatible with the newer versions of SuperCharts. In addition, according to our programmer, there is no way to rewrite the code so it works with newer SC versions due to the severe limits imposed by Omega on their Editor capabilities.
I would like to hear from anyone who has studied Richard Donchian. His systems seem to have weathered time very successfully.
I purchased an excellent package from Lars Kestner of LINK Financial that tested and compared 30 systems on 29 futures markets over 12-years of continuous contracts. I was very surprised to see the results. It turned out in this case that Mr. Donchian had some pretty good ideas. I would also like to hear from anyone who actively trades options and/or uses option software. I'm particularly interested in information on OpCalc Professional and OptionVue.
I have another question I have not been able to properly answer. What system would readers recommend as the best to build continuous contracts? Do you use C to O, O to O or C to C? How do you determine the best day for rollover? Do you use First Notice Day, Last Notice Day or the day that Open Interest drops below that of the next contract trading? Any help from other traders would be greatly appreciated.
Once again, I want to commend you on this excellent publication. Don't be swayed by "losers" threatening action on a product that doesn't stand up to its billing. I for one am behind you and your (our) publication.
CTA Licensing - Robert Miner
The CFTC is soliciting comments to its interpretation of who should be required to be licensed as a Commodity Trading Advisor (CTA).
A file is available on the Internet that provides their position and where the public may reply. The file to download is https://www.cftc.gov/tm/aug7ver.htm. I would strongly urge anyone who is interested in maintaining the Constitutional right to free expression download this file and respond.
In brief, the CFTC's position is that anyone who publishes any information regarding futures trading should be licensed and controlled by them. This is not limited to those who give specific trading advice, but includes an author of a book or report that describes futures trading as a possible approach. It would not only include system developers, but anyone who sold any technical analysis software program.
As I read through this document I kept asking myself, "What American citizen with any respect for our Constitution could be a part of this?" Download and read the document yourself and see if you are not equally outraged. If you are, respond. If you are in any way involved in the futures industry such as a newsletter publisher or contributor, software developer, system developer, trading advisor, etc., this information is directly and dramatically relevant to you.
If you are a consumer and do not want the information flow regulated by an industry agency, get the file and respond now.
Comments must be received by October 15, so download the file immediately.
The Answer For Me Is Mutual Funds - Gilbert Lasky
I have been studying/investing/trading the financial markets for 30-years and have a fairly substantial account. I am, however, a classic "individual retail investor" and as such am subject to the unreliable vagaries of the information available about individual companies.
Fifteen years ago I decided it was futile to attempt to pick the "best" stocks/bonds out of thousands available -- and then to stay on top of each change in the management, earnings and other fortunes or misfortunes of the companies invested in.
I'm a professional man and I don't have time.
The answer for me is mutual funds -- which I have been trading for about 15-years with excellent results. With the computer programs that have been developed in the last few years, the analysis of fund relative strength is much easier. And more important, the management of some of the consistent funds is dependably superb. Their professional analysts not only search out the "best" individual companies, but they monitor them by staying in personal touch with management.
I as an individual investor would never get the attention from management that an analyst from a mutual fund gets. The information he/she gets is likely to be accurate, because no public company wants to get a reputation for being anything but forthright with fund analysts and managers.
Though funds are not short-term trading vehicles, they are superb for intermediate trend position traders. Further, 50% margin in available and many funds carry no commission costs when traded through certain discount brokers. You can even short the market with some special funds.
Everyone knows you should trade with the trend. I believe the intermediate trend is much easier to identify and follow than short-term trends.
I realize that your publication is devoted to commodity trading, but for those of us who use technical analysis to identify trends and strong funds, the information contained in your publication is interesting and useful.
Editor's Note: Our members primarily use futures for speculation purposes, rather than for long-term investing. However, it is believed our average member has far more money invested in stocks and mutual funds than in their commodity accounts. Also, as mentioned by Gilbert, many of our articles and trading techniques are applicable to both commodities and equities.
The same fundamental rules apply to all varieties of securities trading: trade with the trend; manage your funds properly; cut your losses if you're wrong on the trend.
The amazing thing that I've learned about technical analysis over the years is that the simplest indicators and systems are the most consistently profitable. For example, a lot of money can be made by simply trading off a simple trendline set at 45 degrees on a chart. You may enter and exit a little late, but if you take the signals, you'll make money over time. I enjoy your publication. Keep up the good work.
An All Too Familiar Story - T. Judd
First of all I would like to say that I think this forum is both educational and entertaining. It provides a much needed service to people trying to struggle through the process of trading successfully. There are many more pitfalls and gremlins than I ever realized. Whether its help with your psyche or the technical aspects of trading, it can be found here.
My situation fits a common stereotype. I started with futures options after reading several books. I came to the conclusion that futures trading was better than stocks because of the inherent value of the particular future, i.e., so many bushels of corn would likely have some tangible value. In addition, there was a huge leverage factor.
I chose options since it appeared to me to further limit the risk and augment the leverage. This particular plan might have worked well if I had been more cautious and less over confident with initial successes. If something can happen, it will happen at some point. I was armed with OptionView, MetaStock and Signal. I was done in with a ratio spread. I had sold more options than I owned. Coffee went to a 10-year high.
I then took a break while I read more books. I discovered Scale Trading. This seemed absolutely the way to go. Again I was very successful initially, racking up more than 40% gains in one year. Let me say at this point that the correct broker is the key to scale trading.
When prices fall with no significant oscillations and contracts accumulate, anxiety levels begin to rise. This is the time an experienced sale trading broker is needed. If the broker calls late one evening with panic in his voice, telling you that he is getting all his clients out now, then he is doing you a disservice. It's hard to remain rational when you hold 10 contracts and you see on TV that they expect Mad Cow Disease to hit the US next week. I really thought I was handling it all quite well until that call. I bailed out at the bottom with a nice loss that will take several years to make up.
Scale Trading is an interesting trading methodology, but goes against some accepted trading tenants. Stop loss orders are not useful. Also by the nature of this technique, you are buying when the future is in an established downtrend. Of note however, is that with scale trading the purchase is made theoretically when the commodity is undervalued. Finally, this type of trading requires a large amount of capital regardless of what you hear.
Remember, if it can happen, it will happen and you best be ready for it.
I have never been a daytrader. I have another job, thank goodness. End-of-the-day trading may give you 200 days or trading periods a year; whereas daytrading gives you 8-10 times that many possible trading periods or more. This could certainly be a factor if you are trying to trade for a living or if your system has few signals.
My three plus years of futures trading has been exciting and educational. I am still scale trading, but in a much less aggressive way with a different broker. I am taking another look at stocks.
"Omega Total Lack Of Quality" - Robert Gross
On 7-26-96, I placed an order for TS, with Nilo Sudbrack, making it quite clear that I wanted the order to arrive no later than 8-2-96, in order to make all my setup, including getting the BMI dish aligned and going by Sunday evening. I also stated that I wanted the payments for the very expensive software, to be spread out in 12 monthly payments, not all at once on my AMEX card.
Problems began immediately and continued. First the package didn't arrive as requested on Friday, with FedEx saying it had not even left the warehouse until Friday morning. BMI however was flawed in their delivery and quality. TS arrived Monday, only to discover the disks were bad.
I called first thing Tuesday morning, waited much too long on the line, then fooling around with the technician, who finally decided the disks were bad, and would FedEx a new set. Those arrived next day, loaded up, only to discover again the block wouldn't acknowledge.
Phone call again early Wednesday, more long waiting on line, fooling around with the e-mail drivers, before finally being told that the block was bad, and would again require FedEx. I finally got it working on Friday, August 9, a week lost, including BMI charges wasted because of the lousy quality control.
Next I discovered that with five manuals, none had an index that would list the screen title in simple language. Time for game playing. I've found it about as easy to just scroll around randomly to find what I wanted, the logic being lousy.
To top it off, I received my AMEX bill, finding the full $2,100 charged contrary to Sudrack's agreement. By now I was furious, if I wasn't before.
On 8-28-99, Sudrack is out, and on an earlier call waited 24-hours before he gave me the courtesy of a return call. I demanded to speak to the accounting manager. Robert Ruiz stumbles on the line thinking it was someone else he knew, and got my adrenaline going, promising he would give back the AMEX credit of 11-months worth to be split into 11 remaining monthly charges.
A week later I am still waiting for the credit to appear on my account.
Except that Dave Green, with CTCN has a good program requiring TS, I would tell them to totally stuff it! I may yet. This has not only cost me a week of window time that was very important to me, but also about $200 of wasted BMI charges and long distance charges with long waits and crappie ads on my dollar, while waiting to be instructed how to connect to the proper person.
I mentioned this to Ruiz when I talked with him, was given this switch and bait crap about being "offered" some data that I don't need for $100 more, as though I was getting some glorious deal that I didn't need.
Mr. Cruz, has really blown it with high prices, low quality and lousy penny pinching attitude toward the customer. I'm sorry that this is my 3rd product, called a strike-out, and thus will be my last hopefully. You have the market currently, but your days are probably numbered.
Additionally, the collusive DialData arrangement is a joke, particularly when there are much cheaper and equally good if not better vendors out there. I know, as I was with DialData for a while. Greed is quite obvious. With extreme dissatisfaction, Chow.
Editor's Note: Sometimes it seems just by luck (bad luck) certain individuals have a bad experience. This is like Murphy's Law as once it starts out bad it seems the problems only pyramid and get progressively worse.
However, most mutual clients I talk to are satisfied with the support and service received from Omega. However, occasionally there are serious problems and misunderstandings such as Robert's poor experience.
Also, their products are top-rated and many traders say they are the best programs available, in particular TradeStation.
Book Review On The Speculative Strategist By
Will Slayter - Tom Schlobohm
One of the recent books on the trading scene is The Speculative Strategist by Will Slayter. I bought the book after reading a brief review of it. This review said the book taught daring entry and exit techniques together with indicators and systems. Also, there was mention of "pirates."
I found the book to be well-written, in particular the sections dealing with pirates such as Henry Morgan. Unfortunately, there was not that much that I found new and enlightening regarding the market.
I found the book more geared to beginners than an individual who has some background in technical analysis. The author describes simple and exponential moving averages, MACD and ROC indicators. But all of these have been around for quite some time.
In summary, the book is a good read, but not that enlightening.
Sheep In Wolf's Clothing - Michael Nagel
When I read CTCN, I feel like a sheep in wolf's clothing. Unlike most of my fellow subscribers, I do not trade commodities. Instead I trade stocks. Nevertheless, I derive much benefit from CTCN. For after all, trading is trading, psychology is psychology. I think CTCN is a terrific publication.
I marvel at the existential trading angst of my fellow subscribers who trade commodities and who thereby are responsible for the angst that they suffer. Ten years ago I traded commodities. Like the 90% of fellow commodity lemmings of that time, I traded myself right over the financial cliff. At the bottom of the financial abyss, ego bruised, I awoke my glamorous dreams of commodities wealth. Here's how it happened.
After a particularly miserable year of commodities trading, a year that was perfectly commensurate with my commodity trading "expertise," I chose to stop trading after I read a year-end summary of CTA results published in Futures Magazine.
I should mention I wasn't naive about commodity training; I read many books on trading and thought myself to be relatively sophisticated about trading and systems' design.
The CTA "winners" of that year, that is the very best professional commodity traders of that year, averaged about a 20% return! That's all. With their professional "expertise," their high levels of capitalization, their knowledge, experience, the very best of these professionals could only derive a 20% return. Remember that was one of the better years for CTA's.
Who was I kidding to think that, with my lack of expertise, my little capital, my average knowledge and relatively little expertise, I could hit a commodities home run -- that I could do better than the very best CTA's? Armed with the Futures Magazine summary for comparison, I then took out my copy of Investors Business Daily and looked at the year-end summary of mutual fund performances.
I saw the average mutual fund investor who had next to no trading knowledge had earned returns higher than the best commodity pros. In fact, some of the funds that I had targeted for investment had gone up by 50% and 60%. It then struck me as an absurdity to trade commodities. To go through all that emotional hardship to possibly (in the very best of years) earn 20%, when with relative emotional ease, I might earn 50% (or 800 when margined). Of course, I am not so naive as to think it is just that easy, but consider the point.
Here's how I have come to see it. A trader with a commodity position is like a person who holds a lighted stick of dynamite; a stock trader holds a loaded gun. Which would you rather hold? Commodities are a win/lose game insuring loss to one of every two parties; stocks can be a win/win game for both parties. In which type of transaction would you prefer to be?
Whereas 90% of commodity traders fail, the vast majority of mutual fund traders have profited in this bull market, and presumably more stock traders profit than commodity traders. Would you prefer to trade with probabilities that favor your failure or your success?
And, which do you think is less stressful and more profitable to trade, stocks or commodities? Yes the profit potential of commodity trading is vastly superior to that of stocks, given the differences in margin. But our brokerage statements don't measure potential, they measure actuality. Not even the very best professional CTA's realize that potential.
What is your experience with commodity trading, what is your "what's so," rather than your "hope so" about commodity training. Speaking for myself, I don't need the action, stress and the losses. I need profit. And so I now profitably trade stocks in real-time with TradeStation 4.0 and DBC Signal.
I offer my genuine admiration to my fellow CTCN subscribers who do trade commodities successfully. Like an unusually colored black sheep, I know one or two. And I marvel at them when I see them. But, you know, most of my flock is differently colored.
For those of us who are unsuccessful commodity traders, I would ask you whether it is more important that you trade commodities or that you trade profitably perhaps in a different market? Are you a better trader than the very best CTA's? It may be exciting to challenge yourself to become so, but it may also be profitable to accept your limitations and trade other markets that more favor your success.
While I appreciate that wolves are meat eaters, I hope these few kernels of common sense which are offered by a sheepish stock trader may be palatable to fellow CTCN subscribers. Meanwhile, I'll just slip back into my wolf suit and become anonymous again. Profitable trading to all of us!
Editor's Note: The average CTA is more geared to making money with their management fees rather than a percentage of trading profits. This may explain partially the fact their average returns are low.
In addition, the primary reason so many stock traders and mutual funds have done so well, is the fact they are almost fully invested in long positions and by great luck the bull market has been intact for many years. Once the bull market finally ends (if it ever does!) you will see their fortunes reverse.
It's true the percentage of winners is much higher among equity traders than futures traders. However, if a futures trader can get counted in the small but elite percentage of commodity traders who are profitable, the rewards can be immense. The average profitable commodity trader may achieve outstanding returns on capital (due in part to the inherent great leverage) compared to an equity trader.
Internet Users Warning - Privacy Problem And What
To Do About I - J.S. from California
I want to let you know about what I consider a serious privacy problem if you use the Internet.
Your web browser creates a file called "Cookies.Txt" on your hard disk. This file will keep a record of where you browse, your general interests, and who knows what else in the future. For Macintosh users the file is called "Magic Cookies." This file can then be read by your web server. This was probably set up this way to collect marketing data on you so you can receive solicitations from Website vendors. What bothers me is that this two-way communication has been done without my consent.
To see if your browser creates this file, get to the DOS prompt C:/ and type Dir Cookies.TXT/S and press enter. This will show you the directory this file is in. Change to that directory and delete this file by typing Del Cookies.TXT and press enter.
There is a Website www.privnet.com that offers free software called "Fast Forward." This will block these "Cookie Files." It is not available yet for Windows 3.1, which I use, so I have to keep deleting it as it created again from time to time.
Comments On Commodex - Neil Strickland
Keep up the good work. I find the frank commentary and opinion very helpful. Some of it is easily recognizable as dreck, but even that can be informative in a negative way.
In the June/July 96 issue, Bill Donnally asked for comments on Commodex. In reply, I offer my experience and opinions. Hopefully they will be helpful to anyone, like Bill, who has ideas about retiring on Commodex.
I have studied 5-years worth of actual trades made by Commodex. These and many more years of trades, are available from Commodex directly, or from their Website. This is not hypothetical back-test data as is offered by most vendors. These are paper trades, so that entry and exit prices may not be exact, but over time this is not a significant factor.
As Bill Donnally noted, Commodex averages approximately 800 return on account capital, and has done so for over 25-years. Winning trades constitute about one-third of the total.
It all sounds too good to be true! Why would anyone fool around with anything with a lesser, or non-existent track record? Well, Virginia, there still is no Santa Claus, at least not for most of us.
After trying to trade Commodex three different times, I feel that trying to trade this, or any fully diversified system, on less than a $100,000 account is doomed to failure. The reason is found in the 30-40% drawdown. Such a drawdown in a smaller account soon leaves the trader with insufficient funds to remain fully diversified. The result is increasing risk with a decreasing account dollar cushion.
We all vary in our psychological and financial tolerance, but I don't sleep well when a $50,000 account steadily drops $15,000 to $20,000 in two months.
I do not condemn Commodex for these difficulties. These characteristics are typical of long-term, trend following systems. The lesson is clear, and has been alluded to by other CTCN contributors: Don't try to trade these systems with small accounts. You might get lucky, but don't bet your retirement money on it.
Editor's Note: Commodex System and several other trading systems, along with some well-known seasonal trading approaches at first glance appear consistently profitable. However, as Neil points out, their drawdowns are usually very high and winning trade percentage low. These type of trading approaches also require immense capital and deep pockets.
Perhaps the primary reason they appear to be profitable overall is they rely on extensive diversification and many hundreds or thousands of trades per year, with a small but important percentage being highly profitable on a longer term basis. Usually, a small but significant minority of the trades end-up being highly profitable, which offset the many losers and the far too heavy drawdowns involved.
These approaches are probably not the type of trading activity most CTC members would be happy with psychologically or able to handle as far as trading capital or margin is concerned.
Most Successful Traders Follow Simple Methods - Earl McHugh
I am most impressed with the fact that, if they are being truthful, the most successful traders who write to CTCN are self-taught and follow simple methods.
James Geftaky's letter most impressed me because he not only indicated a lifetime of success at trading, but also showed that he actually knows how to live, as well.
I do hope to receive the methods developed.
Editor's Note: In our last issue I also indicated I would be mailing the next Bulletin to all CTCN members, in addition to the Real Success Video Tape Training Course buyers, who normally are the only recipients of the Special Bulletins.
Unfortunately, my plans were too generous as it invited a storm of protest from a number of Real Success Methodology owners. One Real Success client in particular was extremely upset about this matter and wrote an amazingly long letter of protest covering many hand written yellow legal pages.
The well intentioned protesters' main argument was two-fold: First, the Special Bulletins were included as a free extra along with their Real Success Tapes. Therefore, CTCN members who did not acquire the $897 video tapes should not get a Bulletin as a freebie.
They also said the trading methodologies and information detailed in the Bulletin should only benefit paid owners of the Real Success Trader Training Course. Furthermore, some were worried if too many traders start using these methods it could possibly impact their usage of the same techniques.
Therefore, to be fair to our Real Success clients, I regretfully must withdraw my plans to send the next Real Success Bulletin at no cost to all CTCN members. Please accept my apologies. You should also watch your mail during the next 60-days for more details on this and for possible ways you may learn more about the Real Success trading methodology.
Finally, it might be useful in my view, to cut down or eliminate the letters relating tales of woe. Telling us how the market, the brokers, the systems, etc., prevented them from becoming rich. The fact is, I suspect most of these people do not have the discipline, knowledge or the very special skills that are required to be successful at trading.
Learning The Art Of War - Raymond Kohn
I have been actively trading for about 15-years. This year my wife and I will be retiring from our conventional lives and I will begin trading full-time. I thought you might enjoy our story along with a few modest insights.
It began one evening while channel surfing on the TV. My wife and I accidentally came across an unusual talk show (which we had never seen before) called "Wall Street Week." This strange mix of personalities and subjects caught our attention and we watched the show.
We were neophytes at the time and had no concept of what the world of investing was all about. So for us, it was like peeking into a strange new world for the first time.
After watching the show for several months and listening to the advice coming from the various show regulars and guests, my wife turned to me and said: "I think some of these guys are boobs, and what gets me is that they're making a living doing this. We're smart, can we learn this investment stuff and do what they do?" - - "Why not." And that's how it all began.
I have always been enthusiastic about learning new things and enjoyed reading, so my exciting education into the world of investing began with my wife's off-hand comment that very evening.
A little background might be appropriate: Originally my wife and I are from the Chicago area. I finished my education as a product design engineer at the Illinois Institute of Technology (IIT). Spent my early years as a consultant under a special Research and Demonstration Grant from the US Dept. of Labor, and Health, Education and Welfare. Once the research work was completed and the Federal Grants expired, I opened my own Product Design & Development Co. that my wife and I have been operating for the past 26-years.
About 20-years ago we moved our home and business to Texas. We have always enjoyed a solitary life-style, and eventually moved to a rural part of Texas, (commonly referred to as the "Boonies" by you big-city folk). Our closest town is several miles away, however, calling it a town is a bit of an exaggeration. This town is so small that it only had one stop-light. The post office was located in a small rented store-front, and the only entertainment for the whole place was a video rental store. In other words, this place was not exactly a thriving metropolis with a multitude of sources for sophisticated investment advice or personal financial guidance. As far as available community resources, there weren't any. We were on our own.
When I first got started I didn't even know what a "moving average" was. So, when I first learned about "moving averages' I thought I had discovered the "Secret of the Universe." Without knowledgeable guidance or an investment mentor to talk to, I was destined to go down many blind alleys until I eventually discovered, on my own, the inherent flaws that existed within the never ending stream of information, each purporting to be the next "Secret of the Universe" du-jour.
My learning curve was steep and long. It included: A two-year course at the Wyckoff Stock Market Institute; the Hume course for "Successful Investing," and "Advanced Investment Strategies;" Van K. Tharp Psychological Study Program for Traders; various textbooks from the N.Y. Institute of Finance; and an accumulation of over 120 investment books from well-known authors like: Wilder, Williams, Pring, Eng, Murphy, Magee, Appel, and so on.
Despite all of the reading and research that I have done over the years, I am convinced that it is a never ending process, and my library, along with my understanding of the investment markets, will continue to grow as the years pass. (It's just the nature of the game).
In the beginning, I was just too cheap to pop for one of those $3,000 trading seminars. For the same money I could buy 40 or 50 books and get as many ideas and opinions on a far wider range of subjects, so I always had a bias towards books, which could be re-read over and over again, as opposed to seminars.
As the years passed and I began to learn more about the "business-end" and "promotional side" of the "investment seminar business" along with its well-publicized guru's, my initial cheapness was replaced by a healthy dose of skepticism and eventual disdain. To this day, I have never attended one of those "get rich trading seminars," and probably never will.
It is sad to say, but a great deal of the investment information available today is of little or no help. The best that can be said about most of it, is that you eventually will learn more about what doesn't work, rather than what does work.
Therefore, the best advice that I can give you is to maintain a healthy skepticism when it comes to learning about new investment ideas. As much as we want to believe that the next new trading system will be "the one." It's not very likely.
Thomas Edison was asked by a reporter once: How did it feel to have failed over 7,000 times in searching for a solution to his problems in developing the electric light-bulb. Edison replied: "I haven't failed 7,000 times, I have discovered 7,000 things that don't work.
Therefore, as we each pursue our personal objectives in locating that ideal trading system, it becomes just as important to know what doesn't work, as it is to know what does work. Going through the process of discovery and learning "what doesn't work" can give you the needed insight that is necessary in order to recognize "what does work" when it comes along.
There is a very interesting book titled The Encyclopedia of Technical Market Indicators by Colby and Meyers. In this book the authors utilized thousands of hours of computer time to evaluate the forecasting value of over 110 investment indicators. Their purpose was to separate Wall Street myth from reality and debunk many assumptions regarding the effectiveness of the multitude of technical indicators that are out there. It's a real eye-opener, and gives you a good head-start into learning about all the indicators that we have heard so much about (and naturally assumed that they had at least some investment merit) when in fact, they just don't work.
If I have learned anything over the years, it is that there is no one book, which when completed, will insure your trading success. It is not unusual to spend $50 to $250 for a single book covering a variety of investment strategies and only find one small tidbit of information which is genuinely helpful. But, that's OK. If that one tidbit can save, or make you thousands of dollars, it's well worth it.
One of the most unusual books I have ever read, which over time has become one of my personal favorites is: The Art of War by Sun Tzu. Sun Tzu was an ancient Chinese warrior/philosopher who lived over 2,000 years ago. The book is filled with surprisingly appropriate philosophical concepts which can be easily applied to many of life's activities, experiences and inter-relationships. Trading has often been referred to as a battle between the buyers and the sellers, so the analogous references within the text were not only appropriate but quite helpful.
The futures and options markets are a "zero-sum game." It is widely known that 90-95% of all those that play this game will lose. It is only a small handful of large professional traders who tend to consistently win. Given the odds, you have to wonder why in the world would any sane person be enticed into playing such a game. The answer lies within the "Art of War."
The following concepts contained in the
"Art of War" are analogous to the trading and investment markets, and
can be easily applied to the major market players, or even the "collective
being" represented by the markets themselves. To begin:
"Those who face the unprepared with preparation are victorious."
"What causes opponents to come of their own accord is the prospect of gain. What discourages opponents from coming is the prospect of harm."
"Draw them in with the prospect of gain, take them by confusion."
If you've ever been attracted by the quick and easy riches of the stock or commodity markets, only to wind up being confused by your ever mounting losses to what initially seemed to be a deceptively simple activity, then you have just witnessed, first hand, what it feels like to be defeated, and on the losing side of the "Art of War."
A common trait of most traders is the desire to be "in the market" and trading most of the time. Sun Tzu makes these observations: References to the "Army" and the "Warrior" are analogous to the "Trader," and the "Battle" is "making the trade."
"The important thing in a military operation is Victory, not Persistence."
"In ancient times those known as good warriors prevailed when it was easy to prevail. So it is the good warriors that take their stand on ground where they cannot lose. Therefore, a victorious army first wins and then seeks battle, a defeated army first battles and then seeks victory."
"Those who know when to fight and when not to fight are victorious."
The implications of the above quotations are most interesting. If ancient history and the "Art of War" were to be our only guide, we would patiently wait for, and carefully select, only the very best opportunities to trade. We would patiently accept the long periods of time when no trades were made, and judiciously wait for those few opportunities which come along very infrequently, but which almost guarantee victory and success.
We have all heard the phrase: "Everyone is a genius in a Bull Market." As if to say it was so easy to make money in a bull market, what's the big trick? But, when the markets become uncertain and difficult, that's when only the very best survive, (and sometimes the very best don't even make it). Sun Tzu's recommendation would appear obvious: "If you are going to trade, wait for the Bull Market, when victory is guaranteed. And, when times are uncertain, don't trade."
The term "Bull Market" connotate long-term position trading, but the basic concepts are also valid for intermediate and short-term trading, it is only the time horizon that changes. Therefore, the same philosophical concepts apply to not only the Secular Bull Markets, but also to the Intermediate-Term Trends and the Intra-Day Price Swings.
Now, if you don't even know what to look for when hunting for a "Near Sure Thing" trade, then you have got another problem of not even being prepared to play the game and this takes us back to the original quotation: "Those who face the unprepared with preparation are victorious."
I have no doubt that my reference above to a "Near Sure Thing" trade is going to raise some eye-brows and draw a snippy comment or two. As we all know, there really is no such thing as a "sure thing" in the investment markets, hence the old adage: "More people have been stung by sure things than by bees."
What I'm referring to when I say a "Near Sure Thing" trade, are those unique times when a combination of different elements seem to come together to create an usual situation for a given commodity or stock which results in an almost obvious and predictable future movement.
For example: if the market is over-extended by historic standards, inflation is picking up a bit, and the Federal Reserve unexpectedly beings to quickly increase interest rates causing the yield curve to invert by a significant amount, it doesn't take a genius to guess where bonds and stocks are headed. Hence, given the combination of circumstances in the above example, we have a "Near Sure Thing" trade on the short side.
Periodic shifts in the supply and demand dynamics of a given commodity or a stock can have an enormous impact on its future performance. Being able to detect these shifts in supply and demand when they first appear adds further insight into the possibility of making a "Near Sure Thing" trade.
Jim Rogers (Mr. Bow-Tie) is well aware of this concept when he says: "I invest when I see a pile of money sitting over in the corner, and that's all I have to do is go over and pick it up."
Therefore, honing your investment skills in order to recognize a "Near Sure Thing" trade when it does come along, and having the courage and confidence to act quickly, can do wonders for your long-term trading success.
Acquiring the necessary investment skills and finding an investment method that works for you, via the process of learning and self-discovery, are the basic prerequisites to locating and recognizing that "Near Sure Thing" trade that works for you.
Before closing, I'd like to add one small insight. It is my feeling that most authors and other trading system developers are sincere in trying to impart meaningful knowledge to those of us who purchase their books and systems. However, the unique synergy between a given trading idea and the reader's own personality and ability to conceptually meld the trading idea into their own frame of reference is a constant stumbling block for authors and their readers to bridge. And, it is for this reason why two traders can be using the same trading system, yet one makes money with it, while the other loses money.
Therefore, it really doesn't matter how much merit a new trading idea may have -- if it ultimately doesn't work for "you" then the idea is of little or no value to you. And above all, keep in mind that you really aren't looking for that mysterious "holy grail" of trading systems, your simply searching for a trading system that works for you.
I will close with one final quotation which was made by a crusty old trail-boss named "Curley" (Jack Palance) in the Movie "City Slickers" and modified for this forum. "The secret of successful trading is just one thing. And you have to find out what it is."
Red Warnings Flags - Ashif Jumma
What are some of the clues that can raise a red flag when choosing a system, full-service broker, CTA or even deciding whether a book should be taken seriously.
1. Look for hype. The more the hype, less likely the system is any good or the CTA/broker is any good. People who trade actively tend to be humble, because the market humbles them repeatedly.
2. In a book, article or newsletter how do you find out if the writer has enough real-world trading experience? You look for language. The more ornate the language, less likely the writer is a day-to-day trader. Also look for what the writer does. Is he a money manager, a trader who trades everyday, even if they are unsuccessful has more to tell than a college professor who has never traded in his life.
3. Look for words like; amazing discovery, new secrets, etc. - stay away from systems which are advertised with screaming headlines. Future markets have been around a long time. A day's price action in its purest form consist of open, close, high and low. They tell you about 70% of what's happening to the market.
Many a time I have been one of the lucky ones selected to receive a wonderful trading system for only $1,000. A system that made 50 to 100 times that amount ($1,000) by a complete stranger who is looking after my best interests. Also the price is going up to $1,500 next month. I throw the offer in the garbage where it belongs. The advertisements do attract a lot of suckers.
This is not to say that there are no good systems, brokers, CTA's, books, etc. being offered. There are quite a few individuals who have contributed much to the industry. I personally have found that the best way to learn trading is to study the price bar and supplement it with books. I found that principles of trading, money management, your mental makeup and trading techniques to be more important than mechanical systems. I also believe that a lot of hard work is necessary before doing real-time trading. That means collecting information, reading books and paper trading long before you actually trade.
Slippage, A Real Killer - Jerry Lahann
I, like so many traders am always looking for the ultimate system. As a result I have spent over $15,000 over the last 5-years on systems costing from $50 to $2,950 each.
One thing I find is that most system writers allow from $50 to $100 for slippage and cost per trade when figuring profits and loss. The question I ask is whether that amount is realistically enough to account for actual cost and slippage.
Most system writers give a summary of profits and losses over several years. There may be several hundred trades made over the trading period reported. It would be a good idea if one would figure what you feel is a better factor for cost and slippage and multiply that figure by the number of trades to get a more realistic idea of the profit or losses that the system would return. I believe that anything less than $100 per trade for slippage and cost is unrealistic when using buy stops or sell stops for entries. Maybe even $150 would be better.
When you are using a relatively short-term system that trades several times a day such as using 5-minute bars on the S&P, slippage can easily be the difference between a profit of $200 for a day and a $500 or more loss. Many times entries are just above a previous swing high or below a swing low and it is not unusual for a run to occur of 60 to 100 points in the S&P 500 through these points. Of course, when that happens it seems we are always filled at the extreme high or extreme low of the run which can easily account for $500 added cost if buy stops or sell stops are used. Of course, stop limits could be used, but then you run the risk of missing a good move.
What is the answer? I don't think there is one. What works best for you is what is best. I do check on slippage constantly. For example, I find that I have to figure at least $100 per trade slippage and cost when trading coffee. I check slippage carefully because I monitor several systems over several months before I use them in real trading.
Shortly I will write about the results I have obtained as I continue to walk forward these systems using real-time data. I will say I have not found even one system where the results represented over the past several years by the author are matched by my testing over the last several months.
Editor's Note: Thanks for your very interesting comments. Very well-researched and said. Your editor and our members will be very interested in your walk forward testing results. It would be great if we could publish it in our next issue.
Developing A Money Management Methodology
- 5th of A Series - Tom D'Angelo
This is my fifth article intended to provide readers with a money management methodology designed to organize speculation along the lines of a successful business. Refer to my previous articles in Vol 3-8, Vol 4-1, 4-2 and 4-3.
In my previous articles, I described the Profit Center concept of trade segregation which enables the trader to organize his trading in a professional, disciplined and businesslike manner.
In this article, I will describe the proper method in which to analyze drawdown. Refer to Exhibit #1 which displays 17 hypothetical trades in a Profit Center containing trades taken from a trading system which utilizes a channel breakout technique. The trader has named this Profit Center TSCHBO.
The drawdown statistic is the most important money management and must be monitored by the trader on an almost daily basis.
Trading is a mind game, and improper analysis and knowledge of drawdown will eventually turn a trader's mind into jelly. The trader must be in psychological control of the drawdown situation or else he will experience extreme emotional problems which will significantly hamper the achievement of long-term successful speculation.
One of the primary problems facing the trader is improper organization. That is, he is in the business of trading but he is not organized like a business. Refer to my previous articles on Profit Centers for advice on how to structure your trading like a successful business.
Utilizing Profit Center type organization, the trader will quickly realize that there are many drawdowns occurring at the same time. If he trades more than one trading system, future, exchange, etc., and sets up each of these items as a Profit Center, he will notice that each Center will have its own drawdown situation, similar to the TSCHBO Center of Exhibit #1.
However, the average trader operates under the shoe-box method of organization. All brokers statements are thrown into a shoe-box and forgotten. The trader basically knows if he is making or losing money on an overall or "macro" basis, but he has no idea what is occurring on a "micro" Profit Center basis.
Unfortunately, the subconscious mind is aware that there are many micro situations occurring simultaneously and due to incompetent organization, the subconscious slowly but surely becomes more anxious, nervous and uncertain. The subconscious does not have the statistical information required to eliminate the unknown. Profit Center organization provides the structure which gives the trader the required information and eliminates fear of the unknown. Profit Centers provide the organizational format which reveals all the "micro" drawdowns which are occurring.
When asked about drawdown, the professional,
successful trader should be able to immediately provide the questioner with the
five critical drawdown statistics for each Profit Center he trades:
1. Largest historical drawdown
2. Current drawdown in progress
3. Range of Net income / drawdown (the Stress Factor)
4. Current Net Profit / Largest Historical Drawdown
5. New Equity Highs / Total Trades
These statistics are noted on the Performance Report (described in my last article) for each Profit Center. A quick glance at the Performance Report will reveal a complete drawdown analysis for that Profit Center.
For daytraders, drawdown stats should be calculated and updated on a daily basis. For other traders, once a week will be sufficient.
1. Looking at Exhibit #1, we see that the largest historical drawdown was $2,300 and occurred on 11/1/89.
2. Current drawdown in progress on 12/27/89 equals $1,050 (assume today is 12/27/89 and not September 1996).
3. Net Income / Drawdown is what I call the Stress Factor. The lower the ratio, the higher the stress and vice versa. Looking at 8/1/89, we see that net income was $100 and drawdown was $800. (Beginning Capital in the Center was $10,000 on the upper left of the report). Dividing 100 by 800 and we get a Stress Factor Ratio of .13
Ideally, you would like to see the Stress Factor Ratio at least above 2.0. This means that your Net Profit in the Center is at least 2 times the drawdown. A Ratio 2.0 or greater provides a good financial cushion for your mental stability, since you know that any drawdown is not large enough to wipe out the profits you may have accumulated in the Center. Low ratios below 1.0, like in our Exhibit #1, mean high stress. Net income is not sufficient to cover the inevitable drawdown. There is no financial cushion. Almost any drawdown will probably put the Center into a net loss position. Profit Centers with high ratios and low stress are the preferred Centers to trade.
4. Current Net Profit / Largest Drawdown=$1,850 / 2,300=.80. Likewise, this ratio should at least be 2.0 or more. If the ratio is over 2.0, you can be confident that if the largest historical drawdown repeats itself, (which it probably will) you will still have a Net Profit in the Profit Center. In Exhibit #1, if the largest historical drawdown of $2,300 occurs now, it will wipe out our current Net Income of $1,850 and produce a net loss of $450.
5. New Equity Highs / Total Trades. A new equity high occurs when drawdown=0. This occurred on 1/3/89, 4/5/89, 12/25/89 and 12/27/89. There were 17 total trades in the Center so the Ratio=4/17=23.5%.
The trader should try to attain ratios of at least 50%. The higher the ratio, the steeper the equity curve and the more times a new equity high is being reached. The higher the ratio, the more profitable the Profit Center and the less stress and psychological problems.
The above 5 statistics display a complete drawdown fingerprint for the Profit Center. Each Profit Center will have its own fingerprint. No two Profit Centers will be alike, similar to human fingerprints.
Many people have written CTCN with the hope of trading full-time for a living. If you aspire to such heights, you must adopt a professional approach towards speculation. You are not competing against the 95% disorganized, amateurish bozos who come and go by the thousands. You are competing against the 5% who succeed. These 5% are very intelligent, organized, and maintain a highly professional businesslike approach towards speculation.
The professional trader knows exactly all key historical and current money management statistics which are impacting his speculation business. If I asked you to describe in detail your drawdown situation, and the best you can come up with is "Duh," then you better go lie on the beach and get out of the markets. You will eventually get your posterior handed to you on a plate. The individual who can immediately respond with a detailed drawdown analysis as described above for each of his Profit Center businesses is the individual who has the highest probability of achieving long-term successful speculation.
This article, and my previous articles, are meant to provide the foundation for establishing the required professional approach towards speculation.
Trading is a mind game. Without proper business organization and statistics of prior trading performance, the conscious and subconscious minds are functioning in the dark. This impossible attempt to function in the unknown produces the anxiety, uncertainty, fear and greed which eventually destroys 95% of all traders.
For this reason, the trader must have at his immediate disposal all the critical money management statistics which reflect his trading performance. These statistics take the trader out of the disorganized confusion of the unknown and place him into the organized light of knowledge where confident and informed trading decisions can be made.
For even profitable traders, a drawdown will be occurring over 90% of the time. This situation produces the appearance that the trader is losing money, even though he actually may be showing a net profit. Since the average trader is not properly organized and all his "micro" drawdowns are lost in a fog of confusion, the subconscious and conscious minds become fearful, confused, anxious and uncertain. Basically, the mind becomes a ship sailing in the fog amongst icebergs without a rudder. it can't see, can't steer and is surrounded by danger.
However, knowing the complete drawdown fingerprint for each profit Center that you trade significantly reduces the fear, anxiety and loss of confidence psychological problems which plague most traders. The trader knows exactly his historical and current drawdown history and what to reasonably expect in the future. He maintains this information for all the Profit Centers he trades. There are no surprises or unknowns. He is informed and confident.
Attempting to trade without proper business organization and immediately accessible drawdown and other key money management statistics will fry your mind on both conscious and unconscious levels and inevitably drive you out of the trading game with your tail between your legs. It is impossible to successfully trade in the dark.
Speculation is today's competitive markets is an arena where only the truly professional, disciplined and organized traders survive.If you'd like to obtain a free booklet describing the reports I utilize in my own trading, feel free to contact me at 800-MONEY30 or 702-261-9147.
In my next article, I will discuss some simple techniques in determining how many contracts to trade.EXHIBIT #1- In Print Copy
Keeping Perspective - Tom Dunkerley
As I was going through the July monthly statement of a system I trade, I was upset to see it down $4,003 for the month. It's the worst monthly drawdown yet. I realized I needed to look at the "bigger picture" again. The bigger picture showed the account has since recovered some of that drawdown so far in August. Even at the low point in July, I still had a 28% return for 1996 on the amount I deposited in this account (with no additional deposits) and that ain't so bad!
Regarding My Recent Holy Grail Article - Don McCullough
In the last issue, I wrote about the Holy Grail and a couple of people who had seemingly found it. The editor included some comments of his own. I'm sure he's not alone when it comes to not believing in a Holy Grail or those who seem to have found it. I can fully appreciate such a view. However, I remain convinced some of the very top professional traders truly have what amounts to a trading method, and ability that is worthy of a Holy Grail rating.
I recently read an advertisement in which a well-known person states he believes in a Holy Grail. His name is Bill Williams and he is a much respected author, speaker, teacher and trader. His latest book, Trading Chaos, has been well received by many experienced traders.
Bill Williams is interviewed in the book, The Day Trader's Advantage by Howard Abell. To give further credence to Bill's belief in a Holy Grail, let me share with you some of his very respectable trading abilities recorded in this book. (Note: I'm saying a Holy Grail rather than The Holy Grail. Perhaps there's more than one). Do I hear laughter?
He says if the S&P has a daily range of 500 points during a particular day, he's expecting to take 1,500 to 2,500 points of profit on such a day. Rather amazing isn't it? I'm convinced he's telling the truth about this.
In order to do this, Bill has had to become very good at picking most of the tops and bottoms during the day. Bill further states that he often takes around 80% of the potential profits from a trend while most traders take only about 20 to 30%. He says this is possible only if you know how to be in the market before the move is obvious to most people.
Seems to me Bill Williams is a guy that lots of traders should be seeking out. He's a popular seminar speaker and should not be hard to contact.
As I said earlier, the editor of this newsletter included some of his own statements in my Holy Grail article in the last issue. I'd like to address his "Editor's Notes."
I don't believe anyone having a system that's extremely accurate would have much incentive to sell it. If such a person can trade most of the potential of such a system he'd be making so much money he'd have absolutely no reason to want to market it. It's quite possible such a trader knows of several other top traders already using his system. Why should he want to cause even more competition at his buy and sell points? Large multi-contract traders must have a lot of people doing the wrong thing at the wrong time in order for them to have the liquidity to enter and exit their positions without driving the price against themselves. There's just no good reason a large successful trader would want to chance ruining this vital liquidity by selling their system.
Author-trader Stanley Kroll once said: "Those who talk don't know and those who know don't talk." With regard to top notch trading advice, I think he is absolutely correct. Aspiring traders need to differentiate between so-so traders selling their so-so advice and the truly top-notch traders.
I don't find it hard at all to understand Mark Weinstein's "obscurity." I've often wondered how many equally gifted traders totally refused being interviewed by Jack Schwager, the author of the two Market Wizard books. I'll bet quite a few and you can be sure they'll always want to remain obscure. When you're making millions in the markets due to the ignorance and poor psychology of the majority of traders -- why on earth would you ever want to take even the slightest chance of destroying that? Another reason to remain obscure is to avoid being bugged by every Tom, Dick and Harry (and Suzy) wannabe trader.
Linda Raschke once said she truly believed she could give away all of her secrets and most people would still not be able to trade successfully. Why? She says, because most people cannot control their emotions or follow a system. Linda has had students she has tried to teach, so there's undoubtedly a lot of truth to what she has to say in this regard.
Speaking of trading secrets, does anyone recall any of the Market Wizards giving away, in a very complete and precise way, their very best trading secrets? I don't. Has anyone seen them marketing their systems? With the exception of Linda Raschke (her two books) I haven't. Do you suppose Linda Raschke told everything in those books? I doubt that very much. Actually, she said about everything when she said most people could not trade her system even if she gave it to them.
It's so easy to underestimate the enormous importance of the psychological aspects of trading. This is especially true with regards to daytrading. You may know enough (and this can take years) but do you have the time, money and determination to "be enough?" Those lucky enough to sit at a monitor next to a top pro for months while they learn to be a trader are the competition.
Most of the very best pros will remain obscure and will never be selling their systems or telling the world about every last detail of their methodology. Top traders trade.
From Kindergarten to Commodities - Evelyn Mooney
Improbable? A retired kindergarten teacher nearing the beginning of her 8th decade - (actually 68-years old, but count for yourself . . . that is nearing the beginning of the 8th decade) and living in an "Old Folks Home" (well, actually it's a rather nice retirement community) and spending her days attempting to trade the S&P 500. Whatever is the world coming to?
How did this happen? About 10-years ago, I started a managed futures account with a California firm. After almost a year of dismal results and repeated phone calls with my screeching, "I can't believe that I'm paying you guys to lose my money." I decided to look into this futures trading business and see if I couldn't do better than the professionals. I chose the S&P because I had some experience in trading stocks and options.
My first S&P trade on 9/30/87, was a position trade and in 2-days I netted a $4,000 profit which I took. "This is easy." Now note that I was teaching myself and it was now 10/87. There was no one to teach me that I needed to place judicious stops with each entry (I was using a discount broker).
By the end of 10/87, I was out of pocket exactly $2,000 and at that point, I decided to take a breather from trading. (And wasn't I lucky not to have lost more during that time?) A real baptism by fire for a new trader.
By the time I gathered nerve to begin trading again (spring of '88) I had decided to only daytrade the S&P. I have spent the intervening years studying the movement of that market, identifying certain patterns that occur with some regularity. I have notebooks full of data for the past 9-years. I am finding that this may not be an advantage for as a result of extensive study, I tend to over-analyze and thus become paralyzed for there is always something questionable about any trade.
My trading record is very spotty with my worst year's loss of $5,119. My best year's profit was $5,931, with small gains and losses sprinkled in between. So, it's really pretty much a wash if you don't consider the 1,000's of hours I've spent on the project. Then, it's a big loss!
My recent subscription to Commodity Trading Club Newsletter has helped me see that others have the same problem I do of inconsistently trading their signals. It has helped me realize that if they have overcome bad habits, I too can do better. In the April/May issue, I asked to hear from people who were interested in having a trading buddy. I have thoroughly enjoyed the calls I have gotten (only two women so far). These people have given me a psychological lift to know that there are other people out there working at this trading business, doing it and not letting their losses paralyze them.
During the past year, I have been working with a very helpful broker who offers his customers free access to a telephone advisory hotline with 4-daily updates on the S&P. (Lanny Cohen of Capitol Commodity Services, Inc. in Indianapolis - 800-876-8050). This is an excellent service and it helps ones confidence a great deal to have confirmation of signals. The hotline is a real plus, especially for free. Give Lanny a call if you are interested.
So, I am not giving up. This project may be my last hurrah and I'm determined to make it work. I've made a fortune on paper, and now need to make it work in actuality. I've lost lots more money by not trading than I ever lost by trading.
Keep the newsletters coming. We all need'em to keep us going.
Miscellaneous Ramblings - Gale Paxton
Jo and I take this opportunity to thank all of those who are sharing with us and to thank Dave for another great publication. As a result of our (last) contribution, we have received calls from some very caring CTCN members offering to share with us and give us encouragement and support. Sincerest thanks to all.
Attention to our friends out there in CTCN land that correspond by E-Mail, we have a new address (contact via CTCN) Our thanks to RKF (TX) on his articles on Tax Regulations and Trader Status Requirements (Vol 4-2). They were very well done and gives us a better insight on how we might be able to set ourselves up for deducting our trading expenses. I guess the most frustrating thing about our tax structure is the way the IRS gets all of the benefits from those of us who take the risks, but they are unwilling to allow us to write off the expenses and loses resulting from these risks.
In response to John Meehan's article, "Trading Can't Be Taught Like Professions Can" (Vol 4-2). I agree that one can't be taught to trade successfully by any books, seminars or gurus, and that, by and large, all systems purchased are a total waste of money. While the books, seminars, gurus, etc. give the basic technical and/or fundamental tools to work with, they do not give one the personality traits and intuitive skills of their teachers. I am assuming of course that all of this teaching material/seminars are by proven successful traders.
While John didn't come out and say don't waste your time and money on these areas it was implied and I disagree with John, to a point. I feel it is necessary to acquire some of the basic analytical skills and market knowledge so that one has a better understanding of chart interpretation and how the markets work. There are probably six to eight good books that I feel are very worth while. Otherwise, John is totally correct, successful trading can't be taught, it is something very personal and has to be developed over a period of time. Thanks to John for a well done article.
Response to "CTCN Hasn't Totally Wimped Out" by Gary Antonacci (Vol 4-2) While Gary's article wasn't totally negative regarding CTCN's reluctance to print some vendors' names in these negative articles, I feel that Gary doesn't quite understand the big picture when it comes to the use of our right of free speech either by verbal expression or written word. We are guaranteed the right of free speech under the Constitution. But we are not guaranteed freedom from law suits by those we may speak or write about even though the suit may be frivolous and unjustified.
When submitting articles to CTCN for publication, we must keep in mind that we are liable for our actions. We must also remain aware that the vendors that we have written about could lose many thousands of dollars of income from the publication of negative articles. By threatening to sue the writers and/or publishers of negative articles, even though the information contained therein is true, they will keep most of these negative reports out of print thus assuring continued sales. They have the money to bring these lawsuits and we don't. Therefore, the $1,000 or so they spend having their attorneys contact those of us who may write or speak against their products is money well spent. Just the threat of a lawsuit is usually enough to prevent publication of these negative articles.
As an example of the willingness to bring unjustified lawsuits, I know for a fact that over the past 30-40 years, a large oil company has a habit of bringing suits against the inventors of automotive carburetion products that greatly enhance the efficiency of the automobile engines and increases gas mileage by 2, 3 or 4 times. These suits are designed to keep these new products off the market, because they would drastically cut into the oil company's profits. There is nothing in our laws that prevents them from bringing these suits and dragging them out for 5, 10 or 15-years. The inventors don't have the capital to bring these suits to an early conclusion in the courts and are prevented from marketing their products until the suit is settled. The oil company has spent maybe $200,000 or less over this period of time, but they have reaped millions in income by keeping the products off the market.
Dave has provided us with this forum that allows us to communicate with each other, express our experiences and give our opinions on the various products that we have tried. By doing so he has put himself in a vulnerable position with the vendors and advertisers. Therefore, I feel that Dave deserves our support and his idea of a CTCN legal fund deserves serious consideration by all of us.
I do have a question which may or may not resolve the problem. On CNBC and other financial programs that we listen to where guest brokers and analysts appear, they have a stated disclaimer as follows: "The opinions and recommendations are those of our guests and not those of CNBC," is it possible to have a disclaimer of this type in CTCN whereby the writers of the articles would have to assume responsibility for what they write as opposed to CTCN being on the legal threat hook? Of course this would require the writers to stand behind what they write, bite the bullet and fully identify themselves rather than be anonymous donors. Are we all willing to do this or are we going to "wimp out?"
Response to "Enabling Execution" by Don McCullough (Vol 4-2) Great article Don. I feel you have addressed one of the major problems when it comes to trade execution that all traders experience, especially new ones.
A card with these definitions of disabling - enabling execution boldly printed on a card and placed in a prominent location where one will see it at all times when doing their trade analysis would be a great reminder to check your mental attitude about a trade before executing or giving up.
Response to Dr. Howard Marks' article on Joe Ross and Bruce Babcock (Vol 4-2) I am in total agreement with Dr. Marks. People like Bruce Babcock who are also marketing their own trading systems, seminars, etc. should not review and critique the works of others with whom they are in competition. There is definitely a conflict of interest and displays a complete lack of integrity on Mr. Babcock's part. Thanks for an excellent article. It certainly changes our prospective of Bruce Babcock.
Response to Don Thompson on System 2000 (Vol 4-2) Per Arnie Gronfelds' manual, he did not model the system on a computer, but did it all in long hand. However, it could be modeled on a computer. I agree that it is an interpretation of turning points, or really it is an interpretation of possible turning points.
Jo and I have found that it gives many false signals, especially in a strongly trending market and many of these turning points may be signals to add to a position already taken rather than a signal to stop and reverse. We have also found that you can get started out of sequence which has one taking sell signals when you should have already been long and maybe tightening your stops based on the sell signals. Of course the reverse is true for buy signals as well.
It has been our experience that over 50% of the time, System 2000 will give you signals way too early. If you take these early signals, which by the system's rules would be to enter the market the day following the signal, you would be stopped out the same day or within a couple of days. It appears that one could use the buy/sell signals as possible early warnings of a short or long-term trend change or correction in which case you could look to other corroborating indicators before taking a position. The corroboration could be 2 to 5-days after getting the signal. Jo is evaluating this aspect of the system as well.
For over 2-years we have been working with System 2000 (S2K) off and on. I say off and on because as we have worked with it, we've encountered too many false signals. We feel it is taking too much time from our analysis schedule and set it aside. However, there is something about the system that keeps drawing us back because we feel that we are missing something that could make it a very valuable tool. So, we resurrect it and start looking for some filters that will work with it and give us that high percentage of good trading signals that we are looking for.
There is one possibility that may have made the system work for Mr. Gronfeld and that is the use of very large protective stops. We have noticed that quite often after receiving a buy or sell signal the price will move against you for anywhere from one to 4-days. By using large stops, one can ride through the near term reversals.
Jo is presently working with the system evaluating different filter combinations in an effort to determine the accuracy of the buy/sell signals that S2K generates. As part of our "research" I kept wondering if going to a longer time frame might give more accurate signals, so I built a new spreadsheet with a slightly different time frame. I got a little careless when I set up the spreadsheet and forgot to change the equation in the signal column to account for the longer time frame. We didn't discover my error for several days, but while Jo was evaluating the new data with the uncorrected equation, she was getting some very good signals.
I made a new spreadsheet with the correct formula. As it turned out, by correcting the equation, the new data was useless. Scratch another one. It appears possible that my failure to make the correction in the signal column may turn out to be a pretty good accident.
It is our opinion at this time that System 2000 is not a stand alone system that one can trade without using very large protective stops. Although Jo has found that by using the stochastic filters one can trade the System 2000 signals with a $250 stop. We will keep you all apprised of Jo's progress or lack thereof as we search for these indicators. We agree with Don, the system is not worth $400 in its present configuration.
Future Price Quote Anomalies: In the 3-years we have been trading, we have encountered price variations between the various sources that we have used for both intraday and end-of-day quotes. The differences between opening prices doesn't bother us too much, it is the highs, lows and closes that concern us. Our sources have been DialData which is our present end-of-day service. First American Discount is our present broker. Lind-Waldock and Ira Epstein were past brokers and CNBC for daily high, low and close comparison to DialData.
Of course, we expect some differences in intraday current prices between the brokers' quoteline because of the time delay between dialings, but not the differences we were getting in their open, high and low prices. It would seem to us that since the prices are suppose to be coming from the exchanges, that there would be no differences, except in the last price quote. Has anyone else had this same experience and does anyone have a plausible explanation?
Lose of Account Executive (AE): We have become extremely cautious traders during the past year and therefore we do not call our AE on a daily basis. Unless we have a trade we are seriously considering or are already in a trade, it may be several days before we call him/her. Yesterday Jo called to talk to our AE to get some info on a trade she was considering. The AE that sits next to our AE answered the phone and informed Jo that our AE was no longer employed by the brokerage firm. We would think that brokerage firms would be required to inform clients that their AE was leaving the firm and give them an opportunity to select a new one.
We don't know if any CTCN subscribers have ever had a similar experience, but we suggest that unless you are trading and talking to your AE on a daily basis you may need to check in with him/her at least once a week to see if they are still employed by your brokerage house.
Trading The Maybe's - Don McCullough
I once read where a professional trader described his line of work as: "I'm in the good bets business." Many times I have seen a signal and said: "I can't trust it." Heck no, I can't trust it -- or any other individual signal. That is definitely one of the greatest psychological stumbling blocks to consistently trading your signals. I'm continually having to remind myself that I too am in the good bets business. The probability business, the good percentages business or: I've come to prefer calling it -- Trading the Maybe's.
Maybe it's a good signal, maybe it's a bad one. You can never know for sure. Note, I used the word signal and not signals. There's a world of difference! Living or dying by a single trade or signal is a real killer of trading performance. I'm sure of my signals (plural) worth, but I can never be sure of the worth of any one signal. Over many trades I'm confident I'll come out way ahead.
So that's the way you have to think. Not in terms of any one signal or trade, but in terms of the overall outcome after many signals or trades. In the "everyday world" we deal primarily with certainties and that can be a hard habit to break. When dealing with the markets there is nothing but good bets, good probabilities, good percentages or "Maybe's." You absolutely have to learn to think and act in those terms.
Although you won't hear many pro traders or exchange officials talking in these terms, (understandably so) you really need a professional gambler's mentality to be a good trader. A good professional gambler has developed the discipline to, as they say, "play the odds." Good bets, good percentages or probabilities -- same thing. More than one professional gambler has taken his gambling mentality and succeeded in the speculative markets.
I recently read a pro trader describe how difficult it is to become a good daytrader. How hard it is to become able to see the signal and instantly pickup the phone and place the order. How hard it is to learn this kind of fearless, unhesitating action. She said it takes "trader's muscles." And, she said it takes a good deal of time to develop them. Her comments here are some of the best things I've ever read about daytrading. Trader's muscles! I love the concept.
Learning to trade the "Maybe's" properly and with the proper mind-set is quite a task!
Options & Spreads: The Business Diagram & Jungle Map
During the American Civil War, a Union general and his retinue scouted a field for signs of enemy activity. A subordinate officer spotted some Confederates in the distance. The general said, "Don't worry. They couldn't hit an elephant from that.
No plaque hangs on my wall, but an imaginary one dangles before my eyes occasionally and bears words by Nicholas Darvas: "There is no such thing as 'can't' in the stock market. A stock can do anything."
Nick Darvas and I (if I may presume to list myself beside one so famous) survived longer financially than that general did physically, because we read more accurately the schooner barometer and coastal beacons of risk. No risk means the soldier stays off the battlefield and the mariner remains on dry land. But then, no gold medal and no cash for cargo.
you can think of risk as a dragon, but you must understand the hidden meanings of that creature. "Dragon" derives from a Greek word meaning "acting" or "seeing;" a loose but accurate translation would be "guarding." Thus the dragon in Greek mythology was a reptilian watchdog always guarding something: The temple entrance, the princess, the urn of gold. Wherever you find precious things you will find dragons of risk. Yet they can be defeated and/or they can work for you.
Risks may be big or small and -- more to the point of this article -- handled foolishly or wisely. You can, with relevant skill and caution, realistically train a cheetah to chase down game and provide meat for your table. Or you can put your right arm in the lion's mouth and get nicknamed Lefty. Alas, we are human. How easily we give ourselves a hundred when marking our own test papers. How easily we assume that our actions are the "wise" ones and other people's the "foolish."
Thankfully, there is a middle ground risk-wise, a Golden Mean between inflation-corroded money in a stock and a go-for-broke crap-shoot. The significance of risk for traders rests on two foundation stones: First, stocks, futures and options are all "ain't nothing guaranteed" types of paper. Second, the ranks of traders teem with amateur chemists handling explosives.
W. D. Gann said, "Handle speculation like a business, not like a gamble." Yet did you ever hear of a broker turning down a potential client because the latter's approach was "not business-like enough" or "not expert enough" or "not scientific-minded enough?" While most are not villainous, brokers find themselves in a sink-or-swim position of having to sign-up fresh capital, like military recruiters with their glamour and rewards enlistment pitches have to sign-up quotas of warm bodies.
Interpret "new clients" as "replacements." Various estimates say that 9 out of 10 commodity traders see their dollars turn into cavalrymen at Little Big Horn. An estimate of less than 90% losers is an exception. In his book A Fool and His Money, John Rothchild wrote of "recent progress in eliminating the fraud and abuses suffered by the average speculator in commodities. Personally, it was hard to believe that anybody lost sleep over the cheating in an industry where 80 to 90% of the participants lost all their money anyway."
Also, over 90% of all out-of-the-money options expire worthless. Personally, did my option-investing capital perish like Custer amid the Black Hills? Am I the amateur chemist handling explosives, with hard-sell commission-desperate brokers supplying the nitros and potassium?
Spread strategies using options are not a philosopher's stone or a perpetual motion machine in my basement laboratory. They are nonetheless the home silversmithing that shines appreciably. Less complex than calculus and less tomorrow-land than computer stochastics, still they stand out for enabling me to "handle trading like a business, not a gamble."
A hallmark of the business-not-a-gamble approach is the reducing and limiting of risk. You must take chances, but you must limit your exposure. The story is told of a preacher delivering a sermon. Suddenly a nude woman ran into the church and streaked across the altar. The reverend declared, "Anyone who gazes upon her will be struck blind!"
In the congregation happened to be a successful investor/speculator. He covered one eye with his hand and said, "I'll risk an eye."
Like a pro he reduced the risk. Limited his exposure or vulnerability. The First Commandment of Risk Management stands rock-solid: No more than one-tenth of venture-capital per venture. Option spreads are hazard-reduced, not hazardless. A clothier does not put all money and all inventory into a clothing line that could go out of style next week. Just a limited amount of capital and inventory. The difference between business and crap-shoot.
Also, if you do option spreads, half your business is that of a seller or dealer in risks, a legalized bookmaker. Risk is a dragon that can menace a person or stand guard for him. It is a cheetah that can claw a hunter or pile up antelope meat at his command. The cautionless dabbler and the too-impatient-to-read-the-jungle-map type should stay away, but the person with reasonable smartness and effort can have these fire-eyed quadrupeds in his employ.
Another device helpful, but not idiot-proof is time. Ben Franklin wrote, "Do you love life? Then do not squander time, for that is the stuff that life is made of." However, the lyrics of the 1940s song "Speak Low" say, "Time is so old and love so brief. Love is pure gold and time a thief." With the type of option strategy known as time spread or calendar spread, time guards your long-end holdings while it steals and destroys the short-end IOUs you sold for cash. You keep the cash.
Then you sell more IOUs on which you do not pay. While this happens on the short-end of the spread, the fattening of your holdings on the long-end is a variable, happening not always but often. I have been able to make it happen more often than not, ending the game early with more greens in the pot.
As explained in a previous article, I begin by finding an optionable stock that is trending. If upward, then I position a horizontal spread of call options above the share price. If downward, then a horizontal put spread below. The strike price of the options should be close enough to the share price for the puts or calls to have meat on them, but not so close that a slight fluctuation of the stock would place them "in the money."
In my recent venture, I noticed IBM slipping slowly from its 128 and a fraction high of some months ago. The New York Times financial section declared it a "bargain stock" but I interpreted its moves as rear guard actions or fire-and-fall-back maneuvers on the charts. Regarding fundamentals, company executives announced that future earnings may be lackluster for a time.
With share price hovering over 100 in early July 96, I obtained the following option figures from the discount broker: July 95 (strike price) puts -- bid 9/16 ask 5/8; August 95 puts - bid 2-¼ ask 2-3/8; October 95 puts - bid 3-7/8 ask 4; January (1997) 95 puts - bid 5-½ ask 5-5/8.
Usually, the long and short ends of my horizontal calendar spreads are just a couple of months apart (e.g.,. sell February/buy April or sell February/buy May) but this time I looked farther into the future because I wanted to try something special: A calendar spread as a stock substitute. Explanation -- A stockholder selling covered calls waits until expiration then sells the next month, then the next and so on. Similarly, a spread strategist can sell a whole line-up of short-end options one batch per month if the long-end options are well into the future.
So I bought 10 IBM puts -- strike price 95 -- expiring in January 1997 and sold 10 July 95 puts expiring two weeks from date of sale. Counting commissions, I paid $5,660 for the Januarys and received $652.47 for the Julys. With the opening of a spread position, the buy and the sell orders can be given to the broker together with each dependent on the other, the price difference between them or "debit" stated by the investor as part of the order. In this instance, however, it was more straight forward to handle the two ends separately, buying the Januarys at the ask price then selling the Julys at the market.
Let us detour for a moment and take another look at that earlier paragraph that starts "With share price hovering." Please note the numbers therein. August 95 puts 2-¼ to 2-3/8. January 95 puts 5-½ to 5-5/8. From the vantage point of July 1996, January 1997 options are five or six times richer in time value than Augusts. But do they cost five or six times more?
No, they only cost not much above double. This alone is a sword-against-penknife advantage for the time spreader. For roots of causality look at the following volume figures from the options page of the Wall Street Journal 7/19/96: Sun Microsystems August 50 puts: 1095 contracts sold; January (1997) 50 puts: 48 contracts sold. Microsoft August 115 puts: 406 contracts sold; January (1997) 115 puts: 27 contracts sold. Compaq August 45 puts: 1066 contracts sold; January (1997) 45 puts: 65 contracts sold.
You can see that option contracts nearer in time to expiration do trade on far heavier volume than those with expirations several months distant. In finance, the busiest bridges are the most expensive, good news when you receive the tolls. All those bids and buys of near-term contracts inflate the prices. Good news when you sell them.
In his book The New Options Advantage, David L. Caplan wrote of the one-sixth-the-time-but-half-the-price type disparity: "This often happens in volatile markets as there is an increased demand for these 'more active' options for speculation and hedging. Often, we find that the deferred month options are 'forgotten' and trading at volatility levels of 50% or more lower than the active front month contract."
The paltry number of purchases keeps the "forgotten" options at bargain-price levels, rich in time though they are. This enables the calendar spreader to buy the bargain while selling the over-priced to the anxious crowd who makes it over-priced. He purchases the far-term forgotten land and does a near-term land office business.
Anyway, back to my spread strategy with IBM puts. I bought the Januarys and sold the Julys even though the value of the latter was ravaged by time because these would expire in just a couple of weeks and free me from the obligation. My eye was on the plump and active August 95s, then trading between $2,250 and $2,375 for 10 contracts. Crediting what I received for the Julys toward what I paid for the Januarys, my "debit" or the amount I invested totaled $5,007.53.
My plan, if IBM shares stayed around 100, was to profit from time-decay, selling near-term options and then, after they expired, selling the following month and later the next. If the stock continued lower, I would buy back the near-term options, closing out the short-end of the spread, but keeping the richer-in-time-value options of the long-end.
In anticipation of the latter eventuality, I had positioned a horizontal put spread like a net under a declining stock. A rising stock would have invited a call spread overhead. Well, IBM did continue downward, slightly crossing the 95 strike price line. We now arrive at the questions of if and when to buy back and close out the short-end. Readers of my past writings will note this item as something new in my trader's toolbox.
In an earlier time, the slightest toe-extension of short-end puts or calls into the money would have signaled me to buy back and close out. Ideally (if this is not too severe a contortion of that word) a spread strategist is not only a bookie, but a bookie who never pays off on a bet. He writes and sells IOUs which evaporate uncollected. Ergo, it is life's-blood essential that he avoid an exercise of what he sold.
IBM ebbed to 94-1/8 or 7/8 of a point into the money on the 95 strike prices of my short-end Julys. Was exercise inevitable? Quite likely? Tom Curran, head of York Securities in Manhattan, explained to me months earlier, "Nobody is going to exercise an option he holds if he can get more money simply by selling the option." In my recent example, the put-holder could gain 7/8 of one point by exercising it, i.e., selling the stock at 7/8 of one point above the market price. However, that option sold on the exchanges that day for a fraction over two points. All good sense says do sell, don't exercise.
Another relevancy is that in-the-money options are "as-signed overnight." In other words, exercise orders are matched up with in-the-money puts and calls after the close of the trading day. The New York Stock Exchange ends trading at 4:00 p.m. Option transactions continue for an additional 15 to 20 minutes. Then option-holders who had exercised their puts and calls during the day trigger overnight assignments, turning many contracts into spent cartridges. So focus on trading day's close.
In my case, IBM shares hit a low for the day of 94-1/8, but ended the trading day at 95 and a fraction; puts with a 95 strike price were out of the money in time to avoid moonlight match-up. The following day, however, I phoned the broker for quotes at 3:43 PM, 17 minutes before the close of stock trading. IBM at 94-¾, also its low for the day. Back in forbidden territory! I told the broker, "I want to buy back 10 IBM July 95 puts at the market to close the position." The stock ended the day at 94-7/8 with 95 strikes vulnerable to the nocturnal shotgun marriage. Glad my short-end was gone.
Buying back the July puts, inflated by the decline of the stock, cost me $2,000 plus discount commission. This made my $5,007.53 investment in the long January 95s a de facto just-over $7,000 one. I had no complaint because IBM's downward trend also beefed up the Januarys. The 10 were worth $7,500 and climbing. The next business day, just five trading days before expiration, I sold 10 July puts-strike price 90 this time - for $652.47.
This marked a change in strategy from a horizontal calendar spread (different months, same strike prices) to a diagonal calendar spread (different months, different strike prices). Imagine a diagonal line descending from the 95 level to the 90. This is a form of "covered writing" in that the options you own cover or secure the ones you create and sell. Within the boundaries of covered writing, you can sell call options of the same strike price as the ones you own or higher. With puts, of the same strike price or lower. Thus I own 95s and sold 90s.
Shortly afternoon one or two trading days later, IBM fell to 89-¾, placing the July 90s a quarter of a point into the money. However, the shares climbed in the afternoon and closed a few points higher. No danger of an exercise. The down fluctuation temporarily swelled the Januarys.
Special attention should go to closing prices for a couple of reasons, overnight assigning being just one. According to a piece of Investor's Business Daily, a stock that closes at or near its high for the day will probably go higher early in the next trading day. Conversely, a stock that closes at or near its low will probably sink lower. The theory holds that various temporary forces that influence a share's behavior have spent themselves before the market's final hour and especially the closing half-hour. The stock is said to move with a truer, less-impeded momentum that carries over into the next day. This finding has proven an excellent guide to tracking IBM's motions these past few days before July expiration.
There is also the theory espoused by several financial writers that the trading day is comprised of two distinct time-sections. The morning hours tend to be dominated by amateurs, including many working people who phone buy and sell orders to the broker before going to their jobs. The afternoon hours form the pro traders' half of the inning and give them solidifying trends to ride.
Although skeptical of all theories, I must admit that the stock market made more sense to me when I stopped expecting the first and second halves of the trading day to resemble each other. Thus I routinely watched IBM shares zig in the morning, zag in the afternoon; they forgot their recent past during the final hour or half-hour and began rehearsal for tomorrow.
I write this during the weekend after the third-Friday/Saturday-of-July option expirations. The July 90 puts I sold expired worthless. The $652.47 premium I received for them: Pure gravy because time-decay or time-is-a-thief destroyed the IOUs I sold, burned the bets I booked.
On Friday, IBM stock chipped below 64 during the last hour of trading, with a low of 63-5/8 and a close of 63-¾. The "forgotten options" I bought, the January 95 puts I longed at a cost of $7,042.53, weighed in at the closing bell at 8-¼ bid 8-¾ ask. Rendered concretely with dollar signs on 10 contracts: $8,250 to $8,750. Time-wise this comprises my trader's diary 7/9 to 7/19.
What about this coming Monday? The shares closed snake-belly near their low on Friday and so should continue lower early the next trading day. More panned gold for a put-holder, thanks to what classical Dow chartists call: lower tops and lower bottoms" and the Ellioteers term "the a-b-c- downslope." Yet let us not forget Darvas' words: "There is no such thing as 'can't' in the stock market. A stock can do anything." Add to this my own hair shirt aphorism: "Anything is possible and I could be mistaken."
Monday and thereafter, selling the Januarys at a profit stands as a possibility. More so if a further wane of the stock boosts their poundage. Or I could hold them and create another diagonal spread by selling 10 August 90 puts which ended the day at 2-¾ ($2,750 minus commission). However, with the stock in the low 90s, a 90 strike price is too near to in-the-money. A steeper diagonal, perhaps, with August 85 puts? Tis a 1-3/8 point ($1,375 minus commission) opportunity, with more downward space for the shares to sink to. Or maybe no short end for now if the stock slides markedly.
Capable decision-making. Essential for taking a scientific approach and handling trading like a business, not a gamble. The notion of a scientific approach and a business-like approach contains several layers of meaning. First off, it means expertise. A person can be an expert at insurance, car dealership or restauranting, but no one would take an "expert" dice-shooter to mean anything but somebody who has lost a lot over long time periods.
A person can be an expert at trading stocks or futures or options, but too often the self-credentialed "financial wizard" is a thinly-disguised roulette-player who wagers until he runs out of capital. Just as it is too easy to give yourself a hundred when you mark your own test papers, so it is too easy to assume that your capital is the "smart money" and somebody else's the "mishandled funds." Also, sadly, trading attracts impatient incompetents like wholesaling, realty, haberdashery, undertaking and office training school seldom do. It's a magnet!
The cheetahs and dragons of risk can produce for you the heap of meat and the tureen of gold but they are not lap-dogs and require an expert handler. You can be an expert but be doubly cautions about judging yourself one. Money can be made in a basement laboratory, but too many self-proclaimed Edison's end up broke, their self-evaluations more robust than their performances.
Another vital layer: Being dispassionate, objective, detached. Inevitably, business and gambling and trading all strain the nerves and fire the emotions sometimes. Nevertheless, the wholesaler assembling a plan and making a routine phone call provides a better model for the trader than does the horse-player sweating and pacing at post-time. An emotional roller coaster is unscientific and unbusiness-like.
One final one: Do not invest huge amounts of self-esteem in your projects. The gambler congratulates himself as the smart boy when he expects to win then brands himself the fool when he loses. Likewise, many a trader ordains himself the financial genius then declares himself an incompetent and a hopeless case. "Gee, I didn't think myself stupid, but now I'm not so sure." Engrave this axiom on an imaginary plaque: "When trading, leave your ego out of it."
EPILOGUE: Then What Happened? - Greg Donio
I write this on Saturday, September 14, 1996. On my desk lies a yellow "Save One Dollar" coupon from the Empire State Building. On Monday, July 22, IBM touched a low of 91-7/8 then closed at 92-¼. On Tuesday, low and close both 90-½.
Wednesday, July 24, I first phoned the broker about an hour after the start of trading, to give the stock some time to show some trend. High for the day 92-5/8, low, 89-1/8, currently 90-½. Hmmm. Twice the previous week it had hit lows of 89-¾ and then climbed somewhat. A base? A triple bottom?
Esoterica aside, movement appeared blocked on the down side, bad news for a put-holder. A chance of it rising, more bad news. Nevertheless, in previous days I had rooted for it to sink below 95, then 94, then 93 and a fraction. The 90 looked quite pleasing even with the fraction dangling.
A few minutes later I phoned again. IBM 90-7/8. Then I decided. If it went anywhere at all over 90 and a fraction I would pull out and count my winnings. Of course, it was already just 1/8 of a point from that boundary. Again I phoned. 91-¼. "Sell 10 IBM January 95 put options," I told the broker "at the market to close the position, soon as possible."
Time for a little diversion away from my at-home desk. Within an hour I was in the basement corridor of the Empire State Building, ready to get in line with tourists heading for the 86th floor outdoor observation deck. First I reached for one of the public phones in the hallway. I like the freedom that being an independent trader gives me. My office is in my pockets and my business phone is the nearest touch-tone.
Connecting with the 800 number, I turned over the yellow "Save One Dollar" coupon that the building tour-guide handed out. The broker stated and I jotted, "Sold 10 IBM puts at 9-¼." Only 14 trading days earlier I had paid 5-5/8, a plus-side difference after commissions of $3,524.69. Manhattan in the early afternoon looked silvery from 850 feet up, but the scrap of paper in my pocket felt as dear to me as the photo of the sunfish to the angler who caught it.
But the action continued. The very next day, IBM shot up 10 points, massacring the put options! Most people only say "Why?" when things go wrong and they are bothered. I ask it when things go well. One must know what one did right so one can do it again. How did I happen to tote my gold out of the Black Hills the day before Little Big Horn?
The investment books by Nicholas Darvas that I had read years ago mattered much. He used to advise: As long as a stock keeps going in the right direction, stay with it. When you see it turn around, grab the money and run like a thief. So for a holder of put options, the blockage on the downside was a voice singing, "The Party is Over." The hops upward before the big leap were the same song louder.
Another persuasive item I had in mind was an anecdote from an investment book published earlier this century. A man bought shares for $10,000 and he watched them climb in value to $17,000. Wonderful, he thought. He would pay off all his bills, buy a Packard, buy his wife a fur coat, take an ocean voyage, price some real estate both total and down payment, also.
Then it slipped to $15,000. He decided he would sit firmly until it rebounded. Then $13,000. He could not bring himself to remove anything from his dream-list. Surely the stock would recover if he showed patience and endurance. Finally he lost all the paper profit plus a couple of thousand of capital.
An investment advisor told him afterwards, "Once you mentally spent the money, you felt you could not possibly do with less than $17,000. That did you in." IBM looked wonderful at 90 and a fraction, but when it moved out of that golden frame, I took that as a signal to conclude rather than to await a come-back. So many investors and speculators would have said, "I'll take profit when it gets back to that point on the chart." They should have taken profit earlier when it reached that point then began retreating.
New York University professor of finance George Barrone's advice to short-sellers in the stock market: "Panic early." Also good advice for profit-takers and other traders. The share-holders in Atlantic City casinos who panicked early and sold out with a 10 or 15% loss shed far fewer tears than those who "brazened it out" until those stocks lost more than half their value.
Another entity with me then and with me now is the ghost of W. D. Gann and his utterance, "Go with the trend." After IBM's run-up I said to myself, "Such a big move is usually followed by a retracement. The stock will probably give up a hefty part of that gain real soon. Maybe I should position another put spread."
Cynics refer to this attachment-forming as "keeping pets." You feel in your heart that the stock, commodity or option thereof that gave you a profit before will do it again. This feeling is understandable since to the successful investor the company name sounds afterwards like a victory song, splendid and spellbinding. An echo difficult to ignore.
Thus the pet-keeping side of me said, "IBM. Encore!" but there was another side. W. D. Gann spookily arose off of pages I had read and warned, "Don't buck the trend." Yes, this substantial climb by IBM shares was or could be part of a new trend upward. First, I noticed that retracement did not happen. The stock stayed a little over the 100 level.
Then it rose to 105. I wondered, "Is this the ceiling? Is this the time to slip a put spread under it?" Again harbinger-like the voice cautioned me: Against the trend is poison. Gradually the price ascended to 110, then 115. Yesterday, Friday the 13th, it closed at 122-1/8. A lucky day for me, who did not sip the hemlock.
I try for a scientific approach and do not wish to sound like a superstitious daigo, but an occasional ghost in the attic or on the back stairs can help a financial trader mightily.
Miscellaneous Thoughts - Anthony Fote
I find CTCN to be the most interesting and rewarding piece of work. For me it seems to be a crucible in that it helps me reveal what is worthwhile (for me) and what is not. There are a lot of useless products that seem to waste your time and money. I am grateful that I found CTCN and feel that it is of the highest value.
I do not own your Real Success video or software. I'm sure I would learn from them. I am saving for a computer so that I might then buy a program (TradeStation) that will allow me to backtest and design my own systems. There is little said about the value or effectiveness, or lack thereof, of TradeStation.
I would like to thank Don McCullough for his articles. It seems like Don has been progressing nicely with his trading. I enjoy reading his articles. I would like to know what books Don thinks are of value (120 of 130 books in his collection are a waste). I would also like to thank Tom D'Angelo. I now feel like I won't be swimming in a circle with money management. I have always thought that there was very little written about money management.
Thanks to everyone who contributes to the newsletter. It is a great and educational resource. It is great that we can all learn from the experiences that are written about in CTCN. The education is truly appreciated and would sorely be missed.
The Next Great Depression - Jerry Ross
After reading At the Crest of the Tidal Wave by Robert R. Pretcher Jr., I have some thoughts.
Players creating and being involved in the next depression are:
1. Measure of Wealth
a. Stocks and bonds measured by the last tick on the exchange, which is probably a measure of enthusiasm for buying or selling
b. Real Estate -- market value (less outstanding mortgage and cost to sell)
c. Personal Property -- market value
d. Cash -- value of dollar as judged by foreign countrie
2. Money Makers
a. Lending Institutions
b. Government debt monetarized -- debt accounted for as an asset
d. Farms & other harvesters of natural resources
3. Money Takers
a. Loans outstanding and interest on loans
c. Other unavoidable costs
The Great Depression Scenario
1. . Measure of wealth substantially decreased
a. Stocks drop at least 50%
b. Real Estate -- because of change in measuring wealth, no buyers. Banks won't make new loans and few cash buyers
c. Personal Property -- has little garage - sale value, especially when others are trying to raise cash
d. Cash -- depends on value of dollar, which without gold backing, could be in trouble. We have little basis for measuring the value of computer bits representing cash, or how well foreign countries will accept them in case of a real economic slowdown.
2. Money Makers (substantial reduction and the most vulnerable)
a. With measure of wealth down, not likely to make new loans
b. Monetarized debt would cast doubt on the soundness of the government's ability to pay
c. With measure of wealth down and sales down, employers will reduce work force and salaries paid. Salaries are especially vulnerable since basic needs are now produced overseas and information products (US strong point) may have little value if times get tough
d. Drought cycle is such that if a depression occurs within the next 5- years, drought may add more misery to a miserable time reducing our real strength, food production
3. Money Takers (down some, but not as much as wealth measurement and money makers cuts)
a. Lenders foreclose on loans, but can't sell the assets or afford the taxes and other costs of holding. They won't foreclose on properties where debt is high
b. Taxes and other costs of ownership make owning property too high both for individuals and lenders who would foreclose on it.
It appears to me that the next great depression, if we do have a depression instead of runaway inflation, will be created by an imbalance between money makers and money takers, compounded by a great change in how wealth is measured.
A change in measurement of wealth may be a forerunner of a recession. A depression will not occur unless the imbalance between money makers and money takers occurs and to an extent where most of the nation is affected by losing jobs, reduced pay, losing property and other tangibles by foreclosure. These relationships should be watched. They make more sense to me than Elliott Waves, moon phases, and/or other cycles.
Are Your Odds Of Becoming A Successful Trader 1 in 10? A Surprising And Encouraging Answer - William J. Welsh, J.D., Ph.D.
It is often said that a new stock or commodities trader has only a one in ten chance of succeeding. Is this true? If we think about it a bit we can quickly determine that not only is this untrue, it is absurd. To the contrary, we will see that your chances of success or failure are always 800!
First, though, let's accept as a fact that research shows that only one in ten traders ever becomes successful. I am not sure whether this in fact is indeed true or not, but for the purposes of the point of I wish to make, lets assume it is true. Let us assume that only one in ten traders actually succeeds.
The question, then becomes as follows: "Since it is true that only one trader in ten succeeds, does this mean that your odds of success are only one in ten -- and that, therefore, the odds are hopelessly against you?" The answer is no. The fact that only one in ten succeeds does NOT mean this is YOUR chance of success. Here's why.
A person who concludes that his chances of success are one in ten has committed the logical fallacy of applying the concept of "odds" improperly. "Odds" -- i.e., probability -- can only logically apply to a future event that is outside of your control.
An example is the lottery. Since the winning number is outside of anyone's control, the odds of any one person winning or losing can be determined. Now, if winning and losing in the markets was outside of your control, then using this approach would make sense. But, in actual fact, winning or losing in the markets is not only NOT outside of your control, it is TOTALLY and ONLY under your control.
Each and every person who wants to trade has the same odds of becoming successful or failing -- 800! If you do the right things to become successful, your chances of succeeding are 800. If you do the wrong things, your chances of failure are likewise 800.
The encouraging truth at the bottom of this line of reasoning is that you and I need not fear the fact (which we accepted as true) that only one in ten succeed. Instead, we should embrace with confidence another fact -- that every single person who does the right thing will succeed and will be the successful one of the ten. And that every single person who does not do the right thing will fail and will be one of the other nine of the ten.
Of course, the above analysis requires that you take responsibility for yourself and make sure you learn the right thing to do. This is your responsibility and nothing comes easy.
On the other hand, when you understand the way success and failure works you are freed from the fallacy that life or trading is luck. And, you are free to set about the task of learning what you need to learn with the confidence that your goal can and will be reached when you have learned to do the right things and then do them.
Rather than "proving" your odds of success are one in ten. The old adage that only one in ten succeeds merely "proves" that most people will not learn what they need to learn to succeed. This may be a sad commentary about people, or an indicator of how hard it is to learn to trade, or an illustration of the lack of good trading information. But it has absolutely no control over your chances of success. Only you have the control and only you determine whether you succeed or fail.
Catastrophe Futures and Options Contracts - Profiting
From Bad - Weather David G.
I don't know if this will have any interest to your readers, but l have been looking to see if there is any way of profiting with these hurricanes coming our way and threatening our coastline.
I get a feed from S&P Comstock, and they include with their feed a Comstock Symbol Directory. I came across Catastrophe Futures and Options Contracts which are traded on the CBOT. I guess they've been around since 1993, but I have never heard of them before. From what I understand, they are tied in with the insurance industry. Checking out the CBOT Website, they look like they are being marketed towards insurance companies as a hedging tool against catastrophes.
They have them tied into all regions of the country (eastern, mid-western, national and western). In addition, they have options for Florida, Texas and California.
With Hurricane Edouard looking like it may smack the east coast or Florida, the eastern or Florida contracts looked like a logical choice to look at. However, I haven't found a broker who is knowledgeable in this area. And from what I understand, the volume on these instruments aren't that high. I usually demand an open interest of 1,000 before speculating on a contract.
Maybe your readers might be interested in these, or more experienced members of your group have experience with these contracts. I'd be interested in knowing if these instruments ever become active, and if they have any seasonal tendencies (i.e., the market rising during hurricane season). Or if they are basically a dead issue because no one trades them.
Please write in and let us know.
Trading With The Trend - James Wieczorek
Thank you so much for your fine work with CTCN. It is very informative and helpful. It has (once or twice) revived my attitude to stick with my trading and understand myself better.
I have grown to trust you through CTCN and feel you have your clients' success in mind. I have been trading for around 3-years and have pretty much held my own (if you consider a loss of about $3,000 in that time period holding your own). I told myself I would never spend a great deal of money on a trading system or methodology, but here I am doing it. (please feel honored).
I have been trying to put my plan on paper. The experts say you need to do this, but it's tough, and I really don't know why. I 'm trading only with the trend now and it's true what they say (make the trend your friend) and things work out better.
Don McCullough's Article On Bank Traders In Volume 4-3
Don, if you want to learn how to trade you can forget about banks and brokerage firms.
There are very few "real" traders in these places. They are mostly all "market makers". Before I explain, refer to Bill Lipschultz's interview in The New Market Wizards, pages 55 to 58 where he discusses the same thing.
I worked for many years in banks, brokerage firms and "trading" firms and between me and my friends we've "traded" everything: OTC stocks, currencies, interest rate swaps, options and structured derivatives. All these positions require certain particular skills, but nothing like what you and I are trying to do each day when we trade futures. Except for a few exceptional people like Mr. Lipschultz, most of the people recruited and trained in the financial world could never make a dime in real trading.
They make money by making markets and trading customer orders. Most of the day is spent trying to "outsmart" other traders for "quarters" (¼ point). For example, in the OTC stocks where I started, traders were constantly putting fictitious bids and offers in "Instinet" (a computer trading terminal where buyers and sellers post bids and offers anonymously) just to give the appearance of a strong or weak stock only to be doing the opposite in "the box" which is where market makers show their bid, offer and name.
Although a few talented "old timers" eventually became hedge fund managers, the majority of the guys on the desks today are just taking the ¼ point bid/offer spread. Ditto for the forex traders who "scalp" all day and are allowed also to front run customer orders (see Lipschultz interview).
I saved the best for last, derivatives. Here most of the guys, especially in OTC derivatives, are working with huge bid/offer spreads as they "make markets" for corporate clients. Using options as an example for the moment, after getting "hit" or "taken" (market maker buys on his bid or sells on his offer) the market maker does an opposite trade in another option or the underlying instrument to "hedge" the trade, locking in the small difference in price.
This should more appropriately be called option arbitrage and not trading. One of my friends for a large American bank (in London) known for its derivatives prowess explained to me how his firm made markets in long-term warrants. They sold a structured deal with warrants to their clients so complicated that the embedded price (implied volatility) was difficult to determine by the bank's "sophisticated" clients but that it was 30%. Meanwhile he covered his "risk" by buying volatility at 15-16% on the stock exchange floor (Paris) in the equivalent exchange traded index option where I was a floor trader. And this guy was considered one of the firm's "up and coming stars." Is there anyone in the world who considers this trading?
Don, the only way to learn to trade is as you are now doing or try to work for someone not affiliated with a bank and who is trading successfully. By all means forget about these MBA's sitting on the desks at the major banks and brokerage firms on Wall Street! Good luck.
Lawsuits - David G
I spoke to soon ... Please do NOT send me a copy of your newsletter. I already found your Website. I loved the sample issue. You know, it's a shame that the threat of lawsuits exist out there for publishing other peoples' opinions. I don't understand how you can be sued if you write someone's opinion in your newsletter.
I guess the great thing about misc.invest.futures is that the writer does have complete anonymity (sp?). I could say whatever slanderous things I wanted to about a firm/newsletter/system, and could not be sued, because I could not be tracked down. But then you get into issues of credibility of the writer. By the way, in comment, who the heck is even going to sue someone in Sweden? I'm pretty sure, no one is going to return to the US for a petty lawsuit. What can a country/first name, or initials accomplish?
Anyway, can you just place a disclaimer like CNBC whereas "the opinions of our members do not necessarily coincide with those of our editors" or better yet, if someone does threaten to sue over an article, why not just state: "We intended to publish an article concerning "The Vendor" however, "The Vendor" has threatened to sue us if we decided to do so, therefore we will not (or will not comment at this time) (or have withdrawn the article).
That way, yes, you can't publish an article concerning them, but at least the readers understand that there might have been something damning enough that "The Vendor" has threatened to sue.
I mean what could be said in court? "Um, your honor, CTCN said they weren't going to publish a story on us, because we threatened to sue them if they did." Not likely.
As far as membership is concerned, I'm trying to decide between your group and another. I'm not really interested in shelling out money where I can't get an honest comment on a system/newsletter/person etc. . . . based on traders' experience.
But to the price: Am I to understand that it's $67.00 for the first year if I complete some sort of bio. It's half off that price ($34.00) if I submit an article to you about trading in general?
Editor's Note: Thanks for your comments and suggestions. Yes, it's $67/year and after the first year, half-price if you submit an article after the first 12-months of membership.
A Second Opinion On The Market Timing Group System
Adam Levine A Non-Anonymous Trader
In March of this year, I purchased Steve Kelson's Market Timing Group System. Since that time I have seen 90% of the major buy or sell setups turn into good trades.
My problem has been overcoming my need for control. I've found that I have a tough time believing a signal and then mindlessly following it, although this is what I should be doing. The scenario goes like this; A major signal sets up, I should place my order, but don't. Instead, I waited for the move to verify itself, which invariably it does. I get in on the next signal, although it is not a major signal, and just my luck I get stopped out. Had I gotten in from the beginning, I would have more than made-up for the relatively small loss of the later, less significant signal.
In regards to there not being a manual per se, this is true. What you receive is several books of price charts with examples of past trades. The "manual" is explained over the phone in a few sessions with Mr. Kelson. I made sure that I had a pencil and paper ready to jot down the rules of the system. Mr. Kelson has no problem spending the required amount of time needed in order for you to grasp the concepts.
This system does require some time and effort to learn and utilize correctly. But then, I don't know anything of an quality, trading or otherwise, which doesn't also require these things. I know and have seen that it works, now I've got to get myself to work.
By the way, I get daily downloads and charting software from TBSP, 10-minute delayed quotes from DTN Farmdata, weekly paper charts from Commodity Trend Service, and I also previously used Wilder's Delta Phenomenon charting software and turning points.
Things I Wonder About Written By Don McCullough - Galen Cawley
Mr. McCullough made several excellent points in his article, but I must take exception to his statement that the trading rooms of commercial firms "contain some of the best traders in the world." Perhaps they do, but that is almost incidental to their function. I think that Mr. McCullough grossly over-estimated their generic trading abilities, for several reasons.
For my money the best traders are those like Richard Dennis, who make it on their own.
First, I disagree with his premise that we as speculators are always in direct competition with commercial traders. It is not the case that we should "trade as they trade."
Speculators and hedgers occupy different market niches and perform different functions. We provide liquidity in an attempt to extract a profit from the market; hedgers act to minimize the risk to their inventory. They have a business to run, e.g., for a commercial grain firm, price forecasting is only one-third of the equation: logistics and quality control are almost equally as important. They have to worry about transportation, processing, storage, customer satisfaction, etc. -- not to mention their competitors.
For a commercial, "profit" means net margin per unit, not return on equity (ROE). Profit can include such things as operational savings, hedging efficiency, etc. Standard money management performance measures are foreign to the commercial mentality.
Commercial traders tend to be spreaders, which makes sense given their:
(a) risk-averse nature;
(b) concentration on the "basis" (difference between cash and futures),
(c) the time value inherent in their inventory, and;
(d) their fundamental appreciation of the relative value of substitutes
Conversely, most speculators are flat-price, players. And most commercials I know are poor flat-price traders.
In short, speculators and commercials have different objectives, time-frames, and utility curves. Read the first Market Wizards book to see what one "wizard" has to say about the positional advantage of each class of market player.
I disagree that commercial trading rooms necessarily develop good trading skills per se.
It is important, conceptually, to separate the trader from his or her corporate information network. Many market-makers in the inter-bank market merely capture the bid-ask spread. Other trading desks (especially in the currencies) front-run orders. This amounts to legal trading on inside information. Still other commercial firms are able to capture trading profits through market share and economies of scale.
None of these activities have anything to do with genuine trading ability.
To the extent that commercial traders do indeed develop trading skill, it tends to be fundamental (due to the nature of their business) rather than technical. They become highly proficient albeit limited specialists. It is very difficult to transfer those skills. If you take them out of their corporation or industry, they lose their informational flow, and become like fish out of water.
It is difficult to evaluate the intrinsic trading ability and true performance of commercial traders because they often lack a capital base against which to judge their returns. (Again, they have valid but different performance benchmarks). However, some of the better investment banks do employ RAROC systems -- which stands for Risk Adjusted rate of Return On Capital.
Hedging is an extraordinarily tricky business. It is only human to have a selective memory: Any profit becomes my win, whereas a trading loss is a relegated to a "hedge."
As for Mr. McCullough's contention that "applicants are very diligently screened before being accepted for an assistant trader position," well, I would recall the observation of Woody Allen that 95% of life is showing up. That's what apprentices do. (As for MBA's, forget it: having been indoctrinated with the academic dogma of efficient markets, they give up before they get started).
None of the foregoing is to deny that commercial traders are very good at what they do. They enjoy the benefits of specific market knowledge, around-the-clock resources, enormous capitalization. and the like.
My point is simply that we as speculators don't have to play their game: we can choose when and where to trade, only when we have the positional advantage as defined by a proven trading system. When it comes to developing trading skills, there is no substitute for independent thinking (and adequate capitalization).
Skeptical But Hopeful - Bob Perry
O.K. I'm human and was in a bad mood when I wrote the last e-mail. I will admit that I am wrong. I have dealt with many good, honest individuals over the past years and found most people to be "hopeful of the future" if not anything else.
It's just that when I fall for clever ads and advertising written by those "Madison Avenue types" I feel very disappointed and disillusioned. (Are you listening Windsor Books? - among many others).
I used to think trading was a science and traders were all trying to find the "Truth." Thankfully, I have found through reading CTCN that, unlike scientists who share knowledge through revealing equations, explaining in detail experimental setups and results, and then offering conclusions based on revealing all their facts. The traders have incredible egos and try to explain their results without revealing anything and then try to get guru status or sell this silver of "knowledge" for hundreds or thousands of dollars.
It seems to me, some are not trying to help others make money at all, only trying to fool each other into thinking that they might have the potential system for sale. I know the majority of people (traders) are good and honest, but after being bitten a few times, I have come to the conclusion that some vendors are sharks and I trust few of them. But I also have myself to blame for believing that I can "just follow the signals of their system" and make a living.
I never made any money until I quit buying others' systems and I developed my own methods. I like Bruce Kramer, whom I respect and wished would write more often. I now feel that anything I purchase is for education. I want it fully revealed so I can try it out and see if it suits me.
For example: I kept getting ads for Dave Wright's Cherry Picker System. The advertising results looked good over real-time. I bought it because it's fully revealed. I tried it out and found (although the methodology is sound) will not work for me unless I was either down on the floor myself, had a broker trading it for me, or had some magical way of knowing if my limit orders had been filled and guy on the other end of the phone didn't mind me calling him every few minutes to see if I had a fill or to move my stop (believe me, they hate this and will not hesitate to tell you so even though it's not their money on the line).
Other people trade it quite successfully - I can't. Maybe someday when I'm a more experienced trader I will go back and try it again. But it did give me insight as to another way to monitor a stochastic oscillator and I am a better person for it.
I've tried the AST network and although I learned some great new interesting things about intraday market analysis (of which I'm very grateful and have not seen anywhere else), the trading methodology was nebulas and non-specific. I found I need specific entry and exit rules, I didn't know that about myself before.
I've tried others: Larry WIlliams' seminars (lots of TS systems that have made money over the last 10-years, but they don't work anymore). Kent Calhoun (needs to hire a technical writer to condense his mounds of data and babbling from (what is it - 5, 6, 7 binders?) into one coherent volume - (too bad you can't just buy Pat Raffalovich's software and read his user manual. It's all there, except how to trade. I felt like I was going through some wise professor's lab notes from all his experiments and he decided to publish it before it was edited.
Again, I was frustrated, but I'm sure others learned and are making good trades. George Angell (to borrow a quote - "His systems make money if he sells enough of them"). Jeffery Horovitz (funny how great systems suddenly stop working so well when they go on the market - this taught me that I need to know the methodology and not a black box. John Wang at AbleSys (great mathematician and programmer, but not a trader). He'd benefit by having his ideas and software used by traders that reported back and then distributed methodology in the form of a quarterly or semi-annual newsletter or maybe on his web page.
Systems USA do not publish results of these systems reflect how they actually did when real people traded them? I could go on and on about other vendors, seminars, books and tapes. They all have something to offer.
I still will venture into vendorville if not just for curiosity's sake. I want to learn, but I don't want to deceive myself into thinking I don't already have the tools and I'm just not putting effort into using them (like 5 vertical bar methodology. I'm just not going to throw anymore money or time into that pot, but Bruce Kramer uses it everyday and does well). It's just discouraging to discover so many ideas and methods that don't work. After a year of study and a year of daytrading, that if a vendor told me that sun will come up tomorrow, I would ask him for his brokerage statements, 3 references and a 30-day working copy of his software.
I would like to thank CTCN for holding a mirror up to ourselves. I only wish it could name names and allow people to give more of their honest experiences with systems and services without censor. I often see people requesting info off-line about systems and people I would like to know about. Yes I would pay an extra $10-20 per year for a legal defense fund.
I am not trading now. I am taking a year off to analyze myself and my methods. I am working a high paying job and working on myself at the same time. I realize I like to trade. I'll be back, it's in my blood. I think it is necessary for people like me to continue to bounce around like a pinball until we connect with someone or some methodology that not only works, but fits our style and personality. I have thought of trying to find a CTA that would trade an account for me, but don't know if I want to go down that road. Let's face it, if there is a good system or method, the weak link is the trader.
It is a great education if you view it as a hill you are climbing and not just a side trip in life. But it sure gets expensive if it doesn't pay for itself.
By the way Dave, are those (Real Success)
daytrading videos still for sale?
Editor's Note: Your remarks are interesting though you appear to be quite negative on vendors and also on CTCN, saying (CTCN) is more for entertainment. I strongly disagree on that, but that's your opinion which of course I respect.
By the way, most vendors are honest and try to deliver quality or valuable products to assist traders. The problem is most traders expect they can buy the Holy Grail for a relatively minor amount of money.
Of course, no one really has (the Trading Holy Grail) for sale, even for millions of dollars per copy. However, due mostly to "good" and powerful advertising copy, their ads sound like they really will deliver the Holy Grail. Many of these ads are done by Madison Avenue ad executives or by very clever individuals.
About availability of our daytrading videos. We only have a couple Real Success daytrading training packages left. However, we are thinking about producing new tapes based on similar principles. If we do this, the new tapes will have some minor but important changes made to the methodology, so the trades are different compared to the original methods.
Also, due to the extensive support and high expenses involved, they may be priced higher than the original video package, which was only $897. We will let you know about this in about 30-days or so.
AustinSoft Options Software: If you had a bad experience with this company, let's talk, call Ray York at 619-941-4499.
Seeking traders who have Volumes of Technical
Analysis of Stock & Commodities, 1986 through 1992. Willing to purchase
selected past articles, lend books or share information. Call Charles Meyer
collect at 409-249-3780.
Anyone having historical tic data on Dow Jones
Transport, please call Bill Norwood at 803-768-1338.
A member who wants to be identified as "1stknow" asks if a chat channel has been established for conferences? No, it has not. This is mostly due to technical difficulties in setting it up. We are still working on ways to do it Online. Difficulties in setting this up were discussed in our last issue.
I recently visited the Website of Avid Trading Co. They have many so-called links to other websites, including a number of competitors.
Their front page says: "We could hardly call ourselves capitalists if we did not believe in competition. But competition that dissuades traffic from even entering the marketplace is simply not good business. So, you may notice that some of our "Trading Links" will link you to direct competitors. The Web is a mall, and each page's links are its corridors. Would you shop in a mall without corridors? Not promoting access to other websites that are obviously of interest to the user will only serve to slow the growth of the Web as a whole.
As long as we're talking Web philosophy, let's talk Web content. You will notice that at least two pages of our Website are updated each trading day. Web users can view inSight inFormation©'s pages anonymously and for free; no registration or password necessary. Sure, it's part of our marketing, because we think that the more you see of us, the more likely you are to subscribe to our services. But meanwhile, the challenge is on to all websites to provide you more reason to log on than just to see an advertisement.
A little competition never hurt anybody, and it can only help you: quality stays up and prices stay down. We at inSight inFormation© invite comparisons of our service, and we know our prices are fair.
Comment anytime with your suggestions. Please note: Our links do not imply an endorsement of what you will find when you get there.
The reason I mention this is there is a Website run by Innovative Systems of New York. They have a number of commodity firms who have their web pages set up on Innovative's site. They allegedly do not want to promote open access to their Website and do not believe "a little competition never hurts," as mentioned in the Avid Trading Co. fine web site.
Innovative receives substantial income from setting up commodity clients on their website. At one time they were extremely anxious to setup CTCN on their site. This was some time ago and before they became so well-established with two primary players. They have two most important clients, at least from a marketing standpoint .
Based on their advertising and promotions on the Internet it has been alleged they use these two well-known clients as their main marketing tool to promote themselves and others. This is similar to a supermarket which advertises Coke, bread or milk, etc. at a low price to get you to their store in the first place. This is what allegedly is being done with that Website.
CTCN recently asked Innovative (Mr. Joe Esposito) if we could also join their Website in reference to a different product (Real Success Methodology Video Tape Training Course) which is not directly related to CTCN. This was done as we were looking for new and expanded Internet exposure at a different Website.
By the way, CTC currently has a well-established Website which was setup and is maintained by Investment News Online (Mr. J. Adam Hewison) and we are quite happy here.
Our own Website and our direct web address is: https://web.trading/
Surprisingly, we were turned-down as a (paid) client of Innovative for no solid or good reason, other than some false or nebulous reasons. Could it be they were allegedly afraid there two most significant clients from a marketing standpoint would get upset if anything connected with Commodity Traders Club was also on the same Website as their web pages?
Unfortunately, Innovative Systems of New York allegedly does not seem to support the idea (as outlined by Avid Trading Co.) "the Internet should be open to all traffic from entering the marketplace should and traffic should not be dissuaded." The fact they do want CTCN on their Website speaks for itself.
As evidence Internet traffic should not be dissuaded, Joe Esposito recently told your editor he received two profitable new clients who heard about him in CTCN several months ago. He still received some business as a result of the publicity in spite of the fact Joe said that CTCN short blurb about his company Innovative Systems was negative!
About our planned Online Internet Trader Trading Service. It's very complicated to setup and quite technical. We are still working on it and hope to have it operational soon. An exact date cannot be given at this time. We appreciate the many traders who have indicated they want this added service and will continue working on it. As soon as it's ready I will personally contact you.
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: web.trading, D.B.A. Our E-mail address is: email@example.com Our Website address is www.web.trading Editor is Dave Green. The opinions and recommendations are those of our writers and not those of web.trading, 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.