Commodity Traders Club Trading Resources
Too Much Money is Spent on Black-Box Systems and Seminars - Don Twist
I'm amazed how many traders purchase these high priced systems. Does anyone realize that it takes only 50 holy grail found people at $2,000 per system for a mere $100,000 in revenue before expenses? I receive two or more mailings a week from these various vendors who offer outdated, back-tested, not real life trading systems for a limited number of traders.
I spent one afternoon developing a mechanical trading system for trading gap openings in coffee that made over $10,000 in one month and never looked at a chart! Traders, spend time using your knowledge and stop buying everyone else's ideas. You are making this too complicated.
I agree with many of the subscribers that system sellers gave up on trading because of the risk. Let's not forget the ever popular limited seating by special invitation only seminars for a day or two at a mere $1,000-$3,000 per person. Let's look at this quarterly cash cow seminar in more detail.
Just 50 attendees at $2,000 per person, less meals, refreshments, meeting rooms, materials, transportation and setup. It would appear the average 1-1-½ day seminar could net the promoters $70,000 or more after expenses based upon the initial entry fees of $100,000. Why would they need to trade when you have this type of income two or three weekends each quarter. We all realize there are other on-going expenses in development, systems, solicitations, etc. However, this can't be a bad living with the solicitations that arrive weekly.
Seminars sell systems, systems may require a seminar to understand how to use these more complicated vehicles. They feed on each other. Traders, please stop buying systems and do the work yourself. I have used MetaStock since 1987 and it has all of the popular overused indicators that anyone would need that seldom work regularly. Everyone must realize that most of these indicators are over used and simply can't work most of the time.
I believe one of the best indicators in use, but not widely understood is the use of trading bands. When these bands contract you can be assured there is a large move ahead. When the tightened bands are broken to the upside or downside it's usually fatal to fade this move.
Many times a breakout will occur but I will wait two more days for confirmation, because the day after a breakout there's a tendency to go in the opposite direction in a small way. (Trader's Fading the Breakout). The next day is the key if the breakout is for real. Stock markets tend to move forward and back and fill which gives many whipsaw actions and are difficult if you are not daytrading. Many of the soft commodities are true breakout and never look back markets.
In any traders' plan, one must be able to handle the daily rhetoric that the major newspapers provide trying to explain why the markets did what they did yesterday. Many times articles should be used for exiting or entering in the opposite direction of news.
Ask any floor trader and they will tell you they trade on the news and it is normally easy money for them. When a market has a large gap up or down on the open and fails to trade significantly higher or lower, you know who took the opposite side of the trade.
News reversals outlined in Nov. edition of Technical Analysis of Stocks and Commodities by Laurence Conners can give anyone a great entry point with a market reversing direction. In fact, you may enter the trade the next day and still have a nice move.
I was glad to see some articles on selling commodity options rather then buying them. The public has always been buyers of options, while the smart money has sold them and received a nice steady income. If you have never sold options try this. Take a market that has a good trend up or down and the sell in the opposite direction. Look at selling out-of-the-money Puts that are below support in up-trending markets. Do the opposite in bear trends.
Know the expiration dates as they vary with each commodity, look at selling out at least four to six weeks before expiration. In rising markets wait until the market pulls back, finds support and starts moving up again. Do not attempt to ring out the last cent before expiration if your striking price is within reach. Cover the option and walk away. Volatility is the key to option premiums especially when a market is driven by news and the public can't wait for the market to open so they can buy or sell. The premiums are over priced on the open and the smart money once again steps up to the plate and takes these overpriced options and gladly sells them to anyone. Once you have sold options and realize the erosion factor you will never buy them again.
Think of the soybean market of 1993 and the thousands of call options that were purchased in July for the November contract. With soybeans peaking in the $7.50 range and calls for November with striking prices of $8.00 to $10.00, who took home the premium? The option sellers of course. Will this Happen in 1996?
When being manipulated by the press and the shortages in grains this year, look back in history and you will find these markets will peak before planting or the latest in late June. This year will provide another golden opportunity to sell puts as the market rises and sell calls after it peaks. (All out of the Money Options of Course) You need to chart options the same way you do the underlying market you are trading. Trendlines, support and resistance and volumes will give you new insight in what the smart money is doing in options.
I have used various end-of-day data services since 1987 and have recently changed to Trader's Access. They offer low prices on everything you could possibly want to chart. When trading commodity options historical data, it's hard to find at a reasonable price. You can download 300-800 quotes on an 800 number in a couple of minutes for $14.95/month if you use less then 10,000 quotes. They have other plans for more data. I have had many of my friends change and find the service and support good. I have no affiliation with Trader's Access and you will find the ads in Investors Business Daily each week.
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