Commodity Traders Club NewsÔ
"The Commodity Futures Trading Knowledge Network"
Copyright© 1993-2015 by Commodity Traders Club News & Webtrading.comIssue 27
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Commodity Traders Club NewsÔ"The Commodity Futures Trading Knowledge Network"Copyright© 1993-2015 by Commodity Traders Club News & Webtrading.comIssue 27 Click here to go to--> Webtrading -
CTCN Website Home Page |
Never Be Sure - Don E. McCullough
I believe one of the worst things a trader can do is be "cock-sure" about market direction. This kind of mind-set will very often make you get stubborn when it comes to taking a loss. As a consequence, you will often have to take the "mother of all losses!" The first article in the 6/95 CTCN is exactly what I'm talking about. J.L., author of this article, is to be commended for his willingness to admit his negative results. I know he wrote this article, in part at least, to help the rest of us avoid the same mistakes and losses.
Note in J.L.'s article where he said: "I felt strongly, again being sure, and sure of my hunch." Unknowingly, he was setting himself up for big losses. No doubt large numbers of traders have been making this kind of mistake ever since the markets began. I believe learning not to be too sure about market direction is one of the most important things you can learn about the markets. You have to remain flexible or open psychologically to whichever way the market turns. The market is never wrong. The market is the boss.
J.L., you state you have now decided to always put a protective stop loss order in at the time you place your entry order. I think that is very wise and will force you to keep your losses small, assuming you refuse the temptation to move it further from your entry point as the market goes against you. I'm sure you know this. Thanks for your article.
Hazards and Emotions of Trading
Without Stops - JLAI have been a subscriber to your publication for about 6-months and found it to be excellent. I have been trading for approximately 5-years.
I recently started a subscription to the Moore Research Center Report, which gives high probability (80% or greater) seasonal trades. Although the report is also excellent, the old rule of employing stops no matter how successful a trade has been in the past was recently brought home to me.
On June 7, 1995, I went short Aug. Bellies based on a seasonal trend of 86% over the past 15-years with a close-out date of July 5. Although I usually employ stops (2% of account, close-out after 3-days of loss, yesterday's high etc.), I did not on this trade. This not following my rules saw an immediate small loss go to a large maximum loss of $2,800 within two weeks and then back down to a loss of $160 when I closed out the position today (7-13-95).
I consider myself very lucky to escape with such a small loss today. There was absolutely no reason at all for my 5-weeks of anxiety. I know other readers have experienced this pain. I thought that by putting this story in writing, it will force me to never have to experience it again.
Comments on Past CTCN Issues - George Bashar
For several months, I have followed with interest the submissions to CTCN and would like to make the following observations.
First, it is refreshing to read a letter such as the one from J.L. in the June issue in which he is honest enough to relate the dismal performance he had in his trading. We have all had disappointments in trading futures; it is part of the learning process. However, how many of us would be candid enough to list our losses as J.L. did? I would advise J.L. to stick with his own S&P system if it is working, and not spread himself too thin in following too many systems - that can only result in a lot of future second-guessing.
I have also enjoyed hearing from Don McCullough. He appears to be trading systems he developed or discovered. Don, you are right in stating the hardest thing to do is pull the trigger. I know whereof you speak, but in the long run, if you have a sound trading strategy you believe in and have thoroughly tested, just believe in it and do it!
This leads me to another observation. When we begin trading futures, almost all of us fall into the trap of looking at, listening to or being tempted to buy other traders' systems.
My question is, why would a trader who has a proven, successful system sell it to anyone else? Futures trading, as we all know, is a zero-sum game. For every $1,000 one person "wins," someone else has to "lose" $1,000.
For example, if I have a successful S&P 500 daytrading system, and it gives me a signal to go long at 560.50, why in the world would I want anyone else to know to go long at 560.50. They could possibly get their order in before mine gets filled, and possibly keeping mine from getting filled until maybe 561.00? Doesn't that take money out of my pocket?
Trading futures is much like horse racing. After the racetrack takes out its profit, and the State takes out the appropriate taxes, about 17% of the amount bet on a race is then divided among the winning bettors. If I am absolutely certain that horse #1 is going to win the race, does it make any sense for me to let anyone else in on my secret, thereby taking money out of my pocket and putting it into theirs by lowering the odds on my winning horse? Of course not. Therefore, could someone selling a book, system or running a seminar, please explain why, if your system is so good, would you not keep it to yourself? And please spare me the explanation of altruism or humanitarianism or sharing your thoughts with others to enhance the mutual learning process.
For those of you looking for the ultimate winning system, keep in mind what I am saying. You might want to read Joe Krutsinger's book "The Trading System Tool Kit." Mr. Krutsinger's main forte is developing and testing systems. In his book, he is honest enough to admit that he does not usually put out a specific system until he develops a better system to replace it. In other words, he saves the best for himself. Selfish? Perhaps, but very honest.
Experiences of Amateur Trader & Review
of Curtis Arnold's PPS Book - Tim JewettHere is a book review from an unbiased trader. That is, I am an amateur so far, not having opened a brokerage account, but paper trade to learn the markets and gain experience using various approaches. I have no turf to defend, have made no trading errors (by definition), and have neither profits nor losses to cloud my judgment. I believe in and practice a slow, methodical approach.
In the past 15-months, I've read a wheelbarrow full of trading books, plotted lots of price bars, figured out all the option spreads and synthetics, and audited (by tape) and attended trading conferences. My initial orientation to futures trading was contrarian, and it took some time to discover how inappropriate that really is for a new trader.
I have now settled into classical chart pattern analysis, trading breakouts within trends, and naturally have a copy of Edwards and McGee's seminal work. The shortcoming is that this work does not purport to be a guide to the futures markets, and there has been no similar source to turn to for this information. Most authors in Technical Analysis texts seem driven to discuss mathematical indicators, or to offer brief speculations on chart patterns, there being no research to abstract from.
Well, if you're with me so far, and you think you know all you need to know about chart patterns, I strongly recommend you to Curtis Arnold's new book, entitled "Curtis Arnold's PPS Trading System." Dave mentioned this book in a brief review last month. I'd like to amplify his endorsement because this book meets so many needs of so many traders, including mine, for new pattern research in the futures field.
This is one of the very few trading books I've read, which I haven't sent back. Why? If you ever plan to make a trade based on a chart pattern, you're essentially in the dark unless you read this book! The author, having years of bitter trading experience, sat down and researched what actually happened with the very common (futures) chart patterns over 10-years of market data!
He provides some of this raw data, so you can see just what he did. Data are presented for pattern reliability and profitability for each pattern researched, and these numbers depend on the direction of the trend! The conclusions are given very directly, and some of them explode popular myths about some patterns (reliability of the head & shoulders, for one).
There is a pattern recognition workbook section, with answers. He also distills the very best of all the major, must know trading topics to help you put it all into action - from psychology to backwardation. And, if all this is not enough, there is a computer system which has been developed from these pattern concepts, and its operation is well described - to include definitions of all the program variables. A partial demo disk is included with the book.
The systems Curtis Arnold describes have stunning track records for the past 7-years, or since inception. The software allows segregated or group plots of individual markets in a portfolio to analyze good and poor performance markets.
I have no connection with Curtis Arnold or PPS, and have no stake in this review, except to share my excitement in finding just what I had been looking for in a trading book for a long-time. I only found a few obvious numerical errors (in an appendix), and plan to write with a few questions on interpretation of data and conclusions.
Comments on Odds Trading Technique, Genesis Data,
MarketArts Windows on Wall St., Jake Bernstein - Tom SiemsenThe June issue has two requests for information regarding Don Fishback's video on the ODDS Trading Technique. Since I'm familiar with that video, I thought I'd take this opportunity to discuss that as well as two or three other items.
As Mr. Michael Ireton points out in his letter, the video, "ODDS - The key to 90% Winners," is $52 plus shipping. As far as I'm concerned, it's worth every penny. I'm not sure what the "90% winners" claim is supposed to mean, unless it's related to the assertion that something like 90% of all options expire worthless.
Editor's Note: Refer to the November 1993 issue of CTCN, Pg-2, "90% Wins Are Possible." In that article, member Bob Edwards goes into detail on an approach to take advantage of the apparent fact 90% of puts & calls expire worthless. If you don't have our back-issues, they are still available to current members for only $87 (reg. price $182), for all 26 knowledge-packed issues.
In the video, Mr. Fishback carefully walks the viewer through a process of calculating the probability that the price of an underlying equity or futures contract will reach a specified strike price within a stated period, based on the underlying item's recent price volatility.
A written transcript accompanies the video and includes a short collection of sample calculations that helped me understand the math involved. Mind you, the video does not offer anything like a trading system, nor even a technical indicator like the RSI or stochastic %K and %D. What it does explain, however, is how you can compute the statistical probability that a price will reach a target you select; I think that's worth something. You will need access to a computer that has a recent version of one of the better (Excel, Lotus 1-2-3 or Quattro Pro) spreadsheets on it. The video is obtainable through Futures Magazine Learning Center.
On another subject, since several readers have expressed their likes and dislikes regarding data vendors, I'll mention my current source of daily data: Genesis Financial Data Services of Colorado Springs, Colorado. I've found their prices to be very competitive, downloading software (Navigator v3. 1) is easy to install and use, and the few times I've had to ask for technical assistance, they have been intelligent, patient (I don't always ask the question correctly) and helpful. They aren't always real easy to reach (which can be irritating), but once you get through they are good at what they do.
I had one recent (minor) negative experience that I can pass on. I received an unsolicited mailing from MarketArts, Inc., offering an "upgrade" of "Windows on Wallstreet" Pro, version 2.1 for the ridiculously low price of just $43.90, including shipping. I didn't own any earlier version of WOW, but I figured that as a registered owner of three other analysis packages, including SuperCharts, this was MarketArts' attempt to lure me away from SC and to WOW.
I bought the offer and two or three weeks later I received the WOW software. The problem was, all I got was the software. I thought that perhaps they had just temporarily run out of reference manuals because of a surge in sales. But when I called and asked how long it would be before a manual would be sent, I was told it was not a mistake or a temporary delay -- since it was an upgrade I would not be getting a manual, unless I wanted to order one for an additional $30.
Admittedly, a price of $73.90 is still not a bad deal, but when I checked the solicitation they had sent me and found not one single reference to the fact that the upgrade offer did not include a manual, I decided that I didn't want to send this kind of company any more of my money, good deal or otherwise.
I cannot comment on the software itself other than to say that it did install easily; it may be a good product, but it really is impossible to tell without a manual that would enable you maximize its capabilities. There is an "on-line" help capability, but it not at all adequate as a reference tool. Again, the amount of additional cost is small, but I can't help feeling that MarketArts owes its customers an "up-front" indication of what its products cost and what you will not get if you decide to take advantage of one of their "special" offers.
Finally, and back to a more positive vein, I've just finished reading Jake Bernstein's "The Investor's Quotient" (2nd edition, John Wiley & Sons, Inc.) and I highly recommend it if you are interested in the psychological side of trading.
As I read Mr. McCullough's account of how he sat in front of his terminal watching one signal after another flash on the screen while he "waited," I felt that I had been there with him. I suspect that, with very few exceptions, most traders have been there at one time or another. While the Bernstein book probably won't transform anyone overnight into a supertrader, it does provide a basis for understanding why so many of us experience what Mr. McCullough described and some practical techniques for escaping that predicament.
Risk Management - Jim Burke, Jr.
How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader has by that question. It is not what you make that is important, but what one does not lose. After I have a profit of so many tics in a daytrade, the most important ingredient to my trading takes place, the break-even stop. I have not read any books giving much attention to this concept. What a stressless (for the most part) feeling it is after I am at break-even!
I know you just called the broker with your stop placement order and 45-seconds later you must "cancel and replace" that order, but whose money is it anyway? After a while, the broker will know your trading style, at least mine knows. When I call he has written out my order ahead of time and I just acknowledge the order - it's done. Also, if you can get on a one-on-one basis with an order taker at your brokerage, send them a token of your appreciation, most order takers make very little income. To me, break-even is as good as a profitable trade.
I believe anyone can design a profitable system, as long as one understands market principles, what goes up, must come down faster. Twice as long to go up and half as much time to come down. So what does that have to do with risk management? Think about it. Do we need to use the same amount of risk on buys as we do on sells? I believe that if I am short the market, I need to trail my stops tighter to lock in profit than when I am in a long position. As far as my original stop, all my systems risk the same amount - small. I use to believe that the 3% rule was nonsense with a $10K account. But in the S&P and currencies, I daytrade with less than 2%, I simply cannot get wiped out that way and my profits are at least twice as much the risk in the S&P when trading one contract.
Although, it has taken me a long time to figure out who I am (and sometimes I wonder), trading is easier when you are not your own worse enemy. Concentrate on repeating every process of your steps over and over again, then one can profit.
Sorry Did Not Trade & Looking for Capital - Randall Brooks
Well, it's a year since I purchased Swing Catcher Trading System by Trendx Trading Co., and let me give you the lowdown on what has happened with my career as a trader.
As I may or may not have mentioned, I was never comfortable trading a $10,000 account with the large stops SC requires ($1,300 on the Swiss, for instance) and the fact I could not get enough diversification with a 10K account.
I tried getting other people to kick in with the other 15K I thought I needed, but most people who know nothing about futures are hesitant to invest.
I picked out a 10-commodity SC portfolio to follow and between mid-August and early October it produced $20,000 In paper profits. Needless to say, I was mad at those folks close to me who wouldn't "chip in" to the Randall Brooks commodity fund.
With the limited capital, I got back into daytrading the S&P. I didn't like daytrading before and found out after the passage of time, that I still don't like It. Anyway, it was more disastrous than my first attempt. I took a tip from someone on the Swiss and lost a small fortune almost overnight.
Here I am a year later and I am trying to generate interest from various folks to let me trade their money.
I canceled my CSI quotes the end of 10/ 94, and haven't received them since. I still have a strong interest in Swing Catcher. It was the reason I got back into trading. I don't want to spend the money to start-up CSI, just yet. I want to run the profit and loss reports for the last 9-months to see how SC did and need to purchase data from Aug. 94 thru present.
Anyway, my girlfriend and I are coming into a substantial amount of money, next March, and Swing Catcher is one of three systems we plan to trade (Commodex and PPS are the other two).
Dave Reiter Responds to William Shelton
I would like to make a few comments concerning William Shelton's article in the 6/95 issue of CTCN.
As I stated in the 1/95 issue of CTCN, my commodity trading has generated a net profit of $145,357.93 from 1992 through 1994. If Mr. Shelton would like to verify these results, I will be happy to send him a copy of my account statements and IRS 1099 forms. However, I must ask Mr. Shelton to pay for my copying and postage costs.
Mr. Shelton mentions an advertisement I placed in the 3/95 issue of "Futures Magazine." The purpose of the ad was to sell a trading method which I discovered in 1993 (based on a price pattern). In 1994, the method generated 11 signals. Every signal made money based on real-time trading. I discussed this particular trading method on page 3 in the 1/95 issue.
On a different subject, I agree with Mr. Shelton that most trading vendors can "talk the talk" but they can't "walk the walk." In other words, they can't verify the profitability of their trading systems by providing real-time brokerage statements and IRS 1099 forms.
I also agree with Mr. Shelton that we (as readers of CTCN) should not overemphasize the "value" or "importance" of an article which happens to be written by a trading vendor (particularly those who advertise in CTCN, myself included). Personally, I know several "private traders" who are much more knowledgeable than I am when it comes to the subject of commodity trading. Just because someone is, a vendor does not necessarily mean that he/she has more knowledge than a non-vendor.
(Please write c/o Commodity Traders Club News) if a member of CTCN would like to contact me. Good luck with your trading!
Views of a Novice - Jim Hill
I have been trading for less than 1-year and found you can get caught up in the excitement and hype of newsletters and Fax services available. CTCN has lived up to my expectation, by being the most informative newsletter I have come across.
I have purchased many software packages over the last 9-months. I've been looking for the Holly Grail, and like many of you, I have not found it. I have found tools like SuperCharts and TradeStation to be very helpful. I use Future Pro from Essex, as my buy/sell guide. I have also subscribed to Larry Williams hot line and found it to be 75% in-sync with Future Pro.
I now use Omintrader over SuperCharts and TradeStation for charting, system testing and accounting. Omintrader is a full software package by Nirvana. A fun feature included is the Trading Game, a trading simulator. For a low fee, there are seminars to help you learn how to take advantage of all the features within Omintrader. The people at Nirvana are very friendly and helpful. I would recommend Omintrader to anyone who does not want to write their own trading systems.
I have been looking at another software package, VantagePoint offered by Mendelsohn Enterprises. I was hoping a reader may have made the investment into VantagePoint software and could find the time to call me and shed some light on questions I have. (You can write c/o Commodity Traders Club News). Thank you for any help.
Editor's Note: We have a Special Report on NeuralNets, which also discusses Mendelsohn's program. It's available from CTCN for $5 S&H.
Scale Trading - Don E. McCullough
I keep reading articles about Robert F. Wiest's scale trading system in this newsletter and thought you all might find the following interesting.
I have both the original and later version of his book, "You Can't Lose Trading Commodities." YES YOU CAN! I suggest you write to Mr. Wiest and ask for a copy of his 1/9/93 newsletter called "The Scale Trader." In this newsletter he reports net trading losses of $59,506.25, in what he calls "The Guarantee Account," for the year 1992.
While you're at it, you might ask him for a copy of his 2/13/93 newsletter in which he states "The Guarantee Account" lost $31,000 the previous month.
Dave: If the above article makes you leery of being sued, don't put it in the newsletter. I am keeping the above mentioned issues of Wiest's newsletter and scraping the rest.
Editor's Note: I am not in the least worried about being sued. This country is based on freedom of speech and as long as the author is believed to be telling the truth and is saying it without any malice on his part, it can and will be published in CTCN.
Data Manager Program - W. J. Wojciechowski
I developed for my own use the data manager program ('DATAMAN.BAS) and supporting files. It is written in Power Basic, which is not directly compatible with Microsoft Quick Basic. I don't know how useful this program will be to you in its current form, as most data formats, directory locations, and modem scripts are particular to my own system. You also need a program called QModem which is used as the communications engine for data downloading. However, you can still read the Basic source code and ancillary text files. The program performs the following tasks:
Automatically increments the date (and is weekend and holiday aware)
1. Downloads day session data automatically from Ira Epstein BBS and Free Financial Network (one minute each call)
2. Uncompresses downloaded data as required
3. Automatically determines rollover dates and extracts the necessary data (based upon my own rollover schedule which is quite close to yours)
4. Checks and compares extracted data for accuracy
5. Updates historical ASCII continuous data files
6. Constructs compatible CSI format data files (using last 260 data days) for Swing Catcher use, and
7. Prints a daily summary of collected data
If I can modify or program anything for your use, please let me know.Editor's Note: W. J. is very talented in programming this. As far as I know, no one else has ever done it! He has been very generous and agreed to make this available to all CTCN members. Just send $5 to CTCN for S&H, and your disk size. It's also possible he will customize it for CTCN members upon request. It may even be possible to customize it for use with other data quote services, such as Lind Waldock, Jack Carl, etc. Please write the editor and I will forward your specifications to W. J. There may be a small charge for it. We will let you know, depending on how many requests are received.
Comments on Lind-Waldock - Terry R. Davis
Having read some previous comments on Lind-Waldock, I thought I should add my comments. I traded (past tense) 6 accounts with L-W for about 6-months. During this time, the desk that I dealt with ('N') came to know my voice and the way I traded. There back office is superb and I experienced very few errors during that time. When their computer system is working (97% of the time) their order flow is flawless.
If their computer system goes down, god help you. During this down time, I experienced stops that were not canceled. This is scary because there is virtually no 'trail' when this happens. The brokers were frazzled (to put it mildly) when they experienced computer problems. They also verbally expressed their frustrations about their computer problems.
Their fill quality runs from outstanding to absolutely horrible. No matter what there advertising implies, they are employing outside floor brokers to handle their orders. They are not employees of Lind-Waldock. I had many problems with fills and was very vocal about my perceived problems.
I might have 2-weeks of exemplary fills only to be followed by 2-days of terrible fills that would wipe out all my better than average fills. This fill quality finally caused me to leave Lind-Waldock.
I pursued all avenues for redress all the way up to Ron Golding (VP & part owner) and was always told that the fills were the best that they could do. The best that they could do, did not suit me.
The Holy Grail and Other Similar Matters - Cyde Lee
Some of the information contained herein has been sold as a "system." I did this as a bit of an experiment and a desire to let people know about something I had discovered. I placed a one inch add in the IBD for 5-days offering to disclose a system I trade which has made over 100% each year for the last four years. The cost for this was $25.00. Believe it or not, I got enough takers to pay for the ad -- nothing more.
1. I have a rather long history with systems -- most of it for my own account and pleasure -- has to be pleasure since up to the discovery of what I'm going to discuss I haven't done anything but lose money. My biggest loss was in buying into a brokerage company without anything to sell and not anyone to see that things were done right. At least I got out of the venture without any serious problems of the nature I later learned I could have.
2. I wrote my first Moving Average Crossover system and evaluated it on an IBM 7090 while taking a FORTRAN class at the University of Houston in the early 1960's. I wrote a toolbox system for a Hewlett-Packard 9820 which included most of the commonly used techniques of the time and also included a spectral analysis and projection capability. I sold this for $1,500 in 1971 and it provided a significant part of my income then. Recently I served as technical director for a firm that makes much to do about the systems it sells.
3. In 1976, my partner and I acquired a seismic data processing company with one small but powerful l6bit computer equipped with an array processor. During the 'boom' we expanded this to a company with a total of 5 fairly large computers and 22 people using some of the most sophisticated software in existence to attempt to unscramble signals from seismic sources for evaluation of oil and gas prospects beneath the surface of the earth.
4. I am now about ready to retire from that operation and let younger people fight the battles that go with that business today.
5. I expect to spend most of my time working with commodity and stock trading systems and hope to enhance my retirement income from such work (trading mostly but some writing I hope -- haven't done much of that since the mid-1950's.
6. The following pages outline what I have discovered and hope that you will see fit to include the following in the newsletter.
Price High/Low Channel Breakout Revisited - A reexamination of the concept of trading on a breakout from a channel defined by the highest high and lowest low for a given period seemed to be something to do a couple of years ago when I decided to simplify my approach to the market. This concept had been advanced by Richard Donchian in the early 1970's and his 4-week rule is still observed by many traders.
This reexamination began when I decided that after all these years of writing systems (for myself primarily) I wrote my first trading system in 1963 on an IBM 7090 and "investigating" the behavior of all manners of technical indicators and market price action, it was time to get serious about making money in the market or get out altogether.
Prior experience indicated to me that:
In order to sleep comfortably, trading with the trend was necessary.
1. Where and how to exit a trade probably might be more important than entry.
2. The limitation of risk to a reasonable level on each trade is mandatory. The amount of risk might change as a function of time in the trade.
3. A 'reversal' system probably wasn't the best idea. Waiting before reentry of a market after exiting might be better -- this was a discovery, not an initial concept.
4. After exiting and waiting a given period, the length of the channel defining the long and short entry points might be different. (The same may be true for exit, but I didn't examine whether this was true or not.)
5. It might be best to establish entry orders at some small amount above/below the highest/lowest high/low defined by the selected channel parameters.
My initial work was with the Eurodollar market. I chose this market since it had the largest open interest and the open interest was spread out over a number of contracts, so it would appear that 'near' and/or 'far' contracts could be traded and I would not have to worry about rollover each quarter to stay in an active contract.
Eurodollar-Return on Maximum Drawdown 1982-1991 - In Print Copy
This chart shows that if we accept reasonable returns (50-70%) per year, then there is a wide variation of channel lengths at which such results can be obtained.
Once I reached this point and started trading the system, I decided to examine the effect of requiring that a trade be exited before another trade could commence -- NO Reversals of Position. I also looked at allowing separate lengths for entry of long and short trades, causing a wait after exit from a trade, and establishing a dollar stop loss order at a reasonable value -- sometimes different for weeks other than week of entry.
Below you will find two tabulations. The first covers an optimization for each of the listed commodities for the period from January 1983 thru June 1993. The second covers the results which would have been experienced using the same parameters as the optimized trades from November 1993 through June 1995.
Period: Nov93 to Jun95 Jan83 to Jun93 In Print Copy
Sometimes the system works -- sometimes it doesn't.
I wasn't surprised at the results. It appears that the currencies can be counted on to trade reasonably well. Remember, BP has been sideways most of the time in the trading period after optimization.
I think this "old" method needs further consideration!
Opinion on Investograph 3.0 for Windows Alfred F. Dougherty
I was one of the beta testers for the new Investograph 3.0 for Windows. I recommend it without reservation for end-of-day analysis.
Bob McCullough, the developer of the software, has created the best proprietary oscillators I've seen: Formula X is a short-term overbought/sold oscillator that detrend better than any I've seen, including CCI; his H and Y oscillators have some of the characteristics of Stochastics, but are better. Formula Y is an intermediate term oscillator and H is short to intermediate. These oscillators alone are worth the $795 price for 3.0.
The software also comes with 22 built-in trading systems. The manual is excellent, describes them in sufficient detail with example parameters to get you started using them. You can also create your own systems. The manual walks you through the built-in language system to make it easy to use the limitless array of oscillators in the software.
You can create your own oscillators using the language system (and Bob McCullough, the developer of the software, has provided some of his favorite custom oscillators in the package). It's an incredibly flexible software program.
With the exception of McCullough's proprietary oscillators, you can get some of this from some other systems. But for trading programs, McCullough has come up with a process for managing the equity curve which makes trading programs profitable in both trending or congested markets.
This is the big breakthrough, in my opinion, in this software, and when combined with the proprietary oscillators, makes for dynamite trading system development. I've looked at most end-of-day systems on the market and owned several, but none is close to this software package, especially for the price.
In addition to trading systems (my primary interest), Investograph 3.0 comes with an excellent trade filtering system and a profit pattern definition and filtering system. It also has all of the traditional technical analysis tools. The software is easy to use, because the manual is so user friendly.
It has so much power and versatility that it'll challenge the most sophisticated computer using trader. That's probably because McCullough is a trader who designed the software for people like himself. (Note: I have no financial interest in Liberty Research, the company marketing Investograph 3.0 for Windows or relationship with McCullough, other than hours on the phone during beta testing working on glitches and bugs. I've never met him.
Consider the Risk! - Don E. McCullough
It's so easy to trade and think only about good entry and exit signals and of the potential profits the markets make possible. Some traders never hold day trade positions overnight. I have considered (even experienced?) the risks and, like I say, how would you like to wake up and find yourself on the wrong side of a market that opens limit-up or down and stays locked at limit for several days in a row? Sitting day after day and not being able to get out of a position that's locked against you has to be a real nightmare.
I recently ordered and received some free literature from the Chicago Mercantile Exchange. One thing I was especially interested in learning was the size of limit moves in the S&P market. The first limit day can go 30 pts maximum. That's $15,000. If this first day closes locked limit, then the next day can go 50 pts. That's $25,000. These figures pertain to only one contract. One or two limit days against you in the S&P market would put a lot of traders, like myself, out of business. So, for many of us trading the S&P market, carrying a day trade overnight is absolutely bad business.
Not only can you lose 15 to 25,000 or even 50,000 dollars you can lose much more than that if the S&P market locks limit for several days in a row. Wouldn't it be terrible to end up in debt to your broker for 1-200,000 dollars? I know this is not likely to happen, but the point is it's possible and no reasonable trader can afford to take this chance.
This locked up, locked down business (as you well know) pertains to all of the markets and not only the S&P. The numbers may be different but the results can still be devastating! Now get this. One of the great things about day trading is you do not have to hold overnight positions and thus subject yourself to the huge risk of markets opening locked limit up or down and staying locked for several days in a row. The typical trader using daily bar charts has no choice, but to subject themselves to this risk. Although I have not yet witnessed a series of limit-up or down days in any futures market via my intraday bar charts, I'm sure the day trader on the wrong side of what comes to be a locked up or down market will nearly always be afforded several chances to exit. For the daily bar chart user and longer term trader being able to get out will often be impossible!
I have not, nor do I intend to make a study of spreads or options to lessen or perhaps even totally avoid the above mentioned risk. Probably most traders feel likewise, so I again urge you to always consider the risk and be very protective of your trading capital at all times. Like the famous trader Paul Tudor Jones says, "defense, defense, defense!"
Views on Seminars & Systems - A.Y.
I prefer not to disclose my name at this time, but I have no commercial connection with any of the companies or traders mentioned below.
Comments on Seminars and Trading Systems. I've been trading and following the S&P market for six years. I started trading the market on a full-time basis about 3-months ago. I attended quite a few seminars and technical analysis conferences including one given by Kent Calhoun.
I have not applied many of the trading strategies taught in that seminar because I did not have the time to validate their effectiveness. Perhaps Future Truth can provide such validation. On the other hand, I have studied many technical analysis books and listened to conference tapes. Overall, I learned more from diversified sources than from one single expensive seminar. There is no short cut trying to come up with a personal system that one can have confidence in. The system internalization is necessary to trade successfully.
My personal smart buys are as follow: 1. Gary Smith's S&P daytrading System. I don't trade this system, but my real-time observation in the last 2-3 years has confirmed the soundness of this system. 2. Tolerate (CompuTrac) conference or its audiotapes. My favorites are Linda Bradford Raschke, Joe Stowell and John Bollinger. 3. Futures Magazine Learning Center Workshops and its tapes. Charles Faulkner provided excellent insights on the prerequisite of a successful trader. I'm working on a shortcoming that applied to me.
Night Trading Feedback - Ken Biggs
I have been reading a number of back issues as well as the current one and I'm finding some very good information. It Is really good to read the insights and stories of fellow Traders. As they say: "A wise man learns from the mistakes of others."
I would like to know if you or any of your subscribers have had experience trading on the night market: NYMEX. I trade Crude, Silver and Copper among others. Trading in all three of these markets goes on during the night, not in some foreign country, but right in New York. Is there anything special I should be aware of when trading the Night market, or is it just the same as trading during the day?
It seems that there is a definite advantage to being able to start trading before the markets open up the next morning. Please share any thoughts you might have on this subject.
Is Robert Prechter a Lucky Monkey? - John Piper
It is my contention that markets are essentially unpredictable. This is to say that the best we can do is isolate low risk trading opportunities and then take them. Some will work out and others will not. We will win as long as we follow the old adage, cut your losses, let your profits run. People make predictions every day, I hear you say, and many of them are right. How do you account for this? This is where the lucky monkey comes into it.
It has been conjectured that with enough monkeys, typewriters and time, that one monkey would eventually produce the complete works of Shakespeare. Logically this is correct. It is an interesting aside that not only would these monkeys produce all literature to that point, they would also produce all literature yet to be published - including stock market reports of the future!
But let's just take 100 of those monkeys and get them to forecast the stock market over the next 10-years. All they need do is choose the right ball out of a hat. Out of 100, how many will be right, allowing a reasonable margin of error? Certainly a few. Now Robert Prechter made a forecast some years ago concerning an ongoing bull market on Wall Street. At the time, he was one of many analysts all making predictions. Most of them got it wrong, he got it largely right. But was he just then a lucky monkey?
Most people will argue that it was the quality of his analysis which made the difference, and we have always had the highest regard for the quality of his work. But one of those monkeys would have got it as right as well. If all those analysts were equally as good, then still only one would have got it right. Also, if the quality of the analysis was so good, why has it not worked so well for last 8-years? No, the conclusion must be that on that occasion, Prechter was the lucky monkey and that markets are not predictable (but nor are they random).
FTSE 100 - FTSE has continued to move ahead and news that the Bundesbank had cut the discount rate allowed it to break key resistance at 3170. The next key resistance is at 3280. It now seems likely that FTSE will make it to 3280 and maybe above. If so, we will continue to view such a move as the final phase of a corrective rally.
A blow-off in other words to match that which we are currently seeing in the US. Although having said that it will remain important to keep an open mind - maybe markets will just keep on going! This week FTSE has been tested and has passed - as such there is no reason why the rally should not now continue with some speed. <F2P8B> At this point a move to 3280 is clearly indicated. <F255P255D>. FTSE is nearing a level which could prove impassable.
Trading Trend - The TT is UP. The IOP System - System is Long with the stop below 3115. The 30-minute system is also long. For further details ask about our daily Fax service which continues to bring home the bacon.
Opinion on Options Maven - Bill Wermine
I recently purchased Options Maven from Frost Marketing Group (address in our print version). The cost was $212 and the cost is far less than the value. In keeping with my trading philosophy to keep trading as simple as possible, this tool fits the bill.
It is a hand-held calculator for quickly calculating options volatility, delta, gamma, vega and theta. I use this calculator in conjunction with Robert Krause's book, "Option Volatility" this book gives statistical volatility studies of all the commodity contracts. You can know at a glance if you should be buying or selling volatility or if you should be spreading.
Using this calculator gives you the correct value (volatility) quickly and eliminates time consuming, complicated and expensive software. When trading, I am more focused and concerned with price and value than wasting time with a lot of donkey work. By the time you finish the donkey work, the trade is gone. Robert Frost's Options Maven gets you quickly to price and value.
More on Trading Books - Steve Krull
Sometimes it is the obvious that is the easiest to overlook. While deciding whether to "break down" and shell out $50 for another heavily touted book on trading, I happened to look it up in the computer at the public library. Sure enough, it was sitting on the library shelf! And also, as is too often the case, it turned out to be of marginal value and after reading it, decided I would save myself the $50. Take care of the "pennies" and the dollars take care of themselves.
Although many trading books are only available via a catalog, I have found that Barnes and Noble book stores do have many of these books at 10% off retail and no shipping, and you can be reading them that same day (it seems most catalogs charge full retail plus shipping on top of that) and save money!
I'm willing to bet that there are many traders out there with books on trading they have read once or twice which are now gathering dust on their bookshelves. Meanwhile, someone else (maybe someone in your own town) is preparing to dish out $25-$100 or more for the same book. Isn't there someway we could "recycle" these books among ourselves? Maybe we could be trading books and trading commodities.
Idea For Exchanging Books - RWC
I have found a version of the Colver System, termed the "Modified Colver Method," in Charles Patel's out-of-print book "Technical Trading Systems for Commodities and Stocks," and I enclose a Xerox copy for you. I still have not found the Spike-35 System, and I don't have a catalog for Windsor Books.
In his book, Patel outlines in very brief terms the mechanics of 87 different systems, but unfortunately he does not evaluate them nor give the results of any test runs, probably because the book was printed in 1980, which was before personal computers began to be widely used for that purpose. My local public library obtained a copy of the book from the Orradre Library, University of Santa Clara, Santa Clara, California, on interlibrary loan.
Do any members by any chance happen to have a copy of the book "The Taurus Method" by Michael Chisholm? John Hill, in an early issue of "Futures Truth," mentioned that this work contains an excellent section on stops, which suggests ways in which various types of stops can be selectively used for best results under various market circumstances, and I would like to see what it says.
The book is apparently available only by purchase from Michael Chisholm himself, and it costs $75. How many $50, $75 and $150 books does one have to buy in order simply to browse them for new ideas? I read them once and then, except for a few standard reference books, they end up on a shelf somewhere forever. We need a lending library for commodity traders. If you have this book in your own library, would you favor me with a call, please?
Daytrading - Week #1 - Don E. McCullough
Perhaps you're wondering what's with all these articles coming from me in the past few weeks. Easy. As I told you, I am now a free man daytrading for a living. Attempting to at least. Got more time on my hands than I've had since preschool age. The freedom and extra time are wonderful while the daytrading is a struggle. I'm confident once I begin executing consistently all things will be wonderful!
I've just completed my first week of (serious) daytrading and have made a grand total of 7-trades. Had I taken all of my good signals, I might have averaged 7-trades per day. and I'd have made a good deal of money for a week's "work." The S&P market is intimidating to the newcomer and I'm not ashamed to admit it. My last trade was my best one in that I entered, took a small loss, and then reentered about 2-minutes later and that caught the top. By best, I mean most difficult psychologically. I mustered the courage and "got right back on the bucking horse!"
It was a week that reinforced the validity of my signals, but was riddled with my indecisiveness to trade them. I expect daytrading the S&P will take some adjusting to, to an extent I would not have previously believed. Being too hard on myself is not the thing to do while facing all the facts most definitely is. Decisive action and/or consistent execution is really where it's at, providing your entry and exit signals are truly valid
Another thing that didn't help was the very slow reporting of my offset orders. Can you believe having to wait as long as 18-minutes to get an offsetting fill price from your broker? (Rather, order taker.) The S&P market can move $1,000 or more per contract in 10-minutes. I may have to search out another brokerage firm. These order takers tell me that the more experienced traders use at-the-market orders for both entry and exit of their positions. By doing so they say you then will get a "flash-fill" and will thus not have to hang up the phone before getting your fill price. Well . . . already I've seen where they cannot supply these flash fills in a fast-moving market. Makes good advertising copy though.
I complained about slow reporting of my fills and got moved to another trading desk, but I'm not sure there's been any improvement. I found out if I did a lot of trading, I might be able to place my orders directly to the floor. There the order taker gives the trader in the pit your order with hand signals. Of course, if you buy a seat on the exchange, then I expect there's more angles to placing an order than you could shake a stick at! And, your commissions would drop to a very low (I forget exactly) 2-3 dollars per trade. I am sure this would vary from exchange to exchange?
Steve, here's some quotations I think are pertinent to trading the markets. I got them from a notebook filled with quotations I have taken from reading all kinds of books over a period of many years. The reason I went to this notebook was to try and find some answers to why I was not trading my signals. Actually, the answers have to be found in me and I think (with a little time) I'll find them.
"If we believe absurdities, we shall commit atrocities." - Voltaire
"The greatest victory a man can win is victory over himself." - Pestalozzi
"What is more mortifying than to feel that you have missed the plum for want of courage to shake the tree?" - Logan P. Smith
"He had the power of certainty. " - Ayn Rand
"I tried and failed, I tried again and again, and succeeded." - (Epitaph of Gail Borden, inventor of condensed milk.)
"When someone referred to his 'Godlike genius' Edison snorted, "Godlike nothing! Sticking to it is the genius!"
"Winston Churchill was once asked how he accomplished so much in so many varied fields-from painting to politics. His answer was, "Audacity is the only ticket." - Bernice Fitz-Gibbons
"It takes a wise man to discover a wise man." -Diogenes Laertius
"Resolution in adversity is always half the battle for salvation." - Pestalozzi
"Writing, when properly managed (as you may be sure I think mine is) is but a different name for conversation." - Laurence Sterne
This last one is, in part, why I contribute to this newsletter. I rather like his cocky comment in parenthesis. Since trading and studying the markets has been said, rightly, to be a rather lonely business (for many, at least) I believe newsletters such as this one affords the reclusive trader a means to "socialize at a distance."
Tidbits on Financial Astrology - Carol Murphy
On August 21, 1995, we will have the sun conjunct Venus ( ) and the cycle should be the same.
(Chart appeared in our print version only)
An Opinion That The Vendors' Side Should Also Be Heard - Ken Biggs
Just received your latest newsletter (June 1995). I think you are doing exactly the right thing in regards to the Vendor issue. Like you said there are always two sides to a story and it is best to hear both of them.
Member Requests
Gerald R. Barrington - I don't have a computer. Somewhere I read Internet has some valuable info, in among junk, under commodities - miscellaneous. I told a friend of mine about it and using his computer we tried to find what was available without success. I would like info on how to access and what one is likely to find. Is it worth doing?
Thomas Schopen finds the S&P daytrading articles very interesting. He wants to know how the daytraders follow the markets; i.e., data feed, software, computer speed and cost of these items. Any problems with downtime?
John Bond daytrades the Swiss and uses Stochastics for an indicator. When the market gets into a trend, Stochastics will peg at the top or bottom and become useless. If anyone knows of a better indicator, especially for trends, he would be glad to hear from you and compensate you for your help. Also, is anyone familiar with the software for Kent Calhoun's work? Call John at (phone number in print version only).
In reference to Charles Cochran's request, I'm currently using the Larry Williams' hotline for customers. Paul Adcock (phone number in print version only)
Special Report titled "Comprehensive List of Trading Book Sources" is available from CTCN courtesy of Joseph Light, who did lots of research putting this list together.
Editor's Comments
We are pleased to announce Lind-Waldock Traders Catalog is now a CTCN advertiser. They have most of the books that have been mentioned in
CTCN in-stock and ready for immediate shipment. I believe they will give you efficient and prompt service.
Last month we said reviews were planned on Bob Bolotin's software and Ted Shen's FutureSoft Benchmark System, which was programmed by Bob. Unfortunately, due to time constraints and other limitations and factors, I am not sure if I can do a detailed and adequate job doing reviews of software. It is much more appropriate that our members do all the software reviews. That is particularly true since they have spent their money buying it and are presumably using it much more intensely than myself.
There is a lot involved in software reviews. For example, the developer will usually insist on a review copy before publication. He may then complain about the way certain things were explained and want them discussed in a different manner or in greater detail. He may also complain about certain terminology. He may also complain about petty matters such as a word being used which has a slightly different meaning than the word he prefers. In fact, that has already happened. The vendor obviously does not do the above things when reviews are done without notice by our members, which is the way it should be.
Due to the above reasons I will only be doing Quick Scan's of software programs such as Bob Bolotin's and Ted Shen's. My preliminary opinion is they both looks good. The interface is well done and easy-to-use. In addition, Bob is now enhancing his software with additional capabilities, etc. Bob also is very dedicated to it. Ted Shen's Benchmark System was written by Bob using his software. The system is easy-to-use. The trading algorithm is based on a simple concept. It appears to have the capacity to generate profits but the problem with it may be that the stops have to be set large to make profits, which of course results in large drawdowns.
Quick Scan Book Review of the book titled "A Six Million Dollar Man's Trading Advise," by Michel Arimoto, 1995 Revised Edition:
It's an interesting book. It's based on an "unidentified mystery man" the author met. He claims to have made that much money apparently trading commodities using Trend Lines formed by Point & Figure Charts. It's filled with a number of large and easy-to-read charts which demonstrate the use of a great number of well-known technical indicators. Including extensive coverage on volume & open interest, divergences, symmetry and other subjects. This book is recommended reading.
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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.
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