Commodity Traders Club NewsÔ
"The Commodity Futures Trading Knowledge Network"
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I would like to introduce myself very briefly. I am involved in futures trading since 4-years. I am working as a broker for half-a-year in Vienna, Austria. The topic I would like to discuss is a very old one: "Discipline"!
I made a lot of trades in very different markets. My trading philosophy is basically 100% technical. I'm a very big fan of technical analysis and technical trading systems. My very special trading vehicle is candlesticks combined with stochastics or sometimes a different oscillator, but I don't concentrate on the oscillators because they are more or less the same. I really concentrate on candles.
I am also using Swing Catcher because I think it is a really excellent program, but I use it in connection with additional systems. Swing Catcher was the first software I used and I want to explain my experience and show some big mistakes that I made.
I received the software and installed it immediately. I had it run very quickly. The only problem I had concerned the data feed from CSI (Commodity Systems, Inc.), not due to CSI, but due to my modem. At this point, I want to thank Dave because he really supported me in an excellent way!
I had a view at the performance of the last month and I was really surprised. I decided to trade the German Deutsche Mark and Swiss Franc futures (in low risk trading mode) because they showed a wonderful profit (the first nonsense, because these markets are highly correlated as I knew, but I was blind already seeing the profit on my account).
The first order was placed to buy DM. The dollar was around 1.49 and from the fundamental point of view, the buck was a buy but I decided to follow the system (that was ok).
The dollar came down to 1.46 and my DM-position was perfect. One day after the long-DM, the system came up with a buy signal for SF and I decided to go long.
I have to mention that it was ok because I strictly followed the system concerning entering the market and concerning the stops.
Both positions were winners, but on the same day the German Bundesbank crossed my trading plans. Buba was intervening heavily by selling Deutsche Mark. I was stopped out on both positions with an absolute crazy fill on the Swiss Franc.
The DM locked in a profit due to an adjusted stop, but the loss in the SF was bigger and I suffered a net loss of about $1500. I was shocked. My account then showed a balance of $400 credit.
Now I recognize my second stupid mistake: I simply overtraded my account. Two positions in highly related currency futures in a $1900 account doesn't make sense!
I stopped trading due to lack of money. As a poor student I could not afford to loose additional money. Iwatched the system and a friend traded some signals for his account.
He made two loosing trades and then told me that the system is no good. After thinking about the whole problem, I came to the conclusion that he was absolutely wrong. He and I already made our third big mistake. You have to follow a system strictly for a longer time and not stop trading after two loosing trades. These trades are simply not significant.
Then we watched the following signals, which were excellent and resulted in big profits, but we had no positions.
My friend revised his opinion concerning the system very quickly and became a big fan. That was the fourth mistake, because these few winning trades were also not significant.
He started to trade the signals again and although he would have made profit on the next trades, he actually did not because he did not follow the recommended stops!!! That was the fifth mistake. He generally is no friend of stops, which is of course reflected in his account balance.
After trading two years without using the system from the beginning of the before mentioned trade, he lost about $75,000. Of course, the system was called no good again after doing the before mentioned last trade using the system but NOT using the recommend stop.
That was the next big mistake. He always shifted his inability to make profit. Although it was obvious that he made a wrong decision by not using the recommended stop, he said that the system is good for nothing.
He then traded using his "feeling" and lost a lot of money. But of course, it was not his mistake. "The market reacted the wrong way," he told me, "they are playing against you with the target to get your hard earned money."
I told him that this was by far the biggest nonsense I ever heard in my life and asked him why he does not stop trading if he knows this fact. He was not able to give an intelligent and satisfying answer. He is still trading and of course still loosing money.
I won't continue, but believe me I could tell you a lot of stories which would make your hair stand.
I really believe that a successful trader needs three things:
1. Important - A trading system to find buy & sell signals that fits to the trader, which he is comfortable with. (It need not necessarily mean a computerized system.)
2. More Important - Money management techniques. That means you have to define your risk before entering a position and then place the stop and do not change it once the market is trading near the stop level. If you get stopped out, wait for the next signal to step in again, but do not alter the stop 20 times. It does not make sense. Don't trade to big numbers in relation to the size of your account.
3. Most Important - Discipline, discipline and discipline! Trade the signals as they occur. Use the stops under consideration of the risk you are willing to take and do nothing else! This "nothing else" is maybe the most complicated matter overall.
The most successful traders are those who comply 100% to the system they are trading. If the system does not show the results you are looking for, choose or develop a different system with a new approach. Don't make the mistake of having a system and not complying with signals! If you can manage your mental environment to follow these three points, you can bet on your trading success.
Amazing & Hard-to-believe it can happen
Computer Problems - Peter Speck
I feel compelled to offer you an explanation of the predicaments/complications I've encountered during the past two months chronologically:
1. Late December 92 - Purchased Trendx
2. Early January 93 - Purchased new 486/33MHZ/213MB etc, computer system and modem to run Trendx
3. Early to mid-January 93 - a. Modem wouldn't function; b. Modem (FAX Type) would not connect to CSI; c. Computer store had incorrectly internally set jumpers wrong on initial set-up - hence modem would not call out.
4. Returned computer to store for investigation and repair of modem problem - after several days of trail/error, changes, etc. to no avail got modem operational (mid-January 93 plus 3-4 days)
5. Retrieved computer from store - modem internal switches supposedly now operational and set correctly. However, CSI computer would not connect with my FAX modem and transfer data. After further consultation and resetting some commands recommended by CSI, still no go.
6. After several more frustrating days with numerous attempts with the FAX modem (FAX & comm modem more specifically). I finally removed the FAX/com modem and replaced it with a 1200 baud (commonly no FAX) modem I had at home. Low and behold, it worked and connected with CSI computer and downloaded data - a very bright day. (Now I'll not throw the $3,000 system out the window). (CSI indicated FAX TYPE MODEM wouldn't operate with CSI system).
7. Several days TRENDX worked, getting signals following with my normal manual analysis in parallel to gain insight as to TRENDX trading scheme. (One needs to do that daily to gain confidence before putting $$ on the line). Things were working for about a week. HAPPY!
8. Very early February 93 weekend, Sunday, operating TRENDX for familiarity, reading manual, trying different options - all of a sudden everything shut down - Bottom Line - Lost HARD DISK - everything is gone - high degree of frustration. "I bought this system and software to save time. All it has cost me is $$ and additional time devoted to get it operational, yet I still had to continue my manual analysis to keep up with the markets."
9. Took computer back to store - they replaced HARD DISK - assumed all was OK. I brought home and then - modem which had worked, again would not operate. Several days of further consultation with computer store and CSI to try to get operational, ended in fruitless effort and failure.
10. I had called Trendx, to inform him of my problems in obtaining old data and he indicated that he would send me additional software updated parameters and data. Installed update upon receipt.
11. Mid-February 93, I had to return computer to store to troubleshoot Modem not operating (note @9., I purchased a tape backup system, to backup all files, programs, data, etc., in case I again lost hard disk. Loss of all on hard disk results in insurmountable problems w/loss of data, software, etc. and time consuming to install everything). When hard disk replaced, several jumpers were not correctly installed/set, hence the reason the modem would not operate.
12. February 12, 93 - I retrieved the computer from the store and supposedly all is OK. I had them checkout operations w/CSI and download data before taking system home. I'm very frustrated and tired of dismantling system. What a nightmare this has been, and I'm sure other obstacles lie ahead.
I've only been able to operate the TRENDX program for about 1-week since I've received it. I've not made one "DIME" so far, but I've spent >$4,000 for the system, software and data. The cost to me emotionally cannot possibly be valued and measured -but I am "fit to be tied."
None of this is Trendx's "fault" all the circumstances of course are unfortunate. The hard disk failure is extremely unfortunate, but the other problems are human interface with components in the computer and lack of attention to details I'm sure, from people at the Computer Store. I'll have to chalk that up to "life" or "that's life." Quality of service is a rare commodity.
Back-Up and Hard Disks - Paul Kirchhoffer
I'd like to share a little story and say a few words about a nifty computer product that may be of interest to the group:
Bart struggled to his feet the instant he heard the door open. He was barley able to focus his eyes, as a man in a white lab coat walked down the hall towards him. For Bart, it had been a very long night. As a commodity trader, he was accustomed to dealing with bad news. He tried to push aside thoughts of that recent string of limit days in lumber and those New York fills that came back outside the official daily range.This situation demanded all the courage he could muster. It was beyond the emotions of fear and hope and greed. This had become a matter of life and death.
The man in the white coat paused for a moment and motioned for Bart to sit back down. There was no need for words. Bart knew instinctively his hard disk was dead. Major bummer, he thought to himself. Then slowly, the reality of the loss began to sink in. It wasn't just that his hard disk was gone, it was the fact that everything on it was also gone. There was all that price data - daily data, weekly data, monthly data and even tic data.
There were program files and personal records. And then there were at least a half dozen of those Holy Grail systems - you know the kind with nosebleed equity curves and $3,000 price tags. The technician at the computer store told Bart that he was lucky because his drive was still in warranty. Bart didn't feel so lucky.
The salesman who had sold him the computer hadn't spent much time explaining the concept of making regular back-ups or why they are necessary. Which brings me to the point of this little story - when your hard disk dies, what will you do?
There are several ways to back-up your hard disk before disaster strikes. The simplest and least costly way, is use your floppy disk drive and a backup utility program. In addition to being very slow, the disadvantage of this method is that it requires you to be physically present to insert and remove a bunch of floppy disks.
A better solution is to install a special cassette tape drive designed for just this purpose. Remember, when buying a tape drive, you get what you pay for. Some inexpensive tape units require that you pre-format the tape cassette first and then make your back-up. This can take several hours on a fair sized drive.
Still another solution is to add a second hard drive just for back-up purposes. Hard drive prices have come down and it's the fastest way to back-up your data. If you choose this route, you can even get a special hard disk controller that keeps a mirror image of your primary hard drive on the second hard drive. With this type of controller, if your primary hard drive should fail, your computer will continue to function with no down time at all. The disadvantage to using a second hard drive is that your backup will always be with your computer. If, heaven forbid, your computer should grow legs, your back-up data will be gone with it.
Which brings us to what I consider to be the ideal backup solution. It's called the removable media drive. These drives combine the best features of tape drivers along with the speed of a hard drive. There are actually hard drives that use removable media cartridges. They are available in 45, 90 and 150 megabyte sizes. Think of them as super-fast giant floppies. Simply pop in a cartridge and copy or manipulate data. After making the copy, you can pop the cartridge out for safe storage or you can put it into a second computer at another location. It's great if you like taking your work between home and the office.
Good prices on these units and other types of drives can be found at Hard Drives International (800-998-8028). And now that you're thinking about your hard drive, why not check out a utility program like PC Tools or the Norton Utilities. They contain programs to de-fragment your hard disk and to scan a disk marking and deleting any potentially bad sectors before they become a problem. Good trading and may your back-up always be with you.
Finding the WAY - Danny Nip
In late November, after studying the Bible, was baptized and became a disciple of Christ. Little did I know that my priorities are much different now than they were back then. You know that I do not have the funds to trade, or lack sufficient "investment" funds. I still owe about $7400 as of today. My lust for money and materialism has put me through some tough times, it'll be another year before I can get out of my debts.
At the time of purchase of Swing Catcher, I assumed that there was a possibility that I could find the time to paper trade it during the morning. Little did I realize that my priority is GOD, and that I spend my morning studying the Word. It has changed my life considerably. I now have a full time job, which I didn't have at the time of purchase, and my life has been great ever since.
Having an on-going and supportive relationship with your customers is certainly a great part of your business, and has contributed to its great success.
My original intent of having somebody manage my funds is more appropriate, as I rarely have time to do these things now.
God has worked wonders in my life, and I hope to stay in contact with you. Because of the kind of customer support that you provide, I can safely assume that your program is outstanding based also on the performance records.
I have installed the program on my computer, although I haven't used it. Perhaps there will be a time, when I can trade for fun and enjoyment rather than for money and materialism.
Serious Problems with Globex - Dave Green
The commodity exchanges have recently added markets that previously traded during the day only, to the Globex, for trading during the evening and late at night. Most of the data vendors and newspapers (Wall Street Journal, etc) are reporting the day session and Globex prices, combined together. In fact, the exchange itself ONLY reports the COMBINED session and I have been told does not even maintain or keep a record of the day prices!
Quite possibly, a reason the exchanges do not want to report the day session separately is because they think by only maintaining combined prices it may force traders to eventually start trading the Globex. However, every trader I have spoken with over the past few months have said they have never and likely will never trade Globex, for following reasons: (a) Globex does NOT allow limit orders, good until canceled orders, or allow stop-loss orders, thus placing the trader at great risk because of no stop-loss protection; (b) Orders are good for one Globex session only, and do not even carry-over to the day session, thus forcing orders to be constantly replaced. For example, if a trade lasts 5 days, just 1 open-order is necessary for the normal day session for the 5-day period, but a total of 6 separate orders would have to be entered by both you and your broker to effectively trade both night and day, during the same 5-day period; (c) Very likely poor liquidity and subsequent poor fills, with great slippage potential. That's because there's very few speculators and private traders using Globex. Most of the volume consists of occasional large block trades from overseas banks, etc.; (d) It's mentally exhausting and stressful simply trading during normal business hours. Few traders (myself included) have the desire, time or energy to trade around-the-clock!
If the trader is not actually trading around-the-clock, but night session data is included in his data files, many trading systems are subject to incorrect trading reports, and more likely losing trades! For example, there have been some actual trades where the Globex/night data has a high price about 100 points higher (made late at night) than the high made during the DAY session.
When running P&L Reports, the trading system may report incorrectly that either the target or stop-loss was hit, resulting in either a large loss or large winning trade, when actually neither target or stop were touched during the day session! The major difference in daily ranges can also cause incorrect signals, targets or stops, with many different and diverse trading systems and methodologies.
Some clients have told me that due to Globex/night data, on some recent real-time trades, a System may report a loss of $1,250.00 but the trader actually made $1,250.00 (a $2,500.00 swing difference) on the same trade (the opposite can also occur). In addition, the exchange reported opening price is almost always different than the actual day session open, sometimes by huge amounts, because the prior night-ending price is reported as the days open. Once again there is great likelihood of serious distortions in trades and P&L Reports, unless the trader is actually trading Globex/night session.
The current day/night session markets are: JYen, DMark, SFranc, BPound, Canada$, US$ Index, TBonds, Eurodollar, TNotes-10yr, TBills. Other markets such as S&P and possibly other exchanges and other markets may soon be trading on Globex. Note: US$ Index is not on Globex, but has its own night session. Night session TBonds still distort the data but not quite as seriously as it will when TBonds also gets listed on Globex, because the Globex hours are much longer.
Globex System is Vexed by Low Trading Volume,
Overseas Competition and Technological Glitches
by Jeffrey Taylor 12/14/92 - reprinted with permission of The Wall Street Journal
Nearly six months after its launch, the highly touted Globex after-hours futures trading system is plagued by low volume, stiff competition and technological glitches. The system, intended to be the world's first truly global electronic trading network, is a joint venture between the Chicago Mercantile Exchange, the Chicago Board of Trade and Reuters Holdings PLC. Reuters put up the vast majority of the estimated $70 million to get the computerized system up and running. The Merc and CBOT offer their most popular contracts - including interest-rate and currency futures and options - for purchase and sale after regular trading hours on Globex.
But so far, after-hours trading is slow. Last month, Globex trading averaged only 2,771 contracts a night; that's a drop in the bucket compared with the 551,854 contracts a day that trade during the regular trading session at the Merc, and 596,709 contracts a day at the CBOT. And Globex's November average nightly volume was down 9% from 3,041 contracts a night in October.
"It looks as if it's just nickel-and-dime retail (small investor) business so far," says David F. DeRosa, portfolio manager at BEA Associates, a New York investment firm which manages more than $16 billion in assets. To become the world's favorite after-hours futures market, "you want to attract institutional business, so that there's a big flow through the system; you want to get overseas business," Mr. DeRosa says. But Globex's low volume "shows they're not getting the trading they need from institutions."
Leo Melamed, chairman of the Merc and CBOT joint venture board that oversees Globex, acknowledges that it is off to a slow start. "Clearly, there are problems," he says. "It's a complex system." But he argues that six months of Globex trading isn't a fair test. The system can't be declared a success or a failure, he says, until it has operated for about three years.
Yet the six months in which Globex has been operating have shown that it faces big hurdles. For the system to provide any kind of adequate return on its startup investment, Globex trading volume must swell to many times its current level. And for that to happen, traders have to be confident that Globex will provide the kind of easy access that can already be found in busy futures pits both here and abroad.
Even the CBOT, one of the partners in the joint venture, concedes that it sees Globex as nothing more than an adjunct to its traditional exchange-based trading.
"There's no question that the commitment of the CBOT is to our open outcry method of exchange-based trading," says Dale Lorenzen, first vice chairman of the CBOT. "I just don't think (Globex) is ready to take the volume that we can generate with open outcry. Any electronic trading system is several years away from major success."
A lack of trading liquidity and stiff competition from foreign exchanges are the biggest hurdles facing Globex. Big investors in Europe and Asia typically use Merc and CBOT products such as Eurodollar and Treasury-bond futures and options contracts to offset the risks of their holdings in dollar-denominated securities. The Globex system offers these products after the Chicago markets close through a network of about 250 computer terminals in Chicago, New York, London and Paris. But the banks, trading firms and insurance co. that use futures contracts tend to send their orders to the biggest, most liquid markets they can find, which during off-hours in Chicago are foreign markets. For example, the biggest after hours market for Eurodollar futures contracts, a hugely popular product that tracks short-term interest rates, is the Singapore Monetary Exchange, also known as Simex.
Recurrence Trading System - Mr. Smith
I purchased the Recurrence II Trading System from Avco Financial Corp for $2,500. What I got was a loose-leaf notebook of 50-100 pages and an IBM disk containing a small program to calculate retracement numbers.
After I received the system, I was told by Avco I would have to lease software from Aspen images and sign up with a real-time quote service to operate the system at a cost of between $400 and $500 per month. Nowhere in their advertising do they specifically say this.
The retracement calculator program runs in a few seconds and produces a half-page printout. I mention this because their advertising emphasizes the software as being a major part of the system, which led me to believe I was buying a sophisticated software package which would give me trading signals. (I have been told retracement calculator programs can be purchased from several sources for just a few dollars). For all practical purposes, there is no software.
The trading system requires the user to note trends in the ADX and stochastics, consider the effects of previous oscillator values, apply one or more of several filters, and determine if one or more rule exceptions are present in order to make a trading decision. All of this must be done mentally in real-time, working with 5-minute quote bars.
As a 58-year old novice who has never made a commodity trade, I found these mental exercises overwhelming and beyond my capability. What all this leads to is that after about 45-days, I came to the conclusion I could not cope with this system and started making attempts to return it to Avco. I shipped it to them twice via UPS insured and they refused delivery both times. I spoke to Anthony of Avco by phone and he stated he would not take the system back (no reason given) but the call.
The word "Guaranteed" appears in boldface type several places in their advertising. To me that means the product is guaranteed to be satisfactory for use by me as an individual. In this instance, it appears not the case.
Lets play astrology - Carol Murphy
Many years ago during a cigarette break at a financial seminar, I over heard a very interesting conversation on Financial Astrology. For weeks I thought about the planets and the market. After all, for hundreds of years man has used the sky to sail ships (stars) plant food (moon) etc. If the moon can control the tides, perhaps it makes us bullish or bearish, since the body is 97% water. I purchased two Ephemerids, one Geo and one Helio (standing on the sun). I knew nothing about astrology.
Out of curiosity, I started putting the location of the planets on my charts at major Hi & Lo's on all commodity charts. See examples of how some of it works. Chart #1 is Helio (Venus). The _:4 means Venus is 180° Jupiter (the money planet). _s 4 means Venus is 360° , as you can see within 4 days we have a major change in trend. You can also see when _ is a 180° or 360° or 72° from itself, again we have a change in trend. Chart II is Helio _ and aspects to Mars (_) and Pluto ( ) It's not the holy grail, but you definitely get a C.I.T. with 4 days. I'm retired & have lots of time to monitor all of this and just love it. It's like a giant game.
Special Symbols and Charts in Print Copy
'Gunning' Plays Can Claim Victims in the Futures Pit
by Elyse Tanouye 6/17/92 - reprinted with permission of The Wall Street Journal
Just a few minutes before trading closed on New York's Commodity Exchange one sleepy autumn afternoon, all hell broke loose. Another of the many games traders play was afoot.
In the cooper futures pit, a surge of buy orders cascaded onto the floor. Normally such late activity barely budges prices. But on this day, 10-8, so many top dealers and left early for the London Metal Exchange's gala annual dinner that there weren't many sellers around to accommodate the buyers. Copper prices soared nearly three cents a pound.
The few junior traders still at their posts quickly concluded that someone was trying to exploit the market's inattention to push cooper futures prices about $1.07 a pound, a level deemed crucial by traders who use technical analysis. A price move above $1.07, it was widely assumed, would trigger "buy" signals amount trend-watching commodity funds, prompting the automatic execution of a heap of standing purchase orders. Such ahead-of-time orders are known as "stops," which is why this game is called "gunning for stops." The idea was to induce a flood of buying above $1.07, whereupon cooper would soar even higher, at which point the trader who started the game could sell out at a profit.
The game probably fails more often than it works, traders say. In this case, the price touched $1.07, but didn't rise any further; it fell back a penny at the close. That's the risk people run in gunning for stops, traders say. Yet the game can pay off handsomely, and it is much in evidence in many of today's commodity markets.
Gunning can work because so much of futures trading nowadays is based on systems that use widely available technical indicators such as moving averages and momentum yardsticks with authoritative-sounding names such as relative strength and stochastics. In some cases, traders can guess from market talk and by looking at price charts where the key levels are. And they know that traders usually place stops around those critical areas.
Money managers and other futures traders have complained privately for years about floor traders engineering price movements to trigger stops and computer-generated signals to buy and sell. But in this and other cases recently, they suspect, very large players were trying their hand at the game. If so, they say it is a disturbing development. "This is a very controversial issue," says one commodity futures money manager. We're very, very unhappy about it."
Who gets hurt by traders playing the game? Anyone whose stop was triggered artificially. Those people may be forced to take profits too early, sustain losses they wouldn't otherwise incur or take positions based on false price signals, traders and analysts say. And when those traders are money managers, their investors get hurt. Technical traders are particularly vulnerable to getting whipsawed by these short-term price swings, says Fred Demler, metals economist at PaineWebber Group Inc.
Sumitomo Corp's Yasuo Hamanaka later confirmed he had placed buy orders at the end of the 10-8 session, but denied they were speculative. Mr. Hamanaka has a reputation as an aggressive trader. He made similar denials - met with skepticism - when he was rumored to be behind squeezes in the London market last year.
In recent years, Middle Eastern syndicates are thought to have used the stops-gunning strategy in precious metals markets. And some people think big U.S. commodity funds have figured out how to profit either from riding the coattails of other players using the strategy or by doing it themselves.
Traders won't admit they gun for stops. And regulators say it's next to impossible to prove that a price move was the result of manipulation, which is illegal. But few people in the market deny that it goes on, and some say they've noticed it occurring more frequently in the past year.
"It happens all the time," says a sugar trader. In the past year, he adds, he's seen more investors "getting stopped out" by a sudden-moving market that triggers their stop orders. That could simply be the unorchestrated result of a choppy, thinly traded market, he says, but people are blaming traders for gunning their stops.
"When it's happened to me, I've been extremely angry," says George Milling-Stanley, precious metals analyst at Shearson Lehman Brothers. Trade recommendations he has made to individual investors have lost money, he says, because traders went gunning for stops. For example, suppose he thinks gold will rise and recommends clients buy it at $335 an ounce - adding that they should put in a stop-loss order at $333 in case he is wrong. Then suppose some traders gun the market down to the stop levels, which sells the investors out of their positions at losses, and the price subsequently rises above $335 as originally expected. "You feel like someone's stolen the march on you," he says.
Jeff Nichols, a Boca Raton, Fla., precious metals consultant, says a well-capitalized floor trader can occasionally pull off such a move in small, thinly traded markets, particularly if other traders sense what's going on and join in. But in larger markets, such as currencies, it takes a lot of money to gun for stops successfully because the player has to be able to buy or sell contracts in significant quantities, Mr. Nichols says.
Well-known commodities trader Richard J. Dennis says he tries to anticipate where technical traders have placed their stops and gauge the effect that activation of the stops will have on prices. "If you look at charts, you can make a reasonable guess about where the stops are," Mr Dennis says, adding that he uses this information to avoid those areas. "They're a little bit like land mines going off, and you don't want to walk into the mine field."
Some Wall Street "rocket scientists" have honed the quesswork more precisely. They are able to identify which technical system is prevailing at the moment and what signals the system will give out at different price levels, Mr. Nichols says. These sophisticated traders then use that insight to devise trading strategies accordingly, he says.
One futures money manager thinks stop-gunning traders neither guess nor use computers, but instead are learning through their brokers and other sources where the big orders are sitting. "I wonder if this were the securities industry, if (traders who gun for stops) wouldn't be in jail for this type of thing," he says.
Brokers who disclose such information would be violating federal regulations and exchange rules. But there are more subtle ways the information leaks out, traders say, such as through winks and nods and euphemisms. "They don't come out and say "I have an order at six," says a former New York trader. "They say, I think there's good resistance at six."
In the crowded trading pits, traders can also find out about stop orders when they catch a glimpse-accidentally or intentionally-of other brokers' order cards, says an analyst. Because they have little hope of a regulatory crackdown, gunning victims say they have learned to accept it as just another risk in trading commodities. "If you want to play with the big boys, that's the way it works," Mr. Nichols says.
To avoid being stung, many money managers no longer place stop orders, says Jane Martin, executive director of the Managed Futures Association. Other market players, says Mr. Milling-Stanley of Shearson, have learned to protect themselves by placing stops further away from current prices. Experienced traders recommend moving stops when activity looks suspicious. Market users must be especially alert during slow-trading periods, such as during banking, international or religious holidays, says Mr. Demier of PaineWebber.
Still others try to take advantage of the strategy without actually playing it. Malinda Pinson, partner of Fundamental Futures, an Ankeny, Iowa, money management firm, says her firm watches for such things as gunning stops for opportunities to execute trades that it would have made anyway. "We have learned to wait until the technical traders' stops are triggered," she says. As the "big machine traders" start selling, her firm starts buying, she explains.
Trading Strategy & Commissions - Ashley S.C. Howes
There are some simple facts about commissions that are often overlooked or ignored. If you are like me, when you see the published results from futures managers (in Future Magazine) and observe that for 1992: 76 funds were up, 141 were down, you wonder why the industry exists or think: "all the more reason to trade one's own account."
All you need is $20,000.00 per contract and a method that will make 4 points a year in the DM and you are way ahead of 90% of the pros. What are they up to anyway?
It's not that they cannot do it. It's that they make more money by trading for commissions. If a manager makes only $10 a trade - and many of them make many more - and manages a $100,000 account which trades 1 contract of the S&P, 3 wheat, 3 Euros, 2 DM and 2 Crude and each contract on average trades twice a week, he will execute about 100 trades a month=1200 per year=12% of your account equity is gone right there.
And we didn't mention fees to the FCM, the agent who introduced the fund to you etc. So most of these managers are actually making 30% or more just to break even.
That is why the managed futures performance tables are on the whole so lackluster. This is also why it is still true that it's reasonable to expect superior returns from disciplined futures trading. They are there, but they are being hidden in commission costs and management fees.
The reason I wanted to write about all of this is because I want to introduce an idea. I have been a private trader for years and like all of us have had to learn the ropes, develop a method that works for me etc. One aspect of what I came up with is simple. I do not follow the markets intra-day any more, and my partner executes the trades. We have been making about 10% a month trading a couple of very simple models using PBS software. (We have other software, but PBS is the main one I use. PBS is quick, easy, the break-out signals are all up there on the chart in no time, and it is easy to add in your own signals based on oscillators, bar patterns, etc. right up on the screen, without having to program anything.) The fact that my partner executes the trades and I have no input intra-day means that there is impeccable discipline and the strategy is implemented professionally.
We are currently entered in the National Investment Championship. For the first quarter, we were up about 25% and we are already up 50% in the second quarter as of the time of writing (April 25). As of January 31, I have been a licensed CTA.
My partner, Mr. Thomas Stroud, and I would like to offer our services to other traders. However, I want to offer a service that I would want for myself, i.e., use strategies that I can follow at home, has minimal fees.
At the same time, the reason I feel that it is good to offer this service from a potential client's point of view, is that I have found that having other people take care of the execution is extremely helpful for my discipline and the success in our account.)
There are three ways that this can work: One - we raise enough money so that even with low fees it is worth our while to administer this fund; Two - we charge higher fees in the beginning when the transactions are less in number, and then lower fees later on, going at some point to a minimal fee structure that covers basic expenses and overhead and only earning extra income on a profit-sharing basis; Three - and this is the ideal, I think, if the fund size permits, we could function simply as the employees of the partnership.
The commissions will be minimal ($12.00 or less). Each month the fund will pay out Ba fixed amount to cover expenses, salary, etc., but no additional management, commissions or profit-sharing fees. In this way, we can cut through the inherently anti-client set-up that exists in the managed futures industry such as it is and thereby provide a service that will give you, the customer, excellent returns.
Another juicy bonus, since it is a partnership, the trading strategy and tactics can be shared and discussed. This will make the whole process informative and interesting, so that each partner can feel actively involved in the ongoing activity of the account. At the same time, since others are involved, nobody can arbitrarily start changing the system.
We are open to numerous forms of strategy. The partnership could solely trade the models developed by my company, Stroud & Howes, or it could trade some signals from Swing Catcher, PBS or follow a newsletter's recommendations. Or a combination, combining some day-trading with some trend-following with some counter-trend models, to smooth out our equity curve.
If any of you are interested in being involved in a partnership fund like this, please write and let us know, giving us an idea of what type of strategy and/or structure you would like to see and how much money you might be interested in placing with it.
Remember, this is your fund and you can help to design it. One idea I had for the planning, I got from talking to Dave Green a year or so ago when I first bought Swing Catcher. He was thinking of participating in seminar on a cruise ship for a week or so.
Maybe we should have a $20,000.00 cruise for one week, which pays for the cruise and the balance of the account goes in to start the partnership fund. With the lawyers on-board as part of the cruise, is essentially put together and most of the trading strategies introduced, picked and then agreed on during the course of the cruise. Guest managers can be invited, either to lecture or solicit our funds for their management service of our partnership. That was just one idea.
Alternatively, I live in Europe and know of a couple of private chateaus that are for rent. We could spend a week in the French countryside and take a trip to Luxembourg for members to open accounts there, so that the fund can be set-up offshore, this could be part of the program.
In addition, if anyone wants us to execute trades from Swing Catcher, PBS or a System Writer end-of-day model, we could do so on a simple fee basis depending on the number of trades per month, complexity of the model, etc. You might find that having someone do your execution, though you are still calling the shots is an excellent way to improve your discipline.
I look forward to hearing from you about this and wish you all success in your trading. Mr. Howes can be reached at 57604 Forbach Cedex France
COMMENTS FROM THE EDITOR
Reference the Globex article. I have been told Globex volume has improved a little since that article was written. However, it's still far too low for good liquidity and very few small/medium size traders have ever traded on Globex. That's a major reason why the CSI/TRENDX Portfolio only uses Day Session price data and ignores both Globex and Night Sessions, such as the Night TBonds.
The interesting submission by Mr. Gwiss really impresses the major impact discipline and money management can have on your trading. In fact, many expert traders claim discipline is even more important then the trading methodology used!
The Wall Street Journal article on how traders gun the stops reminds us that by not actually placing the stop it can't be "gunned." However, by using a 'mental stop-loss' it results in much greater risk because the stop may not actually get placed due to lack of discipline. Another possibility is the market may move far beyond the mental stop resulting in a much larger loss that if the stop-loss was actually placed.
The submission by Danny Nip reminds us that some things in life are more important than trading!
The articles about computer problems should make us aware that the problems referred to are rare but can happen to anyone. The severity and magnitude of Mr. Speck's many computer problems in particular are extremely rare but does occasionally happen.
Paul Kirchoffer's article would sure have helped Peter Speck, if Peter read it before-hand!
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