Issue 14

Concerns About Validity of Seasonal Trades & Little Mention of Drawdown - Ed Forys

After being bombarded with many solicitations for seasonal trading advice being hawked by several vendors, I sat down one day to think seriously about their track records. The one thing that struck me was that often times, they would cite examples like "in the past 7 years, this trade was profitable 5 out of 7 times." There seldom was mention of paper loss (drawdown) while in the trade; drawdown is anathema to a stress adverse trader like me (as well as undoubtedly to many others).

I then consulted my statistics textbook and found that with a simple random, stationary set of data, using the Student "t" test, the calculation of a mean using 30 samples was accurate to about 5%. A smaller sample size leads to a greater error.

That alone was almost good enough for me to reject all of the too brief track records being hyped as the answer to the quest for a truly mechanical trading system since with less than 30 samples, the accuracy level is unacceptable to me.

If you flipped a coin 3 times and it came up heads 3 times, would you bet the farm that it would come up heads on the next toss? If so, you don't understand statistics and/or random processes and you need to do some homework (besides money management).

Another point I found to be disconcerting with these seasonal forecasts was the complete lack of walk forward testing. It appeared to me that the vendors were using up all of the available data to come up with the magic dates upon which to enter and exit the market and had no out of sample test results. Is it because the vendors don't know that they don't know? Or is it because they just don't care? I would rather err on the side of caution and in the meantime, when I do get one of those oh so enticing solicitations, it goes without hesitation into the round file.

Is Futures Truth Doing it Right on System P&L & Misc - Dr. Gerald Greenwald

It is distinctly uncommon for me to stick my two cents in, but I'm compelled by certain letters you printed in CTCN: Re Russell Sands' comments on Futures Truth. Mr. Sands, from short conversations I have had with him, seems intelligent and personable. However, I would like to relate my experiences with Futures Truth. About two years ago, I went public with my Key to Currencies Software. Shortly thereafter, Futures Truth sent me an equity curve they had decided fit my software.

They never bothered to consult me, but George, their programmer, claimed that between anonymous Faxes and working backwards from info he had, George "believed" he had reproduced my program and would follow it in Futures Truth.

I told him I would send (and then did send) a copy of the program so that they could accurately track the program. They did not bother to do this.

Then I spoke to and Faxed both John Hill and George depicting their lack of propriety and giving half-ass representations of what they believed my program to be, albeit I had told them it was not. They did not care a whit. In summary, I believe there is little, if any, credibility to Future Truth's evaluations. They are incorrect and misguided, in my humble opinion.

Re Mr. Stone's lamentations: Is this really worth including in a newsletter? (Editor's Note: Yes it is! Mr. Stone's contribution is especially valuable for new or novice traders). Also, Mr. Montgomery's jeremiads about the Ira Epstein Co. Montgomery appears to have never traded before, and appears to have little, if any, experience.

I would suggest that the $3,000, he says he lost was mostly due to his own "stupidity, misinformation, incompetence and negligence." Before you play the game, Mr. Montgomery, you should make sure you know the rules.

One of the rules I find valuable, is never be in a trade unless a protective stop is in place with the broker (not in your mind). I might add that from the tone of your letter, I can't help but wonder if it wasn't you who were "sarcastic and rude," and not them. Dave, keep up the good work.

Advantages of a Full Service Broker over a Discounter & Misc - Paul Diehl

I love your newsletter and wish I had found it a long time ago. Maybe misery loves company. I find great value in reading the comments of traders just like myself that have nothing to sell and no axe to grind.

I wanted to comment on Fred Montgomery's problems with a discount broker. I have traded with both full service and discount brokers. A full service broker will give you a discount if you trade enough and ask for it, but you will never get it without asking. I have had my own problems with discounters calling back with fills and have solved the problem by using a live quote machine (QuoTrek) and mental stops. This way you can call in a market order and have it filled while still on the phone. Live quotes are expensive so you have to find another system if you don't trade enough to make it worth your while. Yesterday I called to place an order in the S&P 500 futures market just after the market had dropped 1.20 in fast market conditions. The broker's quote machine was still showing the last trade at 455.15, while my machine showed 453.95. If you had been depending on the quotes from the broker, you would have either lost money with a bad fill or never have gotten into the market in the first place.

I have never had this problem with my full service broker, but each trade costs $50.00 or more. It all depends on where you want to spend your money and how much you trade.

I have been considering the Pocket Quote Pro to replace my Quotrek. The PQP is a lot cheaper, but I'm a little afraid to make the switch since the Quotrek has given me such good service. I'd like to hear from anyone out there that has used PQP.

I am also the owner of the Right-Time Index Program for trading futures and options on futures. So far, I have had little or no luck with trading this program, even though the vendor makes heavy claims about profits. I would like to hear from someone that has had success and get some ideas on how its done. The manual seems incomplete.

I also use the AIQ Trading Expert and find it to be very helpful, but I also find that you still have to use some judgement in taking the signals. I have begun to believe that there's no perfect program out there, because it would ruin the markets since everyone would own it and we would all be trying to trade the same way.

Hillary Clinton - Kent Calhoun

Since my letter postulating how I believed Hillary Clinton managed to produce her commodity profits, many things I speculated have been confirmed as fact. The White House officially retracted the version that Hillary produced her own profits. James Blair, Tyson Foods attorney, was credited with producing Mrs. Clinton's $100,000 profits despite the fact he lost over $5 million dollars in his personal account.

Hillary's broker, Red Bone, was revealed in court testimony, regularly locked his office door and assigned account numbers after the close of trading. These trades were carried in an Omnibus Account. Bone also neglected to ask Mrs. Clinton for $20,000 additional funds to secure her under margined positions in her account. Those trades were eventually taken off with a profit.

I concluded my letter by asking what return Tyson Foods received for their $100,000 contribution to the Hillary Clinton coffers. The answer turned out to be $7 million in Arkansas State tax credits granted to Tyson Foods, while her husband was Arkansas State Attorney General. I spoke extensively with USA Today reporter Bill Montague, who verified all of the above facts in his series of articles on Mrs. Clinton's commodity profits.

System Results Evaluation - Kent Calhoun

I would like to share some thoughts on system optimization. When I introduced my method of system optimization and evaluation, in the November and December 1989 articles in Technical Analysis of Stocks and Commodities Magazine, many system developers were upset that my high evaluation standards made their systems look bad.

These values were based on "Calhoun Profit Ratio", CPR, which is an important ratio related to portfolio risk and structure. CPR is the Cumulative Profits divided by Maximum Equity Drawdown divided by number of years tested and traded. If a system makes $100,000, has a maximum equity drawdown of $10,000 and has been traded for 5 years, the ending ratio is 2.0. This is an annual dollar return based upon maximum risk.

The CPR assumes a maximum equity drawdown occurs the moment a trader begins trading, then looks at expected return on investment one year after trading began.

A 2.0 ratio means that for every one dollar at maximum risk, two dollars should be returned to the trader by the end of the year. Any system under 1.0 has a negative annual return.

Applying the CPR to the 10 most Profitable Trading Systems article in Futures Magazine, only two of the ten systems have a positive annualized return. Of these two, my Ultimate II produced twice the amount of profits per dollar at risk than Time Trend II. Why? Because the manner in which parameters were selected.

I tested over 260 trading systems only to find false track records or misleading trading results for 90% of them. The most common deception system developers used was the equity spike optimization parameter set. This is when a system has less than 5% of its trades generate over 20% of its profits.

Page 66 of Babcock's book on Dow Jones Guide to Trading Systems provides an excellent example. A hypothetical Yen trading system is used by Babcock for teaching purposes and is not presented as a real system.

The cumulative system profit is $37,062.52, but one trade made $23,562.50. When this trade is removed from the other 9 winning trades, the average profit per winning trade drops from $4,620 to $1,500! Imagine the shock a trader may experience making this discovery after buying a system like this for $1,000.

A dual parameter set of the system above may look like this; a 3% filter X a 20 day moving average=4620, a 3% filter X a 18 .m.a=1500. This means a 10% one parameter value shift resulted in a 68% equity shift decline!

The key to all system optimization is to create equity stability in relationship to the parameter set. When any parameter deviation produces a greater percentage equity shift, the parameter set should probably be discarded.

Over 80% of the time, the parameter set that produces the maximum amount of profits are not the parameter set that should be used due to equity shift instability.

It is the "buffer zone" around a parameter set that limits the equity shift relative to the optimal parameter shift. So long as the optimal parameter shift still produces profits within two standard deviations from the optimal parameter set mean, the parameter set will make money 95% of the time.

The Calhoun Method for Optimal Portfolio Selection will compensate for the other 5% shift, and 27% standard deviation, when a commodities profits decline below a ten year annualized return. This is a lot simpler than it sounds.

A computer doesn't recognize a bean from a bond. For a system to be valid, it should be profitable for both markets? Maybe not. Since the market psychology of belly traders is different than those of currency traders, it behooves the traders find out what works and what doesn't within the context of the same system.

Many commodities are prone to consolidation periods more than others. Currencies, financials and stock indices offer more potential profits for trend following systems than agricultural and livestock markets, which have the highest percentage or range overlap from one time period to next. A system that constantly produces profits in some markets should not be discarded because it loses money in others.

Five Vertical Bars - Kent Calhoun

When the 5 VBTP trend is short and one particular vertical bar is generated for soybeans, 106 of 109 times one range of that bar is violated before the other. We confirm the trade by two parameters. Make money 97% of the time when traders take the opposite side of our trades. There are 25 commodities that have 93% probabilities or better. The choice of losing or learning from optimization is theirs.

Consider one 5 VBTP sell pattern for T-Bonds has never had a winning trade in over 10 years! A pattern tells the trader to sell on daily vertical bars when the intermediate 5 VBTP weekly trend is bullish.

The sell signals per trade maximum equity drawdown has never dropped more than $1,400 per contract. A trader may buy the market on the first sign of technical strength, after the daily sell signal has been generated, and use a protective stop placement that has never failed in 10-years of testing.

The point is this - how a system loses money is just as important as how a system makes money. Not all same system parameters need be profitable for all markets to profitably trade a system. The same principal applies to price action. A market that falls 20 cents in five days, then rises 10 cents in five days should fall below the 20 cent low, because the market fell twice as fast as it was rising, (without previous trend considerations.)

Consolidation Period - Simple Analysis

When the trends are not obvious, a longer term time period should be used to define the trends and increase the trading possibilities. Defining volatility in apparently non-trending markets can provide valuable information, especially a major tops and bottoms are projected.

In January and February, I recommended gold purchases below $330, based on the fact the market had ran out of sellers according to the 5VBTP time and price objectives for daily, weekly and monthly vertical bars. January's range for the entire month was less than $10. Thirteen years earlier, the monthly range was over $300.

The 5 VBTP weekly profit objective was 150% oversold, yet the monthly bottom was due the previous month and had achieved only 62% of its objective. The 5 VBTP daily downside price objectives are usually twice the upside objectives when the major trend is down. Both those daily price objectives were within $1 of each other at the major gold bottom.

Since the weekly trend was oversold, as soon as the daily exceeded a previous daily high, the weekly and major bottoms assumed to be completed. Major bull markets begin with higher daily highs and lows that become higher weekly and monthly higher highs and lows.

To Optimize or Not?

All trading systems are optimized to some degree, unless trading parameters at randomly generated without any profit considerations. Would anyone in their right mind trade a system without knowing what the best trading system parameters could possibly produce? I would not.

Consider what an optimized variable can be. Does the system enter intra-day or on the close? This is an optimized variable. A channel breakout system, that buys above 14 day highs, may have tested to 100 days, has 100 possible parameters; adding a sell below the 28 days lows creates 9901 possible parameter set combinations. The point is this: not all optimized parameters are equal in terms of curve fitting or optimization.

Richard Donchian, the father of modern technical analysis, created a 20 day channel breakout system known as the four week rule. Buys were made whenever a market closed above the previous four weeks' lowest low. Channel systems have historically been the most consistently profitable group of trading systems.

The difference between the optimal number of days for the buy and sell parameters increased total profits for portfolio of 24 commodities over 1210% and lowered equity drawdown over 73% for a 6-year period.

Less than 2500 possible parameter set combinations exist for a two parameter system like this testing up to 50 days. Any system using a fixed number of days to enter or exit trades would be improved by locating the best parameters and using the CPR on parameter sets.

Correct usage and analysis of optimization is the most valuable trading tool available. Whether optimization should be used, is never a valid question for any professional trader.

A Simple Way David Stone (May Issue CTCN) Could
Have Made Money Instead of Losing Lots of Money - Russell Sands

Use "Market if Touched" orders when attempting to take profit targets (rather than Limit-Orders).

Psycho Babble: Pluses and Minuses Russell Sands

Gary Smith has gone to great lengths to disclaim the validity of the (proliferation) of psychology guru's and 'coaches' that are charging a lot of money to 'help' people become better traders.

This letter is not meant to get into an argument with Gary, or anybody else for that matter, but to share some personal insights on the subject.

Let me begin by agreeing that there are many charlatans out there who charge too much money for too little (quality) services, then try to keep you coming back for more. There are people like this in every business, from the carnival barker who wants you to come see the"private show," to the system vendor who wants to sell you his "advanced updates."

However, these few rotten apples should not lead one to conclude that the whole field is worthless. Gary claims his real beef is that these psychology guys refuse to tell the truth that most people just aren't suited to trading. I think this is wrong.

Maybe most people aren't naturally suited, but anybody can learn. Richard Dennis unqualifying proved that a random group of people, having average intelligence, common sense, and good discipline, can learn to trade for a living. And he did it by teaching simple rules of the markets, without psychological programming or hypnotic mumbo jumbo.

On the other hand, many people need mental help (no pun intended) when it comes to trading. I am a great believer in the power of the mind, and that anybody can accomplish anything if they put their mind to it.

But the reality is that most people need help in most endeavors in life that they undertake. They need confidence. They need support and encouragement. They need to be told that they can do it. Yes, I agree there are no shortcuts. And people should not be tantalized by the lure of quick and easy profits. But with hard work, and a positive belief system, anything is possible.

Let me relate two personal experiences from outside of trading. In 1980, I won a World Championship in Backgammon, with a trophy as tall as Name Withheld, and enough money to get me started in trading for a living.

For those who think Backgammon is a "luck of the dice game," there is probably as much skill involved as Chess. But the dice do play an important part, and for five days in a row I rolled dice that were absolutely beyond normal statistical bounds of reality.

How did I do it? With transcendental meditation, mental dynamics, psycho kinetics, and good old fashion mind control. I saw the numbers I needed in my mind's eye, and rolled them accordingly. I had great help in accomplishing this feat.

I had a psychologist, a psychiatrist and a hypnotist, all working with me for a month before the tournament. The same type of 'gurus' that we talk about, and none of them even knew how to play Backgammon. But they sure helped me with my mental abilities, both controlling the dice, as well as focusing and concentrating on my game and being more aware of the technical aspects.

If that story is a little far fetched for some of you, try this one. A few years ago, I did something called the Firewalk Experience, where you walk over a bed of burning hot coals. This was a famous 'fad' in the 80's, taught by a pretty flamboyant Neuro Linguistic Programmer named Tony Robbins. But it was 800 legitimate, and to this day I still can't figure out how I did it without burning my feet.

You're put in a different state of mind, change your whole psychology and physiology ... it works. If NLP can do that, and if meditation can help me roll dice, then I have to believe that some of these 'coaches' can legitimately alter the mind-set of a doubting trader and turn him into a self confident success.

Yes, the power of the mind is an incredible thing to experience. Of course, as Larry Williams has recently said, if you have a system that's 80% accurate, with a risk reward ratio of 5 to 1, you don't need very much of this psychology stuff. But if you do want to improve even more, you still have to differentiate between the legitimate psycho gurus out there and the charlatans.

But that's no different than having to choose between legitimate trading teachers or system vendors, and the many slime balls in the industry. But even Gary Smith would agree that just because there are a lot of slimeballs, it doesn't mean the whole field (vendors) is completely worthless.

Of course, some people will choose or prefer to do it on their own, i.e., develop their own trading systems, and develop their own discipline and self confidence. But for those that need some extra outside assistance, I think the psychobabble field does have some degree of merit.

A Critical Letter from Mr. Ira Epstein & Some Order Placement Help & Advise

One of my clients, Ray Simpson, recently sent me a reprint from the May 94 issue of the Commodity Traders Club News. (Editor's Note: There's no record of a Member named Ray Simpson, if such a person exists, I would like to discuss with him giving an illegal copy of my copyrighted CTCN to Ira Epstein, in violation of Federal Law.)

To say that I was disturbed upon reading this baseless and libelous letter, is a gross understatement. Your publication of this letter without substantiating any of its allegations was irresponsible and seriously damaged our reputation.

Based upon my experience as a journalist gained in 10 years of hosting the television show, "Stocks, Options and Futures," which was broadcast on over 100 individual markets across the country, I believe that reporters should examine the facts and verify that they are reporting something with substance before publishing. I seriously doubt that CTCN undertook any such investigation before publishing the wild and untrue allegations here.

We have just completed our initial search for accounts bearing the name of "Fred Montgomery" the purported author of your letter. To date, we cannot find an account opened under that name. If, in fact, such a person exists, we would like to discuss his allegations with him. If this person does not exist, then your failure to investigate the claims in the letter becomes even more apparent.

Further, Mr. Montgomery's letter shows that its author lacks even a basic understanding of futures trading. He claims that he lost money because he was unable to get a quote from Ira Epstein & Co. He initially states that he was watching CNN cable TV at 7:26 a.m. and learned that Treasury bonds were down. CNN does not run a business show displaying the markets tick-by-tick. However, that really isn't the key here. (Editors Note: CNN was a typo ... it was FNN). Montgomery alleges that our system wouldn't let him get quotes. This is impossible.

Even if a customer has used up all of the free time allocated to him or her through the Ira Epstein & Co. Commodity-Fone quote system, the system would still allow the client to hear quotes for a minimal price per minute. I find it difficult to believe that anyone that has an active trading account with a $20,000 balance, as this man claims he had, would have expended his allocated daily free time so early in the day. We build in sufficient free time so that most of our customers do not have to pay for quotes. The only reason we set a limit at all is to prevent inactive traders from unfairly abusing our quote system. This policy allows us to keep expenses low, which in turn permits us to maintain our low commission structure. In any case, we do not lock clients out of the Commodity-Fone system, but rather give them the opportunity to continue receiving quotes for a very small fee.

No client that has an active account with Ira Epstein & Co. is ever locked out of the Commodity-Fone system. We do not treat new customers any differently than existing customers, with the exception that we initially give all new accounts more free time so that customers can familiarize themselves with the workings of Commodity-Fone. We certainly do not penalize our new customers as claimed in Mr. Montgomery's letter.

Next, and more importantly, as any person even minimally familiar with the workings of the commodities and futures markets would realize, Mr. Montgomery's expectations as outlined in his letter were unrealistic and display an ignorance of this business. His letter states that he saw a CNN (FNN) report that showed T-Bonds falling at 7:26 a.m. He next claims that he tried to get a quote from us at 7:27 a.m., because he knew that an important government report would be released at 7:30 a.m. Apparently, his claim is that he could have closed out his position before the government released its report at 7:30 a.m., if only he could have obtained a quote after placing a call to our quote line at

7:27 a.m. Even if these events took place, which I doubt, his expectations were completely unrealistic. Our quote lines and order takers are fast and efficient, and the market operates quickly, but even if Mr. Montgomery had placed his call to our quote line at 7:27 a.m., received a quote at 7:28 a.m., made an immediate decision to sell and called our order takers at 7:29 a.m., it is highly doubtful that the order could have been taken, relayed to a floor broker, and executed before 7:30 a.m.

Any experienced trader knows this, and places his orders at least 10-15 minutes prior to the release of a major report to allow time for it to be executed. Mr. Montgomery was setting up his own debacle. Mr. Montgomery apparently believes that from the time that a stop order is placed to the time it gets into the trading pit is under one minute.

We use a computerized order entry system on orders that are not market orders and orders that are not exceptionally close to the market. Even with our advanced system, it would have taken 1-1/2 to 3 minutes to have placed his order that day. By that time, the report would have been out and the market reaction underway. Mr. Montgomery should have had a resting stop order in the market. Mental stops, as experienced traders know, are often the key to disaster.

Mr. Montgomery next argues that I should have reimbursed him for his loss. He claims that I offered him a $200 goodwill settlement towards his loss. If Mr. Montgomery, in fact, did exist at all, I may very well have made a gesture like that. It would not be uncommon for me to do so. At times, if the client has a problem, due to their own lack of expertise, we step to the table, show that we are not without heart, and try to help that client out. However, I have no recollection about this particular instance, if in fact, it occurred.

I have been in the futures business for 25 years and Ira Epstein & Co. has just celebrated its 10th year in the business. We are one of the largest discount brokers in America. We do not get many client complaints. Any check with NFA or CFTC will prove this point.

We have 1000's of accounts and execute 1000's of orders on a regular basis. We have review mechanisms in place and strive to improve our service level at all times. Without excellent customer service, we wouldn't keep the 1000's of satisfied customers that we now maintain.

I already know, from talking to the editor of Commodity Traders Club News, that several of the readers of this newsletter have called or written to express their believe that Mr. Montgomery is in the wrong here. They believe that he was uneducated and unsophisticated in trading futures. I hope that the CTCN will print their letters and an apology for publishing Mr. Montgomery's letter without first checking the facts. I take my reputation very seriously and am entitled to a statement setting the record straight.

Precision Commodity Trading Program John Maglovsky

I recently received a copy of a trading program that selects seasonal tendencies that are remarkably correct (by their brochure). I have a copy of their trading recommendations for April. I evidently don't know how to check this program properly and need the expertise of CTCN Members. I only checked four commodities and 3 were losers with one with a marginal profit. I called Precision Commodity Trading for a profit/loss statement of one following their recommendations. Their answer was, it is included on the recommendation list. Their list does not tell me how much I would make or lose if I bought one contract of each commodity on their list and followed their instructions.

I'm sure if this program can be proven to be profitable 79 to 800 of the time, as it claims, many of our club members would be interested in it. I hope you or the members can help with information about this program and its success or failure.

Thanks Dave, for your time and energies you put into your Swing Catcher Program, CTCN and your personal time with callers like me, I appreciate it.

A Batch File for Data Backup - Verl Philliber

To paraphrase the 1970's tune, "Backing up is hard to do."

Many of us find backing up data files to be a bothersome task, so sometimes it just doesn't get done. Yet, since good data is the lifeblood of our trading, it is essential that we protect it at all costs.

The backup program provided in DOS is not elegant, but it is adequate for most of us. Problems arise because it is not very user-friendly, and uses arcane commands which are sometimes hard to remember. To make the task less odious, and to help avoid errors, I wrote a batch file to make backup less of a chore. You may find it useful.

Some background comments: I wrote this as a working program for my own use, so it is not "pretty," but it does work.

I made some changes before submitting it to the CTCN newsletter to make it workable for most versions of DOS. Pre-DOS 4.0 users will need to remove the "@" in the ECHO commands.

The directories are coded to match the same names used by Trend Index Trading Co. Probably, we should all use the same directory names as Dave. This simplifies troubleshooting if we need assistance with a data problem. It may also prove useful at some time in the future if Dave makes a program improvement which affects file structure.

You can choose either C or D as the source drive, and either A or B as the target drive.

I followed the conventions described in the CSI manual. Thus, data stored with program files (18 month Trendx, or Dow-Jones/OEX files) are backed up on two disks: QMASTER is stored on one, and data on the other. Historical data files are not stored with program files, so can be backed up on the same diskettes as the QMASTER files.

Non-CSI users will need to make changes as appropriate.

After keying in the program, you can run it without backing up any files to get a feel for the program, and to see whether it meets your needs. Just press CONTROL-BREAK each time the program prompts you for a diskette.

DOS 6.0 users have a new command called CHOICE to use in inter-active batch files. Others will have to create a small program called REPLY.COM, and store it somewhere on your path (e.g. C:\, C:\DOS, C:\BATCH, C:\UTIL etc.).

For those who don't remember how to create .COM files, I'm including the instruction. This is a two step process:

1. Create a file named REPLY.SCR by typing the following lines EXACTLY as shown, pressing (ENTER) at the end of each line. C:\>copy con reply.scr (ENTER)
e100 b4 08 cd 21 3c 00 75 02 cd 21 b4 4c cd 21 (ENTER) rcx (ENTER) e (ENTER) w (ENTER) q (ENTER)
Now press the function key (F6), then press (ENTER). DOS will show 1 file copied.
2. Now type:
c:\>debug < reply.scr (ENTER)

This small program was written by Van Wolverton, author of several books on DOS, including Supercharging DOS.

With minimal changes this batch file can be used to create a restore program in case you ever need to use the backup files. I didn't list the changes here, because of space constraints. However, if there's any interest, I can submit them for a later newsletter.

You Alone Are Responsible For Your Actions - Russell Sands

To Fred Montgomery. You must learn to take responsibility for your own actions. Specifically, you should always call your broker if you haven't had a call back within 10-minutes to see if you got filled, and you most definitely should not use 'mental stops' if you are not in a position to watch the markets live all day. Despite my own feelings about Epstein, the problems you described were 90% your fault. If you have learned something from these sloppy mistakes, then it was well worth the cost of tuition.

The 1-2-3's of the Market - Ken Turkin

People are use to thinking and communicating in symbols. Life is made easier with complicated forms being describing as some symbolic reference. All markets, being only comprised of groups of people, also communicate in the same way.

Numbers are the most common symbols used and have a multitude of interpretations. The best numbers for the markets are 1, 2, 3 and 4. ONE can be a dot, a single point or a obvious high or low point. TWO can be a line with 2 end points or a single point which started to curve and come back to itself forming a circle. The 2 can be a high-low or low-high swing on a price chart.

The number 3 is the first completion of something real. THREE is a Triangle, probably the most important symbol of all. The 3 consecutive swing points on charts can form what is called a cycle. They can look like a high-low-high or low-high-low. The 3 points can be squared off which in essence creates a fourth point. Taking it another way, just add another swing to the two which made the triangle. Now there are 4 swing points which will always show you the illusive TREND.

In other words, the 4 swing points (2 highs alternating with 2 low points) create 3 price thrusts or swings which show 2 consecutive cycles indicating one trend. This can be generic to any time frame or price movement. Only the scale perspective is different.

Editor's Comments

As you can tell by reading Ira Epstein's letter, he is very upset over Fred Montgomery's letter in the May issue. If in the future there's an extremely negative letter like that, I will likely try to get a comment or rebuttal from the target of the criticism prior to publishing it. In fact, that should have been done in Ira's case and for that I apologize.

However, Ira says CTCN should have "investigated the claims" and "substantiated its allegations" and "examined the facts" before publishing Fred's letter. We are not the Police, nor the FBI. Unfortunately, we do not have the capabilities or the power to discover and correctly verify the truth. I am sorry to say that it's really unreasonable for Ira to think CTCN has an obligation and the authority and resources that would be required to verify statements made by its Members. Furthermore, I have spoken to Fred Montgomery and he says his letter was absolutely correct. In fact, he states he taped the specific call (and others) to the broker, in which he was told their policy at the time was to automatically make the clients first call fail (so they could check the account status and balance). He taped those calls because of a number of errors or screw-ups attributable to several different brokers over the years.

He also says Ira couldn't find a record of his account because the account was under a different name (his business name).

You should know that in addition to negatives, I have heard some good and positive things about Ira's brokerage service. However, these positives were not submitted to me for publication. Therefore, I would greatly appreciate letters (for publication) from CTCN Members who have had experiences with Ira Epstein Futures.

Thanks to Verl Philliber, his excellent back-up program is available free to all CTCN Members.

The reverse side has details on an upcoming Dow Jones Telerate (CompuTrac) Seminar. It should be beneficial to attend it.


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

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