Some Comments and Observations on Recent Articles - Alfred F. Dougherty
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.
‚ 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).
ƒ 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.
„ 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.
… 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."
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