Issue 26
I Knew the Market, Not - J.L.
Although I had read several accounts of futures traders who said that one of the most important factors in trading was the preservation of capital. I guess I didn't fully appreciate what they were saying. I do now.
At the end of January 95, I had $100,000 in my account. I had made a gross profit in 1994 of approximately $95,000, netting nearly $82,500. This was made trading primarily the S&P500, making two to three trades daily, although close to $31,000 was made in two coffee trades. On January 30, I felt strongly that the S&P500 was due for a major correction to the down-side. I sold two March contracts and then a couple days later sold an additional two contracts.
When the correction didn't happen, I still felt it would at any time, so I held on though the market continued to rise. I rolled the March contracts into the June contracts on March 14, and watched the market continue to rise. I had a margin call and liquidated two contracts and shortly after that liquidated another contract.
Finally on May 19, I liquidated my final contract for a total loss since January 30 in the S&P of $56,500. I felt like a person who had held onto a rope of a hot air balloon who didn't let go while he could and then couldn't because he rose too high. I was in agony for several months.
You would have thought I had learned a lesson. Again being sure the bond market was due for a correction downward, I shorted bonds eventually taking a loss of $7,093.
I had a system for trading the S&P market that I had usually followed that was profitable. I strayed from it, though it had been profitable over a long period and followed a hunch that the S&P was sure to have a nice correction downward. I was sure of my hunch, but I was wrong. I have been nearly always wrong when I follow a hunch, thinking I know what the market is going to do. I was wrong to the tune of about $25,000 on lumber in 1993 and wrong another time the S&P in the amount of $16,000 in 1994.
I have now stopped trading until the middle of July, while I evaluate things. I have lost confidence in my trading due to the scenario above. Now I am not even confident of the things that proved to work prior to my very stupid trades. Yes, I have called myself stupid among many other things in these past five months.
I hope I have learned a lesson, a very costly lesson. I have now decided I will always put a protective order at the time of my original order to get myself out of the market whenever it goes against me, in the event I follow a hunch rather than a system. Preservation of capital will be utmost in my mind.
I do have several systems I follow, one of my own for the S&P 500 market and the Gary Smith S&P system. Also I plan to use another system I purchased from Lee Gettes for the bonds, S&P, coffee, cotton and silver. I have been monitoring Gettes system for several months and I think it has merit.
My motto from now on will be: Don't rake the leaves against the wind. Don't stray from what works and if I can't resist then always place protective stops that I am comfortable with at the time of the order. I find it extremely difficult to place a stop after the order, unless I am following a system that calls for one. It is far better to take a loss a little early than to take a large loss later. I now realize I don't know how high is high or how low is low. I have become very humble. If what I have said turns out to be of help to anyone, then I am glad I shared this terribly distasteful but very real experience.
A Data Vendor Wish-List - David Sligar
Continuing the recent comments by and about data vendors, I would like to submit the following "wish list:"
1. Accuracy and reliability. Almost goes without saying, though I certainly agree with Buzz Ross in May's CTC News that perfect accuracy is not essential, even if it were possible. Much more important is the percentage up-time of the quote system, which one must hope is close to 100. Redundancy, anyone?
2. Accessibility. Local phone access or in real-time data, cable or satellite feeds, should be inexpensive and easy to set up. The data should be available in a format readily usable by all major charting/analysis programs, and should provide conversion software accordingly.
3. Flexibility. A trader may need quotes on one (or a few) issues at a particular time. Data on issues previously uncollected should be easily available, and beginning and ending dates should be easy to specify.
4. Cost. A low monthly fixed charge for some base amount of information is good. If historical data is required, a reasonable and well-defined surcharge for data collected is acceptable. (The adjectives are important!)
5. Completeness. Includes stock, mutual fund, commodities, futures and options quotes. More?
6. Telephone support. Most information highway vendors I've dealt with came up short in this department. Somehow, there are always excuses, e.g., "hundreds of calls per day," "explosive demand," "overtaxed," etc. I would suggest that an essential component of any product is its usefulness. If that's true, then it is the seller's responsibility to provide to the buyer whatever will make the product usable, including, if necessary, adequate technical support. Is this basic? When it comes to computer information and software, I would prefer that systems be carefully designed, and manuals well written, that only a bare minimum of telephone support would ever be needed. This can be done, though most often it's not. An example is MetaStock. In almost two years of using their charting software, I have called them only once, and without much difficulty.
That's enough, from my perspective. If I've left something important out, I hope someone will help me complete the list. Now, to be more specific. CTCN has run several comments in recent issues by Bob Pelletier of CSI, including in the May issue a response to a letter pointing out some problems with CSI's technical support. I recently stopped my subscription to CSI. My reasons may be of interest.
The difficulties I had were with the software. CSI data is no doubt quite good, but collecting it was extremely time consuming, and the collection process was hard (for me) to set up. I had to create a new portfolio whenever I wanted to collect data on only one security, or when I wanted to collect any subset of my normal portfolio. The time required to set up the data collection process in this way was not acceptable to me. It may be that I was simply not well enough schooled in how to get around in the program. I was not able to discover better operating methodologies during the limited time I had to learn the system. I did telephone for technical support on many occasions, and the response was that this is how the system is, no one else is unhappy with it, and so forth.
That may be. But my interest is in trading, and I prefer to spend a minimum amount of time learning to use my mechanical tools, and almost no time at all actually using them. The market and my psychological responses to it are where I want to spend my time. Thanks, Dave, for providing this forum. I thoroughly enjoy every issue of the News.
Emotions are The Key - Mike James from New Zealand
Thanks to John Brown for his contribution in the last issue. I have been meaning to write a letter covering some of the same ground. I don't intend to repeat specifically the areas covered by John, I suggest for the sake of your health and trading profits, reread his contribution in Vol 3 No5. It contains some sound advice.
Personally, I believe that your emotional state is the key element in determining your bottom line profit. Trading success is a product of internal control. Without a healthy mind and body this control is far more difficult, if not impossible to maintain.
There are many aspects to this. One example is an exercise program. Anyone who has committed to any sort of aerobic exercise program will probably have experienced a more relaxed state, and found that they can think more clearly.
If you are worried or stressed your brain doesn't function as well. Think back to the last time you sat a formal exam. For most people examinations are stressful. Many people find that in the heat of an exam they "forget" many pieces of information that they would usually be able to recall immediately. As soon as they leave the examination room, the information they tried to recall in the exam room pops back into their head! This is one simple example. You may have had something similar happen to you in a trading situation.
As well as regular exercise, make sure you get some mental relaxation. Trading can be a very intense business. So mental relaxation is important. Another important aspect is your diet. I'm fortunate that my wife is a natural health practitioner, so I have some guidance from her in this regard. Personally I only eat organic unprocessed food where possible. You may think that this is going a bit far. Don't you make sure that you car has the correct grade of fuel? From a nutritional point of view, processed foods and chemical additives de-nature foods and make them less than ideal as a fuel for our body. I want to operate at my peak, make money out of the markets consistently and be relaxed. Processed foods just add one extra stressor that my body has to deal with, that I for one want to try and avoid.
I also take one or two herbal and vitamin supplements every day. Seek qualified advice. To help with my mental concentration, I take a vitamin B complex and the herbs Siberian Ginseng and Gotu Kola. These herbs are available from Natures Way Products, which is based in Utah, and probably on the shelf at your local health food retailer. Briefly, Siberian Ginseng helps the entire body adapt to stress. Because it helps our cells to use oxygen more efficiently, it also increases stamina and endurance. Gotu Kola is termed a "Brain food" as it increases blood circulation to the brain. It also has a relaxing effect on the nervous system. Among herbalists, it is renowned for its ability to promote memory and reduce mental fatigue.
Babcock's Systems Opinion - P. R. Rettino
I received Bruce Babcock's CTCR for 2-3 years. I purchased about 20 of his systems. After converted many of these to SystemWriter, I discovered only losers or marginal systems. It appeared that they may have been over optimized.
I succumbed to some very slick advertising and purchased his S&P Day Trading system. It was very expensive. I lost a lot of money and all faith in CTCR.
Bruce Babcock Responds
Thank you for the chance to comment on Robert Rettino's letter. It raises some important issues for consumers of commodity trading systems. Although I know Mr. Rettino is sincere, his letter leaves a very unfair impression about me and my company.
I have checked our records and Mr. Rettino was a "Commodity Traders Consumer Report" subscriber in 1990-91. The "CTCR" magazine is separate from the systems we sell. He must have thought there was something of value there as he renewed his subscription for a second year.
Between Jan. and Nov. of 1990, he also bought six written systems at an average price of $38. He says they were "marginal or losers." We sell these inexpensive systems without undue hype primarily as a source for trading ideas. Certainly, we make no claims that the systems are guaranteed to be profitable in every market or time period in the future.
Only three of the six written systems he bought were capable of being comparatively rated. A cursory check showed that in 1992, two of them were rated in the Top Ten Systems in Futures magazine on the basis of performance after being sold. Other systems similarly rated in Futures' Top Ten sold for hundreds or thousands of dollars.
Mr. Rettino also bought seven systems that came with computer software to allow historical testing, parameter optimization and trading signal generation. He paid an average price for those systems of $163, a small fraction of what others charge for equal, or most often, inferior software.
One of those seven was the S&P Day Trading Company system which Mr. Rettino specifically criticizes. Its price was $495, which he says was "very expensive." I suggest that was not expensive for a mechanical S&P day trading system with powerful software and an impressive historical record.
I don't know what he means by "slick advertising." Those who are familiar with my advertising know that it is truthful, factual and realistic.
Mr. Rettino says he "lost lots of money." As I will show in a minute, he must have lost money because he did not follow the system properly or long enough.
No system vendor can guarantee future profitability, but I think I do everything possible to demonstrate my faith in my products. Is there any other vendor who actually trades with the systems he sells and publicizes the results? I don't trade with every system I sell, but I have been trading a demonstration account with a number of them since the end of 1990. This account trades only with systems I sell to the public. In fact, I trade no secret systems for myself in any account that I do not share with my customers.
Additionally, none of them has ever been re-optimized. Far from selling "over-optimized" systems as Mr. Rettino suggests, I must be the only system vendor who always tests and trades using the same parameters for all markets. Other vendors have different parameters for every market and reoptimize all the time to show spectacular historical results because they don't plan to trade with the curve-fitted monsters they sell.
The annual returns on my demonstration system account have been: 1991 +63%, 1992 +61%, 1993 +23, 1994 +66%, 1995 (through May 24) +85%. That is not a misprint. This year's and last year's results use a six-figure account. (Past results are not necessarily indicative of future results.)
Many of my customers report similar impressive returns. Unfortunately, Mr. Rettino chose not to purchase the best of my personal systems though they were available in 1990 and 1991 for less than $500, including the most powerful system software in the industry.
But what of the ones he did purchase? I actually traded the day trading system he mentions both before I started selling it and for nearly three years after I had stopped selling it. It made real-time profits (including a $25 commission) of $19,450 in the two years after I started selling it. That's not bad for a mechanical day trading system that traded only 112 times during that period.
Mr. Rettino bought the system on 1-25-90. Because of excessive volatility then, the system did not trade during Feb. and March 1990. That gave him several months to become familiar with it. If he had started trading the system in 4/90, and traded it religiously until 4/91, he could have made more than ten times what he paid with only 28 trades. The worst drawdown from starting capital during that period would have been only $2,150, highly reasonable for an S&P system.
Another of the software systems he bought I stopped selling several years ago because I decided the performance was not living up to expectations. However, I have continued to trade it myself in both my demonstration system account and my retirement account to this day. Although its performance has been marginal, I have not yet given up on it myself.
Under the circumstances, it is hardly fair to vilify me because a well-intentioned system did not perform up to historical standards. After all, I sell all my systems (even the most expensive) with an unconditional 30-day guarantee. In addition, they all have fully-disclosed trading rules. What could be fairer than that?
College Education Costs Money - Michael Ireton
Fifteen Years ago I started trading commodities with a couple of friends of mine and we became day traders. However, we didn't have a complete understanding of what we were doing. We charted and thought we were doing the technical things we needed to do, but in the end we went bust and had to give it up. This experience, while costing mega bucks, was part of my college education in the commodity trading game and my entrance fee. The experience forced me to go back to school and finish a couple of degrees so I could move on.
Now I am back in the trading game. I originally wrote Dave to find out about a particular trading program that was offered in the slick and glossy world of advertising. I mentioned that I consider much of my investment in books, tapes, videos, etc., as part of my college education tuition in trading. Every piece of information I pick up that adds to my personal trading techniques and that I can feel confident in, makes me a better trader and will allow me to make better informed trades. After all, that is all college really does for anyone is to help you make a better decision based on all facts. As I look back over the past months at the money I have spent on different things, I realize that much has been in the search to assist me, so I am willing to pay the price. I am trying to involve my sons in the market and use the materials to teach them also. The old adage of "it takes money to make money" is appropriate.
The same holds true to dealing with brokers and selecting brokers. I am still conditioning myself to be cautious of any broker recommendations. I have changed brokers recently because of poor information leading to losing trades. I am gaining the confidence through experience and my "college courses" in the technicals to back away from the teachers' (brokers) suggestions and to make my own decisions. Except for a couple ill-conceived trades when first starting and not following the technical signs my system trades have been money makers. My losses have been in trades I Initiated at a broker's call and what was going to happen. I have stopped this foolishness and am disciplining myself to only trade my techniques that work for me.
Experience and education is important when becoming a trader. Everything you purchase is a part of your education and everyone you talk to is your teacher. Your tuition is on a pay as you go basis. You know you have graduated when you begin to make more money than you pay out and the decisions become yours and not someone elses.
A Corn Options Trading Method & The
Problems With Options - Fred Montgomery
This analysis involves a trading method involving Corn Spreads. The trade buys Sept Puts 15¢ out-of-the-money and simultaneously buys Sept Calls, also 15¢ out-of-the-money, The idea being a big up-move caused by weather concerns during June/July would make the calls skyrocket. Conversely, if no big up- move the puts would go up in value as market drops. In addition, if the trade does not double its total investment by July 4, it's recommended the calls be dumped and puts be doubled-up, as the market is very likely to drop if no big up-move takes place by July 4. This year I executed this trade during the recommended time frame (on June 4) with Sept Corn contract being priced at 275 at the time.
Though I have this commodity option (spread) trade underway now, I must confess I never really liked trading options. Some years ago I traded them more frequently than now and usually never made money (or lost money) using options.
My biggest complaint with all options is that if the price goes in your favor, they usually add to the option value at a much smaller percentage than how much they take away from it when it goes against you. It's always less you make when going your way, and more you lose when going against you.
For example, Friday, June 9, Corn closed down 2¢ vs. Thursday. However, they only added ¼¢ to the out-of-the-money 260 Put, going from 5-½ to 5-¾. However, they took away ¾¢ from equally out-of-the-money 290 Call, going from 10-½ to 9-¾.
In other words, my long put gained ¼¢, but my long call lost ¾¢. My loss for just one typical day was triple my gain in percentage terms. I Have seen that occur often, both on this trade and other options in other markets over the years, including a number of spread trades. In fact, I have seen many more extreme examples.
After looking at the facts, I now believe it will be very difficult to double my money on this spread. For example, the 260 call was 21-½ on Friday, with the call being 16¢ in the money. That means if Sep. Corn went to $3 .06 it would then result in the 290 call being 16¢ in the money, and it may be worth about 21-½ or so.
However, it would likely be worth less than that because of time decay between now and the potential $3.06 price. Speaking of time decay, I recall some trades where the market was flat or even went my way to a degree, but I still lost money as they took away the time premium every day, making my option worth less, even if going my way!
The put is similar to the call scenario. For example, the 270 put is now out-of-the-money by 6¢, and worth 10-½ as of Friday 6-9. For my 260 put to double, which I paid 5-7/8 for a week earlier, the price would have to drop an estimated 8¢ in the money, or a price of about $2.52 or so. An even lower price would be necessary due to more time premium decay, if the move took a while to take place.
These Sept. Options expire on 8-18-95 according to my broker. That means there's only a short amount of time for the price to make a huge move either down to the $2.52 area for the put to double, or up to the $3.06 area for the call to double.
Moves of that magnitude in corn seem highly unlikely. For example, even with all the unusual major news stories recently, such as flooding, late crops, Russian sales, other exports, etc., the price only moved about ½¢ today.
Keep in mind, even if the price does make a big move and the option doubles, what about the loss on the other end! If the price goes up to $3.06 or so the 260 and 250 puts would be almost worthless. The opposite is true with the calls being almost worthless if the price drops to $2.50 area.
If the price makes that huge move up or down and we double the value, it may only be a break even because almost the entire investment on the other end would be a wipe out. If that's true, it seems to me we would actually have to quadruple our profit on the winning end to in reality "double our money!" By the way, what with daily time decay, the scenario on this trade is even worse than my above calculations, with even a bigger move required, either below $2.50 or above $3.10 for the 260/290 options.
Some Comments and Observations on Recent
Articles - Alfred F. Dougherty
1. I have been trading Gary Smith's system since 2/3/95 and recommend it. Each month has been profitable, averaging about 5 S&P points, after slip and commissions (May was the best, +14.30 S&P points, after slip and commissions). Don't use the Friday short pattern, especially in an up market; even Gary has quit using it. I have an excellent broker, Reinhardt Watson, who trades this system for me and another person (someone has to watch the market closely to trade the system, get the breakout point, make adjustments to stops, etc., during the day). He's also familiar with Vilar Kelly's Daycare and Trophy systems, which he trades for another person, and breakout systems for T-bonds and currencies.
2. Tom Cruckshank outlined in 5/95 (V3, 5) a method for using TradeStation software and Signal delayed data service to use the real-time S&P cash index plus the futures premium to create minute-by- minute real-time data, or at least a close proxy. I'd like to hear from anyone who has done this using TradeStation with Signal or other data vendors on real-time data. I want to use one and/or five minute data with Gary Smith's system. As Bob Buran outlined in the most recent issue of a rival publication, using intraday data with a mechanical system can significantly improve profits (yesterday, for example, taking profits at the 2.0 standard deviation band between 3:30 and 4 p.m., rather than MOC resulted in $300 profit per contract).
3. There has been some discussion recently about scale trading and Wiest's "You Can't Lose." As one who has tried his approach, subscribed to his newsletter, taken a bath in coffee a couple years ago when my stomach couldn't take the drawdown (I've also looked for oceanfront property in Arizona), caveat emptor! But, after this unpleasant exercise, I had the opportunity to review the manuscript of a similar, but much more conservative and sensible method, called interval trading. Risk is substantially reduced.
The resulting book, "Conservative Commodity Speculation," by Ralph Fessenden, a professor at the University of Montana. He has been trading commodities for years, including dabbling with Wiest's system. John McDivitt, the lead broker at Zia, collaborated with Dr. Fessenden on the book and is an expert on scale trading (he was recommended to me by Wiest) and interval trading, and is a superb, experienced commodity broker. I understand he and Dr. Fessenden now use an intermediate to long-term momentum oscillator (MACD) to attempt to avoid very premature entry (and, hence, terrible drawdowns, costly rollovers, etc.).
When I looked at weekly and sometimes monthly charts over a 10-year period, and used a momentum oscillator (I used stochastics), with the bottom 1/3 price range approach, I found that decent entry points can be chosen. I think using seasonal data from an outfit like the Moore Research Center in Oregon to pick high probability contracts and likely entry points would help further (like October-November entry at the seasonal lows for the summer Cotton and Copper contracts). John McDivitt understands all this; he also manages money if you don't want to do it yourself.
4. If anyone has done further testing on the work of Connors and Hayward ("Secrets of a Hedge Fund Manager") on their "news reversal" system (how big a gap is necessary? Same for shorts as longs?) or has come up with a method for minimizing false breakouts using their "historical volatility" system, and is willing to share and work together.
5. Finally, the best book I've read recently on trading is the thin, pithy "Zen in the Markets," by Edward Allen Toppel, Warner Books, 1992. Superb; shows how successful trading requires the discipline, fortitude and calmness of the marathoner. You begin to understand why they were called "Turtles."
Mechanical System is Best - John Bowley
Many recent contributions suggest using discipline, commitment, trading skills, etc., rather than 800 mechanical systems. I think this will cause more losers than winners.
The reason computer trading systems exist is to capture good ideas and determine the best way to apply them. Basically, any idea one uses can be automated and tested. Various filters and stops can often improve a system's 10-yr performance even after it's released. Otherwise, one may lose their skill or luck in selecting trades.
Psychological Dysfunction - Don McCullough
Today, while watching tick, 3 min and 5 min bar charts of the S&P market, I was perfectly dysfunctional. (Funny and not so funny!)
What a great day for trading the S&P! About $2,000 up and then about $3,000 down per contract. What did I do about that? Not a damn thing! Not one trade, and I sat and watched one good signal after another pass me by. How can that happen? Here's some of my best reasons and there may be others I'm not aware of.
Though I have been studying (and trading a little) the markets for around 9-years, I have never done any daytrading until recently with the Mid-Am bond market. It's a very good jump from that, and similar trading to the mighty S&P market. Also, I just had a $20,000 check cleared for trading yesterday and the "shock" of confronting the fact that my big test with the markets is upon me is probably another reason. Its been a long, hard road to this kind of "Judgement Day" and I am flat-out shy about "pulling the trigger."
I have mentioned the difficulty of consistently trading your signals in this newsletter. Now, you are hearing it from "the horse's mouth!" It's not the fault of my signals. My signals couldn't be more definite or easy to see. It is my fault and I believe after a few trades, most of this not trading my signals problem will be history.
The only comforting fact about this great day for trading the S&P is that my signals were, as always and for the most part, "on the money." I have long been aware of how losses can cause one to miss the next good trade. What I confronted today was how not trading the first good signal of the day can screw up the whole damn day!
So, it's not just losses that can screw up your daytrading, but also good signals that should definitely have been taken. So ... here I've given you a little road map to psychological dysfunction and it was possible even though I have great confidence in the merit and high probabilities of my signals.
My final analysis of this great-bad day with the S&P market is: I was afraid to take a loss. It's that simple. There is no way (I've known this for a long time) I am going to be in the market for the winners, unless I'm willing to be in the market for the losers. NO WAY. Another problem I had today (and it just occurred to me) is that I wanted my first big trade, of what I expect will be a long and very successful trading career, to be a winner. Stupid ego problem!
I have had no problem taking losses in the past. I didn't like to, but seldom stayed with a loser longer than I should have. The losses wouldn't have been that bad. My studies of the S&P market along with my style of entry dictate placing the stop loss $150-250 from the entry point, on the volatility of the market.
I'm reminded of an old saying about how to make it in the markets that goes: "Plan your trades and trade your plan." Well . . . I've planned the hell out of my trades--now on to the second, and many say, hardest part!
Observations on Recent Issues of CTCN - William Shelton
Dave, your publication is getting to be very interesting and would like to praise you for the extra work you are doing for your readers.
Now to more specific issues. January 1995 - Dave Reiter's article outlining his trading success and offering advice to readers. He offers to backup his words with his account statements. He cautioned readers that he's only a part-time trader, trading between his farming chores. February 1995 - Dave Green reports that Dave Reiter submitted his account statements, but they failed to show the success Mr. Reiter claimed in the previous month's issue.
Editor's Note: I never said that, all I said was the specific trades and details were obscured. Only the monthly P&L figures were shown on his broker statements. Those numbers were in fact as good as Dave had indicated.
March 1995 - Futures Magazine advertisement: "800 winning trades in 1994 . . . only three losing trades since 1992. Purchase the system for $175 or rent it for $25 per month." Seller? Dave Reiter. What's wrong with this picture?
To Bob Meadors - how in god's name could you let Alaron take 14 days to send you a written confirmation of your trade, and at a $2,300 loss at that? My advice is to lodge a complaint with the CFTC against Alaron. I have traded with many brokerages, including Alaron, and have never encountered such a problem.
About Harriet Hodges' letter, I feel she is on the right track with reasonable expectations. But she should be the last person advising anyone on how to find a good brokerage firm. Jack White is primarily a stock and mutual funds brokerage and their commissions are fairly reasonable. I used them a couple of years ago to trade mutual funds. If their commodities commissions are the same now as they were then advertised, I don't care how good their service is. You're right Harriet, they are extremely expensive. Look around, you can find good brokers who will charge about half of what Jack White charges. You also said you "have to log four losses for that first win. That's the rule." Where in the world did you uncover that rule? Finally, I think David Stone answered your question about Wiest's book and system. His system may work, but make sure you have a ton of money before you try his system.
I would echo Miner's thoughts on all the trading geniuses talking the talk, but not putting their money up when it comes to proving what they say. Futures magazine should hold a contest to make these geniuses who advertise in their magazine prove that they can do what they claim they can do. Of course, their advertising revenue would drop dramatically.
Finally, I would strongly suggest that readers turn to the back of CTCN first and see who is running an advertisement, then look to see which of these advertisers have also submitted an article. While I am not saying that someone advertising a product should not have their article taken seriously. I do suggest that articles by advertisers should be taken with the appropriate grain of salt. In February's issue, products were offered for sale by Randy Stuckey, Robert Miner, Kent Calhoun, Bob McGovern, Gary Smith and Michel Arimoto, all contributors to CTCN with articles. Joe Ross, in his article last month seems to echo what I am saying.
Editor's Note: The Feb. issue was unusual in that it contained a number of articles written by members who also happened to be product vendors. Usually, vendor articles are not that common. In fact, this issue has only two submissions by vendors, one of whom is little known in this country (from Europe).
By the way, if a vendor article promotes his product, it's not allowed as an "article," only as a paid advertisement in the last page advertising section. Frequently, when the vendor hears that he cancels his 'article' as he may not want to pay for it. Also, there's nothing at all wrong with articles from vendors as they typically have more knowledge to contribute to our publication than the majority of private traders.
Incidentally, all of Joe's fine books are sold through many sources with a money-back guarantee. I believe that he offers his books with a money-back guarantee. I categorically believe that no book or system should be bought if it doesn't have some type of money-back guarantee. I know I'm stepping on many trading genius's toes, but if your product is worthwhile, no one is going to send it back for a refund.
Challenge Yourself to Grow to a Better Trader
D. C. H. from Germany
To prove myself and give other traders some advice, I developed the plan to make 125 traders, beginning 6-1-95. My goal is to trade only US-Bonds on a short-time basis and to make 8 tics trade after trade. This means I will make $200 (8 tics x 31.25=$250 US$, deduct $50 for commission and slippage).
I plan to make careful and sound decisions, so I don't have any losing trades. This seems to be hybris, but Mark Weinstein is the Super-Trader-Model we all can learn from (see "Market Wizards" by J. Schwager, page 321-342). As you can read Mark makes plus-trades in the vicinity of 99% (only some losing trades out of the thousands of trades he made).
In Europe and Germany we hear about the American dream. Why not have a dream that a trader can be right the next 80 or 100 trades and then turn the dream into reality? If Mark Weinstein can make 100 winning trades in a row, then we can do it also. Let's try it!
My plan is to trade only one contract of US-Bonds and to begin with an account of $6,000. If I will have 70 winning trades, the account value will be $20,000 (hopefully to avoid losing trades). Then I will trade two contracts of Bonds per trade; same target: $200 per contract, so I will gain $400 per trade.
For every $10,000 I will make in the market, I will trade one contract more than before.
If you have the right understanding of yourself - of your inner parts and your psychologic issues - and of the market you are trading, then you can achieve the goals I'm writing about. With patience and looking for the right situation, it should be possible to avoid losing trades; with consistency it should be possible to grow the account trade after trade.
Looking forward to notifying all readers how my account value is growing when the first set of trades is executed - that means after 70 trades are done.
Validity of Methods - Michael Ireton
As a new subscriber and a new trader (traded 10 years ago and quit and now back in the game) I am receiving multitudes of literature on many different programs, books, etc. Is there any place to contact and find out how valid some of this material is?
I just received a flyer about Don Fishback and the ODDS Trading Approach. It looks like the program is based on volatility, but does mention using probability statistics to get a better look at the percentage of risk. This part interests me, and the cost is not overly expensive ($52 and change) but a person could get so many of these "good trading" techniques that you can't decide which to use.
I am trying to work my way through various techniques to see what suits me best. I consider the materials I purchase much like taking college classes. You have to accumulate a lot of data and then throw out what is not suitable and keep the rest to make a system that works for the individual. Any help or thoughts on this would be appreciated.
Trading Videos - Don McCullough
I have stopped submitting articles to Bo of Club 3000 simply because he (evidently by this time) refused to print a couple of articles I mailed him. One article was an "add-on" to a previous article. The other article had to do with how many people, finding success in the markets impossible, turn to "milking" the average trader with their so-so to lousy books, systems and seminars. The title was "Mining the Miners." This is an expression used by some store owners and saloon keepers of old California during the gold rush days.
GOOD VIDEO - I recently received (free) from the Chicago Mercantile Exchange a video that I found real interesting. Interesting primarily because Linda Bradford Raschke is one of the people featured in it.
Some of you may not know who Linda Raschke is, so let me tell you. She is one of the professional traders interviewed in Jack Schwager's book, "The New Market Wizards." Jack says in this book that Linda is one of the most congenial people he's known. (Or something to that effect.) You can see this yourself in this video. Mostly what I like about the video is seeing all the monitors at Linda's trading desk. I believe I counted 7 monitors. Can you believe?
The old saying, "a place for everything and everything in its place" sure fits the description of Linda Raschke's trading desk. A couple of male traders featured in this video had well organized trading desks too. The older man gives a good piece of wisdom for the beginning trader. That is, go slow. He says that was the best advice about trading anyone ever gave him and I certainly agree.
One thing I do not agree with is how simple some people in the video make successful trading out to be. As most of you know, in the long run 80 to 90% of the people who trade the futures markets lose.
Linda advises keeping your trading methods simple. I couldn't agree more and yet I have to wonder about her seven monitors in a row showing all kinds of indicators and how that "jibes" with keeping it simple. Wouldn't it be nice if she could be persuaded to write an article or two for this newsletter?
At the very end of the tape, Linda comes on the screen and makes a three word comment about her trading for a living lifestyle. She says simply and with conviction: "I love it."
Although I was charged nothing for this 7-½ minute video, I called the CME and ordered a couple for my uncle and dad. Those will cost me $3.50 ea. plus shipping. Here's the phone number to call if you are so inclined 1- 800-331-3332.
Playing the Corners - Bob Lahodny
One of the common axioms among successful traders is to never over trade. You must show patience in the markets. I would suggest that theme be taken further to say that only the best trade set-ups be considered for your trading capital. If the market is not unfolding exactly according to your pre-determined trade criteria, then let it go. The markets are a painful teacher in correcting "almost" or "close enough" trade selection. Once an ideal setup has been identified, a critical decision must be made . . . what is the proper investment device for this trade.
This is really my point in writing. I'll share with you the benefits of this hardest learned lesson. If asked my profession, I'm quick to respond that I am a commodity futures trader. If further asked as to my principle methods, I'd probably respond as most traders would --- "I'm a trend follower." Sounds OK so far. In my experience, which spans 20-years off-and-on, most "trend followers" are really "trend faders" or "bottom pickers" or whatever else you want to call someone who tries to enter a "trend" at the very beginning, i.e. the exact top or bottom.
It is those of you who cannot resist the thrill of pinpointing market turns that I am primarily addressing. If you wish to take advantage of probable market turning points, such as Seasonals in grains, or extremes of some nature, save yourself some money and sleeping time. Use a futures trader derivative --- futures (bull or bear) spreads, an option, or even an option spread, straddle, or whatever. What I call "playing the corners" in futures is extremely risky, and usually very costly. The markets just don't seem to have a sense of (your) timing! However, if your chosen vehicle of market participation is a spread or an option, then your "adversity" exposure is much more manageable. Your timing can be off while your theme is correct, and you can enjoy tremendous returns.
Let me give you some recent examples, sharing my trading theme, setup and method of participation. First, let's look at corn. As all market watchers were well-aware of, last year we had a huge crop of corn. Corn was resultantly knocked down to the common lows of the past six years (including 1994) in July (weekly price approximately $2.10-2.20/bushel). As we progressed into December, I developed a trading theme that I felt would take advantage of what I considered a perfect trade setup. The theme was basically this: the bad (bearish) news was out in corn and fully priced into the market. Corn was holding in a weekly trading range of $2.10-2.28/bushel. My experience and historical chart review acknowledged that almost without fail, speculators would run-up old crop corn as the new year planting season approached on sheer anticipation (hope) of some weather phenomena. It doesn't seem to matter whether there is a catastrophe or not --- speculators like to be there just in case. Fine with me. My strategy was to take advantage of this consistent tendency, if the trade setup was perfect. The trading range pattern and parameters had held-up for 21-weeks; long enough to establish a tradeable base (envelope) breakout. When corn broke to the upside, defeating the five month old parameters, I felt very confident that they'd (speculators) run-up July corn values well over the (at the time) price just under $2.40/bushel. To take advantage of this, and not get caught-up in real breakout, false breakout stress, I decided to buy some July corn 240 calls. They were reasonably priced at 10 ($500.00) due to low volatility (the base), and I had many months for my trade expectation, which was to at least double my money, to work out. Experience had taught me that adverse moves against me by deferred month (distant), options would be minimized by my time-value inherent in the call, and that I could easily ride out the all-too-common whipsawing around the breakout. As of this writing, my trade expectation has been met, with my protective stop now at double my money. My greatest drawdown was (I believe) one quarter of a point --- not too stressful.
A recent example of how to play extremes is perfectly illustrated in examining cotton. In this case, my investment method was a very simple (bear) spread technique. Again, the setup is something I perceived as an ideal situation, especially made for a "play the corners" technique. Spot cotton was trading at (high) price levels not seen since the civil war, and the deferred (new crop) months were trading at a very substantial discount to spot. Add to this, a history in which cotton typically comes sharply off spike peaks. All I needed for implementation of my trading theme, which was to buy new crop (Dec.), sell old crop (May) cotton, was a message delivered by the market itself that it was time to play the corner. That was received clearly on March 17 and 20 in spot cotton closing down limit both days (in a row).
I know from history and experience that limit days are surpassed in the direction of the limit move approximately 80% of the time. On the following day, March 21, the market gave me a wide trading range to put on the (bear) spread. From that point, I had a very viable coverage of cotton's history to fallout, and limited exposure to one of those inevitable market swings against me. As it turned out, and as of this writing, this spread has been a tremendous performer, and is very safely protected by another double of my capital exposure. I slept like a rock during those five successive limit-down days.
So, if you want to be more relaxed and a focused futures (trend following) trader, play the corners with futures derivatives. What you'll like best about using these strategies --- the relative ease of pain when you're wrong!
How to Submit articles & How Can I Save Money
on MY CTCN Renewal - Tom C.
At one time I subscribed to a well-known competitor of CTCN. He liked it if contributions were submitted on diskette. I can do this, but I don't know what format or disk size you like to use. I use MSWord 6.0 to write letters.
Editor's Note: The best and probably simplest way to submit articles is by typing them using a word processor and mailing or Faxing it to CTCN. All I ask is that you do not use draft mode if using a printer, and use fine quality mode if Faxing it. That's because we scan in most articles using a PaperMax Scanner and Word Scan OCR software, which works much better if the type is good quality and dark intensity. By the way, submissions on disk in either ASCII , Word Perfect or MS Word formats are also OK.
Because of the aforementioned competitor's subscription, I was conned out of some substantial capital by some less than honest people who read these type letters. I guess I really was born yesterday; I am just too trusting of my fellow man. I really hadn't considered that I would make any contributions to the newsletter, but I thought of something that might be of help and save some money for other traders.
Please preserve my confidentiality if you decide to publish this contribution. What is your extension policy for accepted contributions? Editor's Note: See Special Request on Pg-12 for info on how you can save substantial money on your CTCN renewal.
Power Indicator Offers Insight into Balance
Between Bulls & Bears - Ron Bochan
I trade Options & Futures. In option trading, I use Bollinger Bands. I trade only with longer trend (Dow Theory), and use waves for timing the short trend. But in options trading that's not enough. You can erase one week's profit in one day. I developed the power indicator, which is based on volume. Trading based on channels only can be very risky.
Power 05 - Accumulate the volume of today with the last four
days, relate to close price
Power13 - Accumulate the volume of today with the last 12 days, relate to close
price
A&F - The price rally, but power 05 traces a lower top
B -The price rally to a new high, but power 05 traces lowermost top
C - Power 05 ticks down after a long rally which is mean, there is no power
left to push the price higher (to the up band)
D-E - The price goes down to the Point E, while power 05 flat and shallow after
a rally, which is mean. There is no power left to push the price lower (to the
down band)
Power 13 - Represents the activity of people in the market. If power 13 tick
down while a trend continues, that rally is ripe for a reversal.
When the price reaches high and higher, it is safe, add your position only when power indicator rally. When power indicator tick is down "be careful" it means that no power is left behind the rally, and it's time to liquid your position.
Member Requests
Dr. Manfred Wurr of Germany wants to talk to students or former students of Bill Williams' Profitunity. Please call or Fax your phone/f ax number and inform me of convenient times at which I can call you. Phone:+49-40-672 79 80, Fax:+49-40-673 47 42.
Jennifer Appetta would like to talk with other traders in North Carolina. She can be reached at 919-493-0128.
New member Doug Cragoe wants to know if members know anything about Renaissance System that claims 300 straight winners!
Jack Burns needs information on the ODDS method of Trading by Fishback, call 304-876-0650.
A Michigan Judge wants to know if anyone has code for Keltner Channel in SystemWriter format.
J.B. would like to hear from anyone who has experience with Kent Calhoun's English Entry methods. Call him at 515-472-4606 - 3 to 5 p.m. c.t.
Any members familiar with Kent Calhoun's methods, please call. I appreciate your help, so call collect 1-407-696-2828, John Bond. Also, member Gordon Thomas in Canada is looking for info on Kent.
Ron Stewart would like info on Gann Trading Techniques. Reply via CTCN or call 810-232-7310.
In the May issue, C.J. Casebeer mentioned Pocket Charts for only $50 per year. CaLey Wong would like to know where to purchase this product. Please include company name and phone number.
Charles Cochran would like to know the following: The address of Marty Schwartz and to know if he has services for other trades? Also, would like to know if any other traders have good experience using Commodity Timing by Larry Williams? Also, any recommendations on best brokerage house to use to follow Larry Wiliams' hotline?
Call Neal Graham at 318-237-8060 with info on David Wright's (in Canada) "Little Gaper" Currency
Daytrader and T-Bond Daytrader systems.
Editor's Note: Due to many requests received for info on both Kent Calhoun & Bruce Gould, I ask that you reply via CTCN so we can all share.
Editor's Comments
Last month's issue had a submission by Terry Davis in which he was critical of the CSI Customer Support Dept. When we get negative articles we may ask the vendor to respond to the criticism as there are two sides to every story. We especially want to get the vendor's side if the vendor is a well-known and/or well-regarded vendor like Commodity Systems Inc.
For example, Bruce Babcock (CTCR) was given the opportunity to respond immediately to a negative mention in this month's issue. Bruce may have some people who say negatives, but for the most part Bruce is well regarded and does an excellent job as a newsletter publisher, system vendor and a respected book author. Therefore, it's only fair we give Bruce (or CSI) an immediate rebuttal opportunity, as there are both sides to the story, and it's not fair that a negative article (perhaps unjustly) hurt their business for 30-days until they can respond in the next issue.
Getting back to Terry's comments, Bob Pelletier, president of CSI responded with a detailed article in the same issue with Terry's negatives, in which he admitted there may have been support problems in the past, which they have attempted to correct.
In response to that scenario, James R. Burke surprisingly sent us the following Fax:
"Editoring of a Newsletter" - Jim Burke
"I was appalled by the way the editor of this newsletter, Mr. Green, handled the article written by Terry Davis on CSI. I thought members could share the good and bad experiences dealing with vendors without the owner of this newsletter running to a vendor and snitching to them. What happened to integrity of our articles? Well, I now know who comes first with this newsletter - Vendors! It looks pretty cheesy to me. Since this seems to be the way it is, I will want a half-page article on the software I am selling called CHAZ without being charged and also offering a free free trial subscription to my Fax service for two weeks to all qualified members. Alright, editor should include this article in its entity to be just as fair to me as CSI." - by James R. Burke, Jr.
If CTCN was biased toward vendors, we simply would not publish the negatives at all. The fact we publish those negatives proves we are not biased. CTCN has in the past been heavily criticized and been subject to revenge by one well-known futures firm for publishing negatives by a member.
It's truly amazing Jim Burke wants all that free advertising of his trading products to compensate him for an alleged injustice done involving a matter totally unrelated to him and his trading products. Why in the world would Jim demand compensation for a matter with absolutely no connection to him? Incidentally, why does Jim think we are "snitching" when Bob Pelletier (who gets CTCN every month in the mail) would in fact read Mr. Davis' comments anyway, regardless of if I sent it to him early or not? Isn't that a ridiculous comment to make?
Could there be some type of connection with Jim wanting all that free advertising in CTCN and the fact in the past he has attempted to submit a long "article" which was not allowed? That was due to it being more like an advertisement for his trading system than a real article. When told he would have to pay for it as an advertisement in the ad section, rather than an article, he didn't want to do it.
In the past, and in our CTCN InfoGuide, we have stated we do not want any so called "vendors in disguise." A competing newsletter has in fact had "vendors in disguise" and had subsequent criticisms and many upset members because of that problem.
It's interesting to note that Jim apparently is well acquainted with Terry Davis. In addition, Mr. Davis sent a letter to us (approximately the same time as Jim Burke's astonishing Fax) which was extremely complimentary on Jim Burke's trading system. We are not going to publish that letter due to Jim Burke's ridiculous and absurd demands and this controversy. It's also interesting to note that like Jim Burke, Terry Davis is also a vendor, having sold trading methods to the public for a number of years.
Please let the Editor know if any members disagree with the way these matters are handled. By the way, we don't necessarily make a practice of always asking vendors for immediate comment, as sometimes we may forget to, not have the time, or may not think it very significant to warrant it
Curtis Arnold submitted his new book for review titled "Curtis Arnold's PPS Trading System." It's a hardcover book detailing many technical indicators and methods for successfully trading commodities. Including detailed coverage on many standard technical indicators. There are many charts in the book which detail the method or technical indicator, so you can visually see how the indicator is applied to actual trading situations. The book is professionally bound and of very good quality. The many subjects are covered in excellent detail, well-written and comparatively easy to understand. The book also comes with a free demo disk of Curtis's well-known PPS Trading System. This book is recommended to CTCN members.
We also received Perry Kaufman's new book titled "Smarter Trading," which was submitted by Ed Dobson of Traders Press for review. The book teaches traders how to create a "robust" trading model. It also teaches how to make sense of other methods, such as neural nets and expert systems, etc. There's lots of testing results and mathematics and sample charts included. It is very well done and is recommended, especially for CTCN members who enjoy technicals and detailed analysis.
In addition, we received the new book titled: "The New Science of Technical Analysis" by Thomas R. DeMark. Futures Magazine said Tom is known as "The Consummate Technician." Tom goes into great detail on the sophisticated market timing methods he has developed and used over the last quarter century. He emphasizes scientific and mechanical approaches and techniques, rather than "artistic" or intuitive approaches. The book uses extensive chart examples of the many trading methods he covers in excellent detail. This book is also highly recommended to CTCN members.
William F. Eng sent us his book: "Trading Rules - Strategies For Success." Like the other books reviewed, it's also very professionally done and hardcover. It's a good collection of 50 market trading rules and descriptions on how to apply them to the markets, with a chapter devoted to each rule. Studying these rules and adhering to them should help both stock & commodity traders trade successfully. Many of the rules are quite similar to rules originally contributed by W. D. Gann, but they go into much more detail than Gann did, with some new rules and far more detailed explanations. All CTCN members should consider buying this book, in particular newer traders who can benefit a lot from this valuable information.
In fact, you should all consider purchasing any or all of the books reviewed above, as they are all very good books with lots of trading knowledge and wisdom, to help you traded successfully.
We have received so many great articles lately, unfortunately this has resulted in our not having room to publish all of them in this issue. Some of them will appear in upcoming issues. Also, some contributions are being made into Special Reports, the longer contributions in particular. For example, Joe Ross has made a couple contributions on his childhood and making of a trader, which we have made a Special Report, available to all CTCN members upon request.
We will do a Quick-Scan Reviews of Ted Shen's FutureSoft Benchmark Trading System and its programming shell software written by Bob Bolotin. Also, William Wermine's Trading Currency Futures books, volume 1 & 2.
Special Note: Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News. Without you it would not be possible. P.S. - Remember, as a special reward for making just one contribution/submission per year, you'll receive an automatic 50% price reduction on your renewal. Submissions can be any length, long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing your information and knowledge with other traders. Please make a contribution about your experiences, both good & bad with systems, services, advisors, data vendors, and other trading related product.
The reproduction, copying or publication of any part of this work beyond that permitted by Section 107 or 108 of the United States Copyright Act, and also World-Wide International Treaty Provisions, is unlawful. ALL RIGHTS RESERVED. Written permission from the Publisher/Editor is required for reproduction in any form (with proper credit to CTCN, including our address and phone number being required), and may be withdrawn at any time. Commodity Traders Club News (CTCN) is a 'Clearing House' or 'Information Exchange' for members only. We do not verify, (and we have not) verified the accuracy of the mathematics or numbers published herein, or accuracy of comments and remarks made by the authors. All information and remarks in the contributions are the opinions of the author or contributor, not the Editor or CTCN. You should be aware that P&L reports and advertisements are frequently based on hypothetical (not real-time/actual) trades. Article headlines or Sub-Headlines sometimes may be changed or written solely by the Editor, using verbiage the Editor believes highlights important points being made by the contributor. CTCN Membership, which includes our bi-monthly CTCN newsletter is "Your Guide To Profitable Trading and How To Save Money Along The Way." It's regularly priced at $100 (US) for 1-year. . . and includes free postage within USA & Canada (add $20 for Overseas Air Mail). Publisher: Webtrading.com, D.B.A. Our E-mail address is: ctcn@webtrading.com Our Website address is webtrading.com Editor is Dave Green. The opinions and recommendations are those of our writers and not those of Webtrading.com, CTCN, or its editor. (Note: There is high risk of loss in futures trading and past results may be difficult to achieve in the future and also may be based on hypothetical trading, with benefit of hindsight, and not actual trades) Note: We operate open member forums and consequently reserve the right to publish e-mail and other communications received. Therefore, please indicate "confidential" or "not-for-publication" on any e-mail or other correspondence sent us which you want kept private. Please contact us if we publish your comments and you object. Thank you.