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IS IT POSSIBLE TO MAKE MONEY
TRADING COMMODITIES?
5th in a series Dave ReiterYes! It is possible to make money in the commodity markets on a consistent basis. I've been doing it for 10-years.
During the past decade, I've developed a number of highly profitable systems. All of my systems are based on the KISS method (Keep It Simple Stupid). I like systems that are simple to follow and simple to use. These types of systems will always make the most money.
My systems were developed with a pencil and a piece of paper. That's it. Very plain and very elementary.
Based on my trading experiences, I've discovered that the best systems are based on two things: repetitive price patterns & trend following methods. We all know that, "The trend is your friend." But how many traders actually follow the trend of the market on a consistent basis? Most traders simply don't have the discipline.
Trend following systems are notorious for generating many "false breakouts." This is definitely true. However, I've discovered some great techniques that greatly reduce the false breakouts. As a result, my drawdowns are much less painful.
Always remember: follow the trend and watch for repetitive price patterns. That's where the money is.
FOCUS ON RISK CONTROL - Rick Ratchford
The lure of making big money by way of trading Futures and Commodities is strong, and usually the main focus of every new trader. The amount of time and effort expended in learning the mechanics of trading by each new participant varies, depending on the degree of desire and the time available.
Most new traders take a common path. They start off by following the lead of the person or agency that sent them the glossy brochure on making big money easily and quickly trading Futures. Once they have purchased and followed the plan the best they can, they soon become aware of the realities of trading. Profits are not the only thing that comes quickly to traders. Losses come just as fast, as normally for most traders, more often than profits. And if the trader has managed an even division between profitable trades and losing trades, often the losing trades are much bigger in dollars lost.
Although the purpose of trading is to make a profit overall, it is usually all most traders focus on. With so much energy expended on profits to be had, not enough energy is expended on the aspect of risk control.
Risk Control deserves much more attention than most traders are willing to give it. With Risk Control, the trader would not settle on simply evaluating potential profit, but also potential loss. It is very important that a lot of attention be given Risk Control before any trade is taken. Additionally, initial risk exposure should be logically determined rather than a flip of the coin or some random percentage. There should be some rhyme and reason to why a certain amount is being risked, and how this initial risk is to be setup when the trade is actually placed.
It is common knowledge that if a trader were to cut losses short and let profits run, that one could actually become profitable even if the win percentage of trades is less than 50%, or even 40%. What that means is, if you took 10 trades and only 4 were profitable and 6 were losses, as long as the losses were small and the profits larger than the losses, your trading account would end up net positive.
As stated earlier, too much focus is put on the profiting end of planning a trade and very little if any on properly determining risk exposure. Additionally faulty is to pick a random amount to risk per trade, or to simply risk a certain percentage of your overall account total. Although it is a good idea to never risk more than a certain percent of your overall account on any one trade, it would not be the best way to determine the actual risk dollars on a trade. Just because you CAN risk $1000 on any given trade due to your account size, it would be arbitrary and foolish to do so. Again, a logical and objective view must be taken towards determining the amount of risk dollars when entering the trade.
Initial risk control starts with a method that is logical and sound for determining initial risk exposure. This must be determined BEFORE the trade is taken, not after. It has been determined that once you are in a trade without a risk control plan, one cannot be adequately decided upon at that point and the trade is in danger of excessive losses. The mind tends to jump around as to where a trade should exit once the trade is on, if it starts to move into negative territory. It becomes difficult to decide where to exit if not originally planned and committed to before the trade was taken, and often times what prompts the exit is the agony and pressure created by losses just too strong to bear any longer. Hope, fear, panic are the bedfellows of those who fail to focus on Risk Control BEFORE taking the trade.
Because there are varied ways in which a trader can determine his initial risk and plan the exit in case of loss, we do not have the room here to cover them all. However, a few points may provide some direction or idea for those who have yet to focus on Risk Control.
Ask yourself this question when planning to enter a trade.
"Why am I deciding to enter at this particular price?" There must be a reason why you feel entering at a certain price will produce profits if you take the trade. Usually, if the reason for taking the trade is a logical and well planned out one, you will also know at what point this is no longer the case. Is it because of strong resistance or support? If so, then would price moving past that resistance or support value change how you originally viewed this trade? If this be the case, then you have already identified the price area where you should exit the trade, and can then simply determine how much you would be risking from the price of entry to the price where you should exit. If this risk amount is within your acceptable range, is small and manageable, then you can place a stop-loss at that price point at the time your trade is filled for entry. You have planned not only your profit probability when deciding to enter this trade, but you have also determined your risk exposure and then put your Risk Control into affect.
Some use recent support and resistance determined by prior tops and bottoms, some use moving average lines, trend lines, Gann lines, or Fibonacci Retracement/Expansion ratios. If properly applied, they can be very helpful in determining risk exposure and planning Risk Control. The use of crossover indicators often associated with Oscillator type indicators make it difficult to determine initial risk, and unless you can quantify over an extended amount of prior price history that the loss usually does not exceed a certain average amount, it would not be the best Risk Control approach to use in my opinion. Either you are able to determine your initial risk BEFORE you take the trade, or you leave yourself open to accepting whatever loss is thrown at you. Unknown risk exposure cannot be considered true Risk Control.
So keep in mind that, although it is important to isolate only those trading opportunities that have good potential for profit, that even more focus needs to be applied to controlling risk. Learn to focus on Risk Control.
William D. Gann: His Remarkable Predictions
And Trading Record - The Ticker ReprintSometime ago the attention of this magazine was attracted by certain long pull stock market predictions, which were being made by William D. Gann. In a large number of cases Mr. Gann gave us in advance the exact points at which certain stocks and commodities would sell, together with prices close to the then prevailing figures which would not be touched.
For instance, when New York Central was 131 he predicted that it would sell at 145 before 129.
So repeatedly did his figures prove to be accurate, and so different did his work appear from that of any expert whose methods we had examined, that we set about to investigate Mr. Gann and his way of figuring out these predictions, as well as the particular use which he was making of them in the market.
The results of this investigation are remarkable in many ways.
It appears to be a fact that Mr. Gann has developed an entirely new idea as to the principles governing stock market movements. He bases his operations upon certain natural laws, which though existing since the world began, have only in recent years been subjected to the will of man, and added to the list of so-called modern discoveries.
We have asked Mr. Gann for an outline of his work, and have secured some remarkable evidence as to the results obtained there from. We submit this in full recognition of the fact that in Wall Street a man with a new idea -- an idea which violates the traditions and encourages a scientific view of the proposition -- is not usually welcomed by the majority, for the reason that he stimulates thought and research. These activities said majority abhors.
Mr. Gann's description of his experience and methods is given herewith. It should be read with a recognition of the established fact that Mr. Gann's predictions have proved correct in a large majority of instances.
"For the past ten years I have devoted my entire time and attention to the speculative markets. Like many others, I lost thousands of dollars and experienced the usual ups and downs incidental to the novice who enters the market without preparatory knowledge of the subject.
"I soon began to realize that all successful men, whether lawyers, doctors, or scientists, devoted years of time to the study and investigation of their particular pursuit or profession before attempting to make any money out of it.
Being in the brokerage business myself and handling large accounts, I had opportunities seldom afforded the ordinary man for studying the cause of success and failure in the speculations of others. I found that over ninety percent of the traders who go into the market without knowledge or study usually lose in the end.
"I soon began to note the periodical recurrence of the rise and fall in stocks and commodities. This led me to conclude that natural law was the basis of market movements. I then decided to devote ten years of my life to the study of natural law as applicable to the speculative markets and to devote my best energies toward making speculation a profitable profession. After exhaustive researches and investigations of the known sciences, I discovered that the Law of Vibration enabled me to accurately determine the exact points to which stocks or commodities should rise and fall within a given time. The working out of this law determines the cause and predicts the effect long before the Street is aware of either. Most speculators can testify to the fact that it is looking at the effect and ignoring the cause that has produced their losses.
"It is impossible here to give an adequate idea of the Law of Vibration as I apply it to the markets, however, the layman may be able to grasp some of the principles when I state that the Law of Vibration is the fundamental law upon which wireless telegraphy, wireless telephone and phonographs are based. Without the existence of this law the above inventions would have been impossible.
"In order to test out the efficiency of my idea I have not only put in years of labor in the regular way, but I spent nine months working night and day in the Astor Library of New York and in the British Museum of London, going over the records of stock transactions as far back as 1820. I have incidentally examined the manipulations of Jay Gould, Daniel Drew, Commodore Vanderbilt, and all the other important Wall Street manipulators from that time to the present day. I have examined every quotation of Union Pacific prior to and from the time of E. H. Harriman's securing control, and can say that of all the manipulations in the history of Wall Street, Mr. Harriman's was the most masterly. The figures show that, whether unconsciously or not, Mr. Harriman worked strictly in accordance with natural law.
"In going over the history of markets and the great mass of related statistics, it soon becomes apparent that certain laws govern the changes and variations in the value of stocks and there exists a periodic or cyclic law, which is at the back of all these movements. Observation has shown that there are regular periods of intense activity on the Exchange followed by periods of inactivity. Mr. Henry Hall, in his recent book devoted much space to Cycles of Prosperity and Depression which he found recurring at regular intervals of time. The law, which I have applied, will not only give these long cycles or swings, but the daily and even hourly movements of stocks. By knowing the exact vibration of each individual stock I am able to determine at what point each will receive support and at what point the greatest resistance is to be met.
Those in close touch with the market have noticed the phenomena of ebb and flow, or rise and fall in the value of stocks. At certain times a stock will become intensely active, large transactions being made in it, at other times this same stock will become practically stationary or inactive with a very small volume of sales. I have found that the Law of Vibration governs and controls these conditions. I have also found that certain phases of this law governs the rise in a stock and an entirely different rule operates on the decline.
"While Union Pacific and other railroad stocks which made their high prices in August were declining, United States Steel common was steadily advancing. The Law of Vibration was at work, sending a particular stock on the upward trend, whilst others were trending downward.
"I have found that in the stock itself exists its harmonic or inharmonic relationship to the driving power or force behind it. The secret of all its activity is therefore apparent. By my method I can determine the vibration of each stock and by also taking certain time values into consideration I can in the majority of cases tell exactly what the stock will do under given conditions.
"The power to determine the trend of the market is due to my knowledge of the characteristics of each individual stock and a certain grouping of different stocks under their proper rates of vibration. Stocks are like electrons, atoms, and molecules, which hold persistently to their own individuality in response to the fundamental law of Vibration. Science teaches that an original impulse of any kind finally resolves itself into periodic or rhythmical motion, also just as the pendulum returns again in its swing, just as the moon returns in its orbit, just as the advancing year ever brings the rose of spring, so do the properties of the elements periodically recur as the weight of the atoms rises.
"From my extensive investigations, studies and applied tests, I find that not only do the various stocks vibrate, but that the driving forces controlling the stocks are also in a state of vibration. These vibratory forces can only be known by the movements they generate on the stocks and their values in the market. Since all great swings or movements of the market are cyclic they act in accordance with periodic law.
"Science has laid down the principle that the properties of an element are a periodic function of its atomic weight. A famous scientist has stated that we are brought to the conviction that diversity in phenomenal nature in its different kingdoms, is most intimately associated with numerical relationship. The numbers are not intermixed, chaotically and accidentally, but are subject to regular periodicity. The changes and developments are also seen to be in many cases random.
"Thus, I affirm, every class of phenomena, whether in nature or in the stock market, must be subject to the universal law of causation and harmony. Every effect must have an adequate cause.
"If we wish to avert failure in speculation we must deal with causes. Everything in existence is based on exact proportion and perfect relationship. There is no chance in nature, because mathematical principles of the highest order lie at the foundation of all things. Faraday said: There is nothing in the Universe but mathematical points of force.
"Vibration is fundamental; nothing is exempt from this law; it is universal, therefore applicable to every class of phenomena on the globe.
"Through the Law of Vibration every stock in the market moves in its own distinctive sphere of activities, as to intensity, volume and direction; all the essential qualities of its evolution are characterized in its own rate of vibration. Stocks, like atoms, are really centers of energies, therefore they are controlled, mathematically. Stocks create their own field of action and power; power to attract and repel, which principle explains why certain stocks at times lead the market and 'turn dead' at other times. Thus to speculate scientifically it is absolutely necessary to follow natural law.
"After years of patient study I have proven to my entire satisfaction as well as demonstrated to others that vibration explains every possible phase and condition of the market."
In order to substantiate Mr. Gann's claims as to what he has been able to do under this method, we called upon Mr. William E. Gilley, an Inspector of imports, 16 Beaver Street, New York. Mr. Gilley is well-known in the downtown district. He himself has studied stock market movements for twenty-five years, during which time he has examined every piece of market literature that has been issued and procurable in Wall Street. It was he who encouraged Mr. Gann to study out the scientific and mathematical possibilities of the subject. When asked what had been the most impressive of Mr. Gann's work and predictions, he replied as follows:
"It is very difficult for me to remember all the predictions and operations of Mr. Gann which may be classed as phenomenal, but the following are a few: In 1908 when Union Pacific was 168?, he told me that it would not touch 169 before it had a good break. We sold it short all the way down to 152, covering on the weak spots and putting it out again on the rallies, securing twenty-three points profit out of an eighteen-point wave.
He came to me when United States Steel was selling around 50 and said This Steel will run up to 58 but it will not sell at 59. From there it should break 16 points. We sold it short around 58 with a stop at 59. The highest it went was 58. From there it declined to 41 -- 17 points.
"At another time wheat was selling at about 89. He predicted that the May option would sell at $1.35. We bought it and made large profits on the way up. It actually touched $1.35.
"When Union Pacific was 172, he said it would go to 184? but not an eighth higher until it had had a good break. It went to 184? and came back from there eight or nine times. We sold it short repeatedly with a stop at 185 and were never caught. It eventually came back to 172.
"Mr. Gann's calculations are based on natural law. I have followed his work closely for years. I know that he has a firm grasp of the basic principles, which govern stock market movements, and I do not believe any other man on earth can duplicate the idea or his method at the present time.
"Early this year he figures that the top of the advance would fall on a certain day in August and calculated the prices at which the Dow-Jones averages would then stand. The market culminated on the exact day and within four-tenths of one percent of the figures predicted."
"You and Mr. Gann must have cleaned up considerable money on all these operations," was suggested.
"Yes, we have made a great deal of money. He has taken half a million dollars out of the market in the past few years. I once saw him take $130, and in less than one month run it up to over $12,000. He can compound money faster than any man I ever met."
"One of the most astonishing calculations made by Mr. Gann was during last summer (1909) when he predicted that September wheat would sell at $1.20. This meant that it must touch that figure before the end of the month of September. At twelve o'clock, Chicago time, on September 30th (the last day) the option was Selling below $1.08, and it looked as though his prediction would not be fulfilled. Mr. Gann said, If it does not touch $1.20 by the close of the market it will prove that there is something wrong with my whole method of calculation. I do not care what the price is now, it must go there." It is common history that September wheat surprised the whole country by selling at $1.20 and no higher in the very last hour of the trading, closing at that figure."
So much for what Mr. Gann has said and done as evidenced by himself and others. Now as to what demonstrations have taken place before our representative:
During the month of October 1909, in twenty-five market days, Mr. Gann made, in the presence of our representative, two hundred and eighty-six transactions in various stocks, on both the long and short side of the market. Two hundred and sixty-four of these transactions resulted in profits; twenty-two in losses.
The capital with which he operated was doubled ten times, so that at the end of the month he had one thousand per cent on his original margin.
In our presence Mr. Gann sold Steel common short at 94?, saying that it would not got to 95. It did not.
On a drive, which occurred during the week ending October 29, Mr. Gann bought Steel common at 86, saying that it would not go to 86. The lowest it sold was 86?.
We have seen him give in one day sixteen successive orders in the same stock, eight of which turned out to be at either the top or the bottom eighth of that particular swing. The above we can positively verify.
Such performances as these, coupled with the foregoing, are probably unparalleled in the history of the Street.
James R. Keene has said, "The man who is right six times out of ten will make his fortune." Here is a trader, who, without any attempt to make a showing (for he did not know the results were to be published), established a record of over ninety-two percent profitable trades.
Mr. Gann has refused to disclose his method at any price, but to those scientifically inclined he has unquestionably added to the stock of Wall Street knowledge and pointed out infinite possibilities.
We have requested Mr. Gann to figure out for the readers of The Ticker a few of the most striking indications, which appear in his calculations. In presenting these we wish it understood that no man, in or out of Wall Street, is infallible.
Mr. Gann's figures at present indicate that the trend of the stock market should, barring the usual rallies, be toward lower prices until March or April 1910.
He calculates that May wheat, which is now selling at $1.02, should not sell below 99, and should sell at $1.45 next spring.
On cotton, which is now at about the 15 level, he estimates that, after a good reaction from these prices, the commodity should reach 18 in the spring of 1910. He looks for a corner in the March or May option.
Whether these figures prove correct or not, will in no sense detract from the record which Mr. Gann has already established.
Mr. Gann was born in Lufkin, Texas, and is thirty-one years of age. He is a gifted mathematician, has an extraordinary memory for figures, and is an expert Tape Reader. Take away his science and he would beat the market on his intuitive tape reading alone.
Endowed as he is with such qualities, we have no hesitation in predicting that within a comparatively few years William D. Gann will receive full recognition as one of Wall Street's leading operators.
Note: Since the above forecast was made, Cotton has suffered the expected decline, the extreme break having been 120 points. The lowest on May wheat thus far has been $1.01?. It is now selling at $1.06.
This reprint is from an old December 1909 issue of The Ticker and Investment Digest. Later known as The Wall Street Journal.
My Simple Trading Strategy - George Freeborn
I am getting good results (on paper) with this simple strategy. Look for a strong trend - Parabolic crossing 20 period simple moving average (or Bollinger center line) is a good clue here.
Wait for the usual Pullback, preferably not too far past the SMA. Enter for a Buy when Stochastics K-line comes from below 50 and passes 75, & vice versa for a Sell (passes 25 going down).
This gets you in late in the CONTINUATION of that strong trend, so don't stay in very long! (Three days max. on Daily charts). Sort of hit and run.
This alone is good BUT I add DIVERGENCE; the OPPOSITE of Regular or Normal. For a BUY you want Higher Lows on price bars and Lower Lows on the Stochastic (or any other Oscillator ). Vice versa for a Sell, needless to say. Give it a try, it works!!
By the way, I have an iMac and can't find a source for Real-Time charts that is compatible with it!! Do you know of one?
Some time ago I recall reading about a stand-alone MONITOR NOT a computer (no keyboard or mouse) which received Real-Time charts via satellite or cable. Do you have any knowledge of it?
DTN is the company with a stand-alone monitor. Real-Time charts for E-Mini's (ONLY) runs about $200-mo., a bit less on annual subscription. Kinda steep but I've heard Real-Time is expensive elsewhere as well. Right?
MEMBER CONTRIBUTIONS
FTC Suit Against TCI & Timothy Cho & Tim Cho Investment Corporation - Phil M
Regarding: FTC Sues Day-Trading firm alleging the defendants made false and deceptive advertising claims for TCI's training seminar:
I have chatted with the TCI sales reps at trading seminars, but I did not purchase their system. I recall that a few years ago they provided a fully disclosed system with all the trading rules which seemed to rely on Stochastics for day trading the S&P. More recently, the sales reps told me they sell software which gives you the trading signals (a black box approach) without the underlying trading rules.
Dave, you said you were not surprised, but I was. I thought this was a credible system vendor. They published their trading signals and performance on their web site, which looked very up-front to me. Even though I was not their customer, I have to confess that when I read the charges against them I felt a little betrayed since I had such a positive impression of them to begin with. Here is the link to the FTC case: https://www.ftc.gov/opa/2001/03/cho.htm
Editor Comment: Hi Phil, Did not know about until I heard from you but was not surprised. They have sold zillions of those $6000 plus 2-day seminars and I get calls on them all the time from traders who alleged they could not trade their method profitable.
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