commodity trading


Trading Insight - Harriet Hodges - Farmers

I've settled down into a fairly comfortable routine with the Swing Catcher System. I made $2,300 last week, and I'm reading a good book on stops (J. R. Maxwell, Commodity Futures Trading with Stops) which may help me keep a bit of that.

Its been exciting learning this stuff. I came out even for the months of active trading I did, which I think was pretty good for a beginner. The mistakes I made were relatively minor, thanks to good advice from you and books. Now I'm looking forward to some long-term profits from my carefully worked out six-year plan. This plan calls for doubling, after taxes, my $15,000 stake by the end of the year. That's an average monthly profit of $1,765. Knowing it's much harder to make money with a small start than a large.

I'm resolved to be cautious and patient until that $30,000 mark. That is, one contract at a time, negative correlations in the markets chosen, a limit of 4-markets at a time, all signals taken (if possible).

My Trend Index program works well. It has small peculiarities that I wish a programmer could iron out. I'd wish for a flexible "Report" capacity, but the quality of the information seems excellent. I'd love to see a good editor (and indexer) clean up copy, organize and present the manual better. I won't say too much about that because I should offer to do it ( an ex-editor and indexer), I don't have time. All in all, I think I am very lucky indeed to have stumbled on you and Trend Index. I have avoided the horrible experiences others write about. My computer system (a bottom-of-the line 386 with a math co-processor, black-and white monitor, cheap modem) with Commodity Systems, Inc., data works well. My brokerage firm, Jack White, is excellent -- although extremely expensive. Trend Index delivers about the mix of wins and losses it promises.

A beginner should start with a reliable system. It should be understandable by an average intelligence without great pain. A mechanical system, I think is an absolute must. Do exactly what it says (harder than you'd think, given the tendency of the mind to second-guess) until you've traded enough to know where you may begin to veer off. Do your homework.

Know at all times what each trade stands to lose and what the exact level of your account is. Pick markets of average volatility, good volume, average or modest margin requirements. (Forget for the moment the S&P 500, orange juice & lumber).

Start with a brokerage firm that gives no advice, but answers calls within 10 seconds night and day, is scrupulous in calling back with fills, gives good fills. (Don't be unreasonable here) After you read them your order, it should be their standard policy to repeat it in brokerese. They should make certain whether you intend a day order or an open, good-till-cancelled one.

They should know and tell you what markets accept a one-cancels-the-other pairing of stop and limit orders. They should question you if you've done something silly, such as placing a sell stop on a short position or a limit order to sell that's below where the market is at the moment. Then plunge right in, reminding yourself that you have to log four losses for that first win. That's the rule.

A question: Why is Robert F. Wiest's - You Can't Lose Trading Commodities and scale trading never mentioned by subscribers? It would seem that a systematic buying at preset levels as the price of, say, cotton drops, and a systematic selling when a contract's price rises 10 points would (as Wiest claims) over the months and years give back a steady 20-40 per cent profit.

Is there some fatal flaw here? Or is it just that none of us want to settle for steady 20-40% profits? If someone handed you $100,000 and you knew you only needed $35-40,000 a year to live on (we're farmers; that's a lot to me), would scale trading indeed be a safe place to put that money? (I'm assuming the usual daily attention any commodity account requires).

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