I Just Don't Get It - J. L. from Wimauma
I mean Dave Green and his fellow "merchants" being hassled by the "government." At first blush, it would seem that the CFTC is trying to remove known felons from the commodities business. We shouldn't have a problem with that, but what has that to do with subscriber lists and audits AFTER said licensing - audits of what - how many "systems" were sold? Is the gov asking if the information sold is correct and makes money? I think not. Dave and company might have no problem with paying more fees if they were used to remove the charlatans from the business.
On the other hand, do we deny every person with some mistake in their past (maybe a teenage drug experience) from ever at least trying to make an honest living? Talk about creating a permanent criminal class! It's sort of like, "When guns are outlawed, only outlaws will have them!" Shouldn't the public be informed, but make up their own minds whom they wish to deal with (the way we now handle convicted child molesters in the neighborhood)?
I know that we license the instructors of barbers so that we can also license the barber! But I can't remember if my college professors (or my grade school nuns) had a "license." Would it be a professor's license or an English professor's license? Would I then need a "license" to charge money for teaching (or speaking) English (or, for that matter, to give piano lessons in my home)? Can you see us doing fingerprints on all attorneys and doctors (not a bad idea)? Whatever happened to credentials? It sounds like if I told an Elk brother that some commodities are traded in Chicago and then he bought me a drink, I'd need a license!
Correct me if I'm wrong. We're not talking about a "business license" for a particular location. Sounds like we're talking about government's PERMISSION to make a living teaching our particular expertise. When the gov provides me the public) with accurate info on whether what's being sold is honest, accurate, and in the case of commodities, makes money, then I'll be for the vendor paying a nominal fee for the gov's stamp of approval (even if he does just "pass it on" to me), but don't hold your breath. Until then, as usual, "Caveat Emptor" and "Big Brother, Back Off!"
Have the Bureaucrats Been Sleeping with One Another?
M. K. Davidson
After reading the London Financial (Curtis Arnold) Press Release in your Oct/Nov issue, I have to wonder if the CFTC and the IRS share the same DNA. It seems both have been cavorting with Orwell's "Big Brother." If the CFTC was truly concerned about our welfare, perhaps the trading public would best be served if they would pattern themselves after the Better Business Bureau. A simple department within their agency to allow a person who is considering using a vendor to request any complaints made against any specific vendor.
We traders are not idiots. We all receive information on classes, books, systems, etc., in the mail almost everyday. Much of this information would like you to believe you can make a $5,000 account grow to a million dollars in less time than it takes to pay off your car loan.
Most of us deposit these solicitations in the "circular file." For those who are tempted to partake in these ventures, a simple request of past performance, complaints or reviews would allow them to make an educated decision.
We have all had negative experiences concerning vendors at some point in time during the course of learning to trade. Does this not also hold true, with other products and services in our lives? Do we need a "Big Brother" to control what auto repairman or contractor we use? The truth is, those who give value for your investment will survive; those who do not will fall by the wayside.
Valuable publications like CTCN give us a forum to discuss and share with our fellow traders our experiences, good or bad. The CFTC, through proposed regulation, would diminish our choices and quite possibly eliminate many other good vendors who can not, or will not bow to the unrealistic demands of a governmental agency.
Freedom of speech and freedom to sell our knowledge and expertise, are two of the aspects this country was built upon. To allow the CFTC to continue the "witch hunt" would be a travesty. We will all lose if this precedent is established. Final words -- The people at the CFTC think they're more important than they actually are.
Learning How to Trade Futures - or - A Journey into
"The Pits" Part 2 - M. K. Davidson
When I was first introduced to technical trading, many positive aspects were presented to me. The great profits to be made, was of course, the most appealing. But, working from my home ran a close second. Having all that spare time to do the things I wanted during the course of a day. I could read a book, exercise, spend some time with a friend, and still make money. After all, I didn't have travel time, grooming for a job, overtime, etc. What a great life I'd planned for myself. Well, fellow traders come on in and share a day in the life of this day trader.
The day starts at 6:45 CST. I get up, don my robe and fuzzy slippers, brush my teeth, kiss my husband good-bye, pour myself a cup of coffee and head for my "in home office." I turn on the screen to see what havoc the night markets have produced. The day progresses; sell a Swissy here, buy a cow there. Hey, this isn't as easy as they said it would be. After all the classes I've taken and systems I've back-tested, certainly I should, at least, be able to break even after expenses. Oh well, some days are diamonds, some days are stone.
The phone rings. "Hello, Mrs. D. How are you today? I'm calling for Acme Siding and we're going to be in your neighborhood next we____." I cut 'him off in mid sentence. I tell him I own a brick home and slam the receiver down. Gee, doesn't he know I'm a trader? I don't have time for his nonsense. I'm busy watching the screen and going to make big money with all my knowledge. I guess I should feel sorry for him. He's still getting up and traveling to work each day.
Time to place another trade. Oh no, it's starting to rain. I hope the storm doesn't knock out my satellite again. The screen shows no signs of price changes. The satellite's down. Prudence requires I call and get out of my position. Well, there's another loss. Call my broker to see if any new highs or lows were set while I was down.
The doorbell rings. It's UPS. I answer the door looking like a poster for the "Crusade for Mercy." Embarrassed, I tell him the woman of the house isn't home but I'll sign for the package. I sign my name Liz Taylor. He looks at the signature, then looks back at me and says, "Yeah right lady." Oh, what does he know. I'm a trader. He's still delivering packages in the rain. Back to the screen. Damn. I missed the trade I was waiting 3-hours to set up. It looks like congestion forming and the markets will be closing soon. Time to call it a day. I get dressed, make the bed, shop for dinner and do a few necessary chores.
Where's all the big money I'm suppose to be making? Those many classes I took all but promised I'd be successful. What happen to all that spare time I had anticipated? My unread book still sits on the table. My butts getting bigger from sitting in front of the screen all day. The friends I looked forward to spending time with know not to call when I'm trading. I need to get a life. Maybe I'll get a job as a greeter at Wal-Mart.
The Traders' Evolution
For some years I have set out a simple process which all traders seem to encounter on the road to success. This is set out below and after that I expand this in a way which I feel will be useful for those who want to tread this path.
Starts off "Greed Orientated"
1. Market problems
a. Not zero-sum game, "very negative" sum game
b. Market Psychology - doing wrong thing at wrong time
c. Majority always wrong
d. Market Exists on Chaos and Confusion.
2. Own problems
b. No knowledge
c. No discipline
d. No protection against market psychology.
e. Random action thru uncertainty, brokers' advice, for example.
f. Market Views
RESULT: The "Greed Orientated" trader gets a good kicking and becomes 'Fear Orientated'
1. Market Problems as above
2. Scared Money never Wins
3. Own Problems
a. Still Over-trading - derivatives
b. Fear brings on what it fears
c. Tries to cut losses too tight creating bigger losses
d. Still no real understanding of what it takes
RESULT: If trader perseveres he "travels through the tunnel" and becomes "Risk Orientated."
This is when he starts to make money because:
1. He develops a methodology which gives him an edge.
2. He uses an effective Money Management system.
3. He develops the discipline to follow his methodology.
4. He erases "harmful" personality traits.
This sets out the bare bones and you will note that there are three basic stages. It is curious that many things come in threes in the markets. Major trends can be sub-divided into three, there are three key trading rules, etc. The three key trading rules in fact equate to the three stages through which traders must pass.
The three stages have been labelled "Greed Orientated," "Fear Orientated," and "Risk Orientated." However these labels are not meant to be too literal, they are merely an attempt to approximate to the three key stages.
The first stage is characterized by ignorance and the thought that the markets will provide "easy money'. The actual emotion driving the new trader may not be greed, indeed it is often something else. A successful business-person or professional may be seeking a new challenge. A similar individual may just be a little bored with his life-style and want something to spice it up. Others may be compulsive gamblers.
One of the first problems facing a new trader is the very motivation to trade. Most people do most things emotionally. The decision about which car to buy, which holiday to go on, etc. is usually based on emotional criteria. Just think why you own the car you do, why you married (or did not) the person you did (or did not).
It is no surprise we come to the market and continue to make emotional decisions. But these will not work in the market because it is an emotional animal itself and when the emotion is screaming Sell, the successful trader is more likely to be buying. If we think about the trader who is in the market to relive boredom, it becomes clear that the strongest impulse to trade will come when he is most bored. There is no reason why this emotional point should correspond with a good time to trade the markets. Other traders suffer from self esteem problems, indeed I think we all do from time to time. If so an argument with another person can again set the trader up for taking a position, to counterbalance the low self esteem.
All these problems have to be dealt with before a trader can find success. In my opinion, the only way in which the trader can "see" himself/herself is by using a fairly mechanical "system" so that he/she knows what he/she should be doing. In this way the trader can begin to see when his/her actions do not correspond to the system and start to question why this should be. It is through this process that we can begin to understand ourselves. I believe that this is a key requirement for trading success.
Because of these and other problems, as outlined above, the beginning traders lose a sufficient amount of cash to cause pain, many lose all their cash. The key point is that they become fearful as a result. At the same time, they begin to realize the first secret of trading, cut your losses. It is this concept which marks the move to Fear Orientation.
At this point stops are used, but they are generally placed too tight. The trader has realized that trading is not easy and that much hard work is required. Many fall by the wayside around this point. But those who persevere do show the necessary commitment for success. But greater tests may still come and that commitment is not always enough.
Fear orientation is inevitable given the nature of the beast, i.e., the human being. The market is not terrifying, or bad, or difficult. It just is what it is, and it gets on with its own business. It is how we perceive the market and how we act that causes the problems. We must realize that we are responsible for our results, nobody else, least of all the market itself. It is only when we accept responsibility that we can start to win.
If our losses are someone else's fault then we are in effect saying that we have no control. If we have no control how can we win? This stage can last a long time as we work out our various problems. Fear is not helpful in the markets because scared money never wins. We cut losers too quickly and we take profits too quickly. Our trading is characterized by nervous over quick action.
To become risk orientated we must make progress on all fronts. Knowing ourselves, changing as need be, understanding the trading process better, adjusting our trading methodology to suit ourselves, learning to relax when trading, are a few of the necessary requirements. Most people should immediately at least halve their trading size and that can bring immediate relaxation.
Risk Orientation gets its name from the point that you need to understand risk in order to win. Trading is a risk business. When you become risk orientated your orientation is right for the market.
The key trading secret is Letting Profits Run. It is at this point that you may start to make consistent profits in the market. Before you reach that stage you should never trade more than the minimum size, i.e., one contract. Why pay more in tuition fees than you need?
Once risk orientated you may learn the final trading secret, Trade Selectivity. Once you have that down pat, I understand it can all become rather boring. I make money consistently, but I still find myself taking too many trades. To master trade selectivity you have to become an expert in your chosen approach. The key aspect of your approach is that you filter out a vast amount of market information and just focus on those factors which you need to know. It is a lot easier becoming expert in a narrow field than a wide one.
The various sources of market information are so vast that it is not possible to take it all in. Let alone become an expert in it. You must decide what information you want, design your approach and then use it. Become an expert and you will find that you become intuitive, that is when you can select only the best trading positions, the low risk ones. Then it will all go the right way.
Thought for the Week: Here is the truth about the news. You may have played a game called "follow the leader" in your earlier days. Trading following the news is an adult version of this game, no more. Certainly the vast majority of traders have no idea how to interpret the news, some don't even bother to know what it was (myself included).
The Most Comprehensive Guide Ever For Using Technical
A Book Review - Raymond F. Kohn
I just finished reading Jack Schwager's most recent book, "Schwager on Futures, Technical Analysis," 1996, $60.00, and at 775 pages it's a real "door-stop." The fly-leaf describes it "as the most comprehensive guide ever for using technical analysis for futures trading." Please forgive the length of this review, it's a big book and it couldn't be helped.
Jack Schwager has authored three prior books, "A Complete Guide to the Futures Markets," "Market Wizards" and "The New Market Wizards." I have the Market Wizard series, and they are excellently written, and do an excellent job of giving you a peek into the mind-set of the professional trader.
Jack Schwager is a very respected investment professional. He is CEO of Wizard Trading (a CTA firm managing over $75 million). He is the director of Futures Research for Prudential Securities, and has headed up futures research departments for the past 22-years. This guy is in the business, and is no slouch. I have a great deal of respect for this man. All of which combine to make this one of the more difficult book reviews I have ever written. After reading this tome, I'm left with a strange sense of experiencing "information overload," yet questioning the value of most of the information provided.
Jack's most recent book is a strange combination of chart reading and pattern recognition techniques that are presented in a fashion typically associated with the style of a discretionary trader, combined with an odd mix of technical research studies and random historical testing results. In addition, he presents a variety of other ideas which he goes out of his way to prove how they "don't work," or of "limited value" to the trading process.
This book contains a strange mix of trading styles, techniques and philosophies which are individually interesting, but collectively seem to be a random collection of unrelated thoughts and ideas with some very questionable conclusions. This book lacks a cohesive common thread, or a consistent theme and thought process. I am left with a strange sense that the book was trying to be everything to everyone, a "Jack of all trades" (no pun intended), yet, in reality, tends to miss the mark on all counts. I'm just not sure what Jack was going for?
The book is divided into 5 parts:
"Part One: Chart Analysis" has 13 chapters beginning with a basic discussion of the various types of charts such as "bar charts," "point and figure charts," candlestick charts," etc. Followed by several chapters on how to analyze a myriad of chart formations and patterns that can appear on these charts beginning with "One-Day Patterns" such as "Gaps," "Spikes," "Reversal Days," etc. And, then he moves on to discuss "Continuation Patterns" such as "Triangles," "Flags" and "Pennants." Finally, he discusses "Top and Bottom Formations" such as "V Tops and Bottoms," Double Tops and Bottoms," "Head and Shoulders," etc. Each chapter provides the basic information necessary to identify each of the chart patterns and discusses how each of these patterns is interpreted in an effort to anticipate future market action.
Part One of Jack's book tries to provide some of the classic chart reading and pattern recognition techniques that had been previously provided by Edwards and Magee, in their classic work, "Technical Analysis of Stock Trends," originally copyrighted in 1948, (and since reprinted numerous times). However, Jack fails to provide the details necessary in properly evaluating the various chart pattern formations that Edwards and Magee had included in their work. So, right off the bat my antenna goes up. "The most comprehensive guide ever" -- I'm not so sure!
The last chapter of Part One was written by Steve Nison and details "Candlestick Charting Techniques and Analysis." An "Afterword," written by Jack Schwager, is included at the end of this chapter which provides some very comprehensive historical test information concerning the predictive value of candlestick patterns. In that "Afterword" Jack concludes by making the following comments regarding candlestick charting techniques: "The results ... were not encouraging. Only a small minority of pattern/market combinations tested showed profitability in a five-year test. Even the profitable combinations were not good enough to trade, as the drawdowns were much too large in relation to profits. The implied lesson is that blindly following candlestick patterns is not an effective methodology."
On a personal note: I have read a number of other articles and research papers in the past whereby other very notable analysts have also done historical testing to determine the Merits of candlestick trading methods, all of them had the same negative results. I guess totally ineffective "Holy Grail" systems existed even in ancient times. (As a side note: Candlesticks is an American Name for this trading technique which was originally developed by a Japanese rice trader in the 1600's. The Japanese name for this trading technique, as translated from the original Japanese, was actually "Footsteps" and not "Candlesticks.")
The first thing that came to my mind upon completing Jack's "Afterward," (which tested the predictive value of candlesticks), is Why Didn't Jack Do this Same Testing Procedure on the More Conventional Western Chart Patterns Discussed Throughout Part One of this Book? As a reader, I was left wondering if a "Flag" or "Pennant" formation, or any other chart pattern for that matter, has any more of a predictive value than the candlestick patterns he chose to test?
I'm also left wondering if this is a case of "selective debunking," thus implying that the Western trading patterns presented by the author somehow have more merit, even though no supporting back-testing is provided to prove it?
Naturally any author can find examples of market action which are "text book examples" of a given chart pattern which actually worked as it was supposed to. But, if on balance over a long test period, the chart pattern has no more predictive capability than sheer chance, why bother wasting ink and paper discussing the subtleties of its interpretation? Interestingly enough, Jack discusses this exact topic in Chapter 20 where he does a great hatchet job on unscrupulous system promoters. To quote Jack: "The moral is simple: Don't draw any conclusions about a system (or indicator) on the basis of isolated examples. The only way you can determine if a system has any value is by testing it (without benefit of hindsight) over an extended time period for a broad range of markets." It would have been nice if Jack had taken his own advice.
"Part Two: Real-World Chart Analysis" is one chapter long and spans 214 pages and has over 200 futures charts displayed throughout. It's one of the more interesting chapters in the book. The basic structure of the chapter is to first show a price chart which spans a time period ranging from 5 to 10 months (referred to as chart A). Below the chart, Jack analyzes the various chart patterns which had been recently forming as the months had passed, and in turn recommends a trade with specific protective stop points. He also gives his reasons for taking the trade. At the bottom of the page he asks the reader if you "agree or disagree with the analysis before turning the page?"
On the next page the same chart is shown again, (referred to as chart B), but with the next several months of market activity shown since the trade was initiated. He gives you the reason for the trade exit, and a commentary which highlights the success or failure of the trade, and what went right or wrong with that particular trade.
This long chapter represented almost one third of the book, and provided an interesting insight into the thinking processes that Jack used in analyzing a given price chart as he attempted to discern the possible future direction of the price activity. This chapter is a very risky thing for Jack, or any trader, to do. When a trader puts themselves on the line by letting others review their thinking processes in making a given trade, they ultimately are displaying their "competence," or "incompetence" for all to see.
The focus of this chapter was specifically oriented towards "chart reading," and DID NOT provide the supplemental technical input that would have been provided if other supporting indicators were used, such as RSI, Stochastics, MACD, etc. These additional indicators would no doubt have been quite helpful in evaluating the current position of the contract, and thus provide additional information to help in evaluating the subsequent merits of the trade given the technical position of these supplemental indicators.
Given that the focus of the chapter was "chart reading," the one thing I found strangely missing, was the "50% Retracement Rule." Any chart reader worth his salt is aware of this time worn theory regarding price retracernents which typically follow a price advance or decline. To forget this meaningful bit of chart reading technique is a bit like forgetting to put your pants on before you go to work in the morning.
I went through this chapter a second time looking for examples of the "50% Retracement Rule" -- and there wasn't a single chart in all of his examples that didn't have at least one text book example of this rule, and in most cases each chart contained numerous excellent examples of this rule. Most of which, if heeded, would have provided far superior entry and exit points than the ones he chose.
After a while it actually became quite funny. Here we have this book, which is supposed to be as thorough a treatise on technical analysis and chart reading techniques as you can get, and he "misses the obvious."
Edward Dobson's book, first written in 1979, with two subsequent re-printings in '85 and '95 entitled "The Trading Rule That Can Make You Rich," 67 pages, has as its entire focus a study of the "50% retracement rule" and its variations. Ed Dobson shows countless examples of this rule in action, and highlights its effectiveness as a trading technique.
These retracements are all over the place. And, Jack Schwager misses all of them. After reviewing this 200 page chapter, I was tempted to re-title this article "Missing the Obvious."
"Part Three: Oscillators and Cycles" contains two chapters. The first is a short 34 page chapter which briefly discusses basic oscillator concepts and then highlights: "The Momentum Oscillator," "Rate of Change," "MACD," "RSI," "Stochastic" and the "Moving Average Channel." Nothing earth-shattering here, pretty much just the basics.
The second chapter of Part Three covers "Cycle Analysis." It was jointly written by Richard Mogey and Jack Schwager. After wading through this difficult, academic, theoretical study of cycle analysis, I am left with the feeling that cycle analysis is like trying to fit a square peg into a round hole. These academic theories may be interesting, but the implication is that the realities of the market make applying rigid theories almost impossible. Jack's conclusion at the end of this chapter conveys his thoughts: "Moreover, even the most consistent cycles will deviate from their mathematical representations. Therefore, the rigid application of cycle projections in making trading decisions (to the exclusion of other methods and considerations) is a recipe for disaster."
This conclusion may be accurate given a strict "rigid application" of the theory. However, that conclusion and the information provided is not helpful to traders wanting to "pragmatically" use cycle analysis techniques as part of their overall trading methodology.
Once again, I felt that Jack's academic approach to evaluating cycle analysis was very narrow in scope, and once again, "misses the obvious." Whatever happened to the "Ehrlich Cycle Finder." Stan Ehrlich invented this ingenious device in the late 70's, and its empirical and pragmatic methodology is simple, and easy to understand. And, most importantly it is surprisingly effective. In fact, Stan continues to trade successfully using his cycle finder device as one of his primary methods for making investment decisions.
Welles Wilder's "Delta Phenomenon" is an entire investment concept based exclusively on "Cycle Analysis" -- And, it too is not even given a mention in this chapter.
"Part Four: Trading Systems and Performance Measurement" is divided into 5 Chapters. The first of which discusses the merits of "mechanical trading systems" over "discretionary systems" and then goes on to discuss several very basic systems which are used as examples to explain the development process and application of a mechanical trading system. In the chapter conclusion Jack states: "In this chapter we have introduced some original systems. Although these systems are viable as described, readers may wish to experiment with modifications. The ultimate goal of this chapter, however, was not to present specific trading systems, but to illustrate how basic chart concepts can be transformed into trading systems."
Once again, Jack fails to provide the necessary "historical back-testing" as part of the mechanical system development process, and fails to verify the "viability" of the presented systems. Are we supposed to just assume that the presented systems have merit as being viable trading systems?
The next chapter in Part Four is devoted to selecting the proper futures price series for computer testing. It's another one of those drawn out academic treatises. You can skip the whole chapter and just read the "Conclusion." Jack's conclusion can be distilled down to just five words: "Use Continuous Futures Price Series."
The next chapter (20), has some very interesting information, along with some very questionable information. The first three pages of this chapter begins with Jack literally pulling the covers off of the very nasty business of selling "trading systems" and "trading seminars." In just three short pages, he does an excellent job of showing the reader exactly how disreputable system sellers actually go about "faking" and "distorting" their trading results.
He spends the next nine pages discussing system testing methodology, which is well done, but a bit incomplete. The next section of this chapter is titled "The Myth of Optimization." This was an interesting study for the beginner trader who still feels that optimization is the key to success! This section begins with Jack asking this basic question:
"It is ironic that optimization receives so much attention while its underlying premise is rarely considered. In other words, do the better performing parameter sets of the past continue to exhibit above-average performance in the future?"
Now that's an interesting question! (At least to the beginner who doesn't understand the pitfalls of optimization.) Jack does a great deal of historical back-testing using a simple "break-out" system (which is one of his so-called "viable" trading methods that he described earlier in his book). He tested this basic system using a wide range of parameters over a wide range of different markets.
Basically, I will distill all of this data and information down to his final conclusion which is as follows: Extensive back-testing to locate that perfect and finite parameter set for your trading system, which will perform well year after year, is a "waste of time."
Jack's testing results indicates that certain parameter sets at the extreme fringes of the total range of parameter sets will tend to perform very badly on a consistent basis. However, the enormous range of parameters that fall between these extreme fringes DO NOT have a consistent performance record from one year to the next when trading a given commodity.
The trading characteristics of the commodity can change from one year to the next to such an extent that a totally different set of parameters, which had previously performed at the low end of the scale in a prior year, is now the top performing parameter set for the current year. The problem is that you never know in advance which parameter set is going to be the top performer during the coming year.
Well, DUH, Jack has just re-discovered the wheel. This is what we have all come to know, and dread, as the extended periodic "draw-down" period, with its tell-tale numerous consecutive losses, or that period of time which is characterized by "under performance." Every system has them. It's that unsettling time period when our systems "just don't seem to work anymore." However, once this unusual time period passes, our systems once again begin to work as anticipated, and we are once again back in synch with the markets.
If we only knew in advance that an "out-of-synch "period was approaching, we would naturally shift our parameter set to match this shift in market character, or stay out of the market until it passes. But, none of us has a crystal ball, so we live through, and accept the inevitable draw-downs and occasional under performance as a necessary evil of trading.
Jack tries to offer some potential solutions to this dilemma. But, the evidence is compelling and the difficulties presented by this phenomenon are overwhelming.
On a personal note: I do a lot of system testing and analysis. I have for years. And, I've run into the same problem that Jack experienced when market characteristics change from one year to the next. However, it has been my experience that the "parameter set" that is actually used, is far "less important" than the "design characteristics of the trading system itself".
It has been my experience that if the "trading system "is well designed and is a robust trading system, the parameter set becomes "almost" irrelevant (within reason) to the effectiveness of the trading system. It may be highly likely that if Jack used a different and more robust "trading system" as the vehicle for his parameter testing, that he may have avoided the erratic performance results that he experienced.
In reality, Jack' s primitive methodology in testing parameter sets was doomed to fail at the onset, to the point of being "junk science." His erratic results were very predictable. The tragedy is that he should have known all of this before writing this chapter. More importantly, at no time did Jack ever question the lack of robustness within the trading system itself. He just assumed the problem to be the parameter set in relation to the changing market environment.
At the end of this chapter, Jack talks about the many pit-falls of relying on "simulated trading results," which naturally lead to exposing more of the sleazy tactics used by unscrupulous "trading system sellers." A very insightful chapter to say the least.
Part Four ends with Chapter 21, which discusses "Measuring Trading Performance". It's another one of those complex academic research pieces that takes up a lot of space and is of questionable value. It's one of those topics which can be made very complex, and is almost deliberately designed to create the impression that investing is a "professional and complex science." It's one of those academic thesis' that makes the investment manager "look professional" in front his clients and bosses.
Personally, I take a pretty pragmatic point of view about investment performance. "I know how much I started with -- I know how much I ended up with -- I know how long it took me to get there -- And, I know what my equity curve looks like. In the real world, who really cares about the nuances of the "Sharpe Ratio" anyway? For me, its basic, short, and sweet.
"Part Five: Practical Trading Guidelines" Finally, the book earns its keep. Part Five gives us 3 great chapters, consisting of 33 pages of great information. Chapter 22 begins with the basics, such as establishing your basic trading philosophy, and suggests the use of a trading notebook and diary. Chapter 23 provides us with "82 Trading Rules And Market Observations". This was a great chapter. There is a lot of "personal insights" and "in the trenches" experience that Jack shares with us. I got a lot out of this chapter. The last chapter (24) is titled "Market Wiz(ar)dom" and is adapted from his prior book "The New Market Wizards." It examines the broad principles and psychological factors that he believes are crucial to trading success. Jack provides a list of 42 observations regarding "success in trading." It too is a great chapter, with lots of insights that can help us all.
I have always said that if a book can provide me with just one good trading idea that can ultimately help me be a better trader, it has earned its keep.
* For those of you out there who still think candlestick trading is a viable investment technique, this book will help you put those fanciful ideas to rest.
* For those of you who are hung up on finding that perfect parameter set for your trading system, this book will help put some perspective on that fruitless effort. (However, this book will not help you design a "robust trading system," which is the ultimate objective.)
* For those of you who still are enticed into spending "big bucks" for the next 200% per year trading system or seminar that comes down the pike, this book will save you a fortune.
* For those of you who haven't understood the importance of finding a trading system that "suits your personality," this book might help you reach that final realization.
* For those of you who have the ability to take the advice of others, Part Five of this book is a gold mine of information that only could have been written by someone with real-time experience and market wisdom.
Jack Schwager DID NOT do a good job with this book. Given his reputation, experience, and the fact that he manages $75 Million, I expected so much more. It was a real disappointment to say the least. However, the occasional pearls of wisdom and periodic helpful information might cause you to occasionally pick this book up off the floor, (replacing it with another suitable door-stop), and re-read a couple of "selected" topics and chapters.
Technical Indicators Doing "eerily" Well This Year - Marc Fett
Also wanted to tell you I have come up with some indicators that have been doing eerily well this year.
I've been applying these to markets and presenting them on the Internet. I know you're a tremendously busy guy, but if you have access to the net I wanted to extend a guest invitation to you to check it out sometime. I think you'll find it an interesting little site.
The site is http://www.fettnet.com/compass1.htm
Once there, just select the "members" button and
User ID: scout
If you do visit sometime, love to hear any comments you may have.
Forecasting - For Certain - Rick J. Ratchford
There is one thing for certain about what the markets will do, and that is we will never know for sure.
Many traders love forecasts. In hopes of knowing what the future will bear, their ears will perk up and their eyes will focus on anything that may provide a window into the future. The problem here is that they do not truly understand what a 'forecast' truly is.
Let me first tell you what a market 'forecast' isn't. It isn't what will happen in the future. Nobody knows for a certainty what will happen. And for anyone to expect a forecast to pan out exactly as laid out each and every time is doing nothing but fooling themselves.
A market forecast is actually an expected scenario based on an educated guess. Some make better educated guesses than others.
This may be the product of any number of methods available today. Due to the desires of many traders, to find an easy way to trade the markets by some mysterious, mystical portal into the future, many have become quite soured about forecasts after having lost money due to one not panning out. From this point on, they are convinced that the markets cannot be adequately forecasted for profit.
Yet, the problem doesn't necessarily lie with the forecasts themselves, although there are a lot of bad ones. The problem lies on ones expectations and understanding as to what a forecast truly is.
As mentioned earlier, forecasts are the result of using some technique or method to derive at a fairly good idea of what the market may do. Even those who may say they do not like forecasts, if they truly are traders, are making a forecast every time they put on a trade!
Why else would you put your hard earned money on the line to go long or short unless you believed you were going to make money because you think or believe the market is going to move in your favor. This is a forecast, even if you do not share it with others.
Now whether you do share it or not, the fact remains that not only is it a forecast, it is not for certain going to happen as we expect it to. No, rather we can only hope it turns out as expected because we did our due diligence and took every shred of data and information we had on the market to come up with our forecast.
If at anytime someone says to you that they do not like forecasts, asked them if they live in suspended animation. Because each day when we make a decision, we are basing our decisions on what we think will happen in the future. This is a forecast, although concealed in our own minds and only made manifests by our actions based on that forecast.
There is nothing wrong with trying to discern what will happen in the future short of breaking some laws (such as religious). What is wrong is expecting too much from a forecast originating from an imperfect man or woman.
Know that the only thing for certain about a forecast is that its outcome is not. There are some excellent ways to forecast the market with a very high degree of probability. Note the word, probability.
By learning certain trading techniques, such as Fibonacci, Gann, cycles, and possibly some others, a skilled market technician can soon achieve a very high degree of accuracy in forecasting future market events.
As long as we keep it in mind that forecasts can be an excellent tool to use in profiting from the markets, but that it requires making preparations in the event of not occurring as expected, we can then do quite well.
For those interested, my forecasts are based on Fibonacci and Gann ratios, as well as some very complex cycle analysis. Many have recognized that my forecasts are very reliable, although not 800. Yet they provide many excellent opportunities to profit, which is what a serious trader wants in the first place.
Many times a forecast can be partially good, as when most of the individual elements have indeed occurred, with some minor differences. One example of a multi-faceted forecast is when it is dealing with more than one event, such as what will happen next week on this day, then the following week on that day.
The forecast may involve not only time, but price, and the time part occurs but the price is off. Whether a forecast partially correct is worth anything or not depends on each individual who is using that information for their own decisions. If the price element plays little in your trading, then of course the time portion has provided some kind of valuable service.
My personal belief about using other peoples' forecasts is that whether they agree with my assessment of the market or not. If not, I look at their argument in case they present something I did not think about. As long as the final decision is mine alone, this information can be useful.
So whether you wish to learn to forecast the markets in the scope of days, weeks or months ahead, or just in time to make a trade, keep in mind its limitations and go from there.
Never expect a forecast to be more than ones opinion of a high probability event yet to occur. If you have blindly followed a forecast that was produced by someone other than yourself and possibly lost money doing so, don't blame those who are merely offering their educated guesses.
Blame yourself for looking for something that does not exist, because one thing about trading that is for certain . . . it is your responsibility to act based on your own belief of the future.
Albert Einstein Once Said . . . J. L. from Wimauma
"It takes a genius to see the obvious." Sort of reminds me of the woman who had two unwanted children before she figured out what was causing it. Not to be out-done, it took me 13-years to figure out that I lost money because I offset positions after they had gone down in value! Obviously we can't always prevent a position from sometimes depreciating, so doing something about that "bailing out" part is all that's left! How about "Just Say No?" (I wish I'd thought of that.)
A local broker told me that the average balance in his 120 customer accounts was $4,300! Holy Cow! It's no wonder that so many "tap out." I can see it now. The new-comer figures that, since he doesn't have the foggiest notion of how to trade, he'll trust this persuasive broker with the minimum "to see if this thing might work." Mr. Broker can't turn down new business (his boss simply wouldn't understand), so how can he tell this neophyte that with four thousand dollars he's got about a snowball's chance in Hell? That's when "Cut Your losses short" takes on new meaning!
This may be far too obvious for many, but one of the beauties of commodities is that prices will always eventually reverse! Can you think of some things you might be doing in the market to make money while you are waiting for the inevitable? And can these "things" also eliminate most of any drawdown by letting you regularly pocket a terrific return on your investment? And can they at the same time be reducing Margin requirements, sometimes by about 75%? Well if they can, what are you waiting for?
With enough dedication and practice, I believe that even an average "Joe" can make "pie-in-the-sky" about 50% of the time, i.e., a trade that never closes "in the red." It's the other 50% that is the rub. That's when I change hats. Is there a law against investing in commodities vs. trading them? When my second "hat" produces 5X what most other investments would make (like stocks or bonds) with less actual risk, what's the problem? Can I help it if even my favorite uncle (Sam) insists that I deduct all of my "investment" from my income! The nerve of that guy! Try that with IBM stock! Bottom line - with commodities being not only the premier trading vehicle but also the finest investment alive, what are you waiting for?
On another subject, it must have been coincidence that both Gale Paxton and I spoke of health matters in the last issue. I realize that his present emergency motivated him as do my personal experiences in that area. A beauty of this publication is that many readers must feel a kinship with the Paxton's through their well-written contributions. I can only add that "I don't accept the belief that commodities must be that stressful." It truly makes no sense to formulate a plan that kills you in the process! It's no surprise that successful trading is simple when you know how and darn near impossible when you don't! Good Health and Investing to all!
Get A System That Works, Suits You & Stick To It Like
I am a new trader, highly intelligent (gained entrance to Mensa), have degree in finance and computing and love numerical computing. Technical Analysis fascinates me.
I am part of the ATAA - Australian Technical Analysis Association. After taking an account for $5,000 to $8,000 and back to $5,500 in 9- months, I then quit to do much study and develop my system. I have taken note of who is really successful among people I know personally and, found out that:
1. All three extremely successful trader hand chart and when they look at a chart they get a 'feel' for the market.
2. Two happen to be Gann people. They say that their fundamentals are so simple that they could write out the basic system that makes most of their money from in a few lines!
3. I have come to the conclusion that the most important thing is not to have the "perfect system" but rather, have one that works (and many work! - and also suits our personality) and stick to it like glue - NO Variation!
One of the three - an ex-car dealer - looked me in the eye recently and said: "Bill - your main trouble is that you know too much!" i.e., I am trying to look for a complicated system! I got the message and am looking at simple systems!
P.P.S.: I happened to use David Bowden's "Smarter Starter Pack" costing $A995. It took 100-hours to do the course at home, including 60-hours paper trading on 3-yrs data and was based on hand-charted bar and swing charts, retracements and ranges, i.e., as per your #1 freebie! I got frustrated at some aspects, started applying it to everything that moved without back-testing (how could I be so dumb!) and lost MOST of my capital! (I could not program it into a computer and it took about 20-hrs to back-test a year's data!) It uses a pivot point type stop loss followed by trailing stop loss based on steps of a range. The system is not very good for markets that are only slightly trending! It does keep users out of choppy markets, however. Like nearly every other system, it is great for strongly trending markets! It is the only course I know that includes money management + psychology + a fully defined system + substantial paper trading exercises with checkable answers. Despite its shortcomings, (the system does go through its bad patches!) I think it is an excellent pack for a new trader or an experienced one that had lost heavily and feels like giving up!
For your interest, you may like to check out David Bowden on http://www.sitm.com.au
He teaches Gann and was extra ordinarily successful between 1986 & 1991 or so (shows his trading statements for that era openly) and is famous in Australia for picking the 1987 crash and a number of other tops and bottoms. He sells a video series for about $A6,000 and has 5-day trading congresses at about $Al2,000 per throw that he packs out to about 60 - 70 people per time. He offers a free info kit on http://www.sitm.com.au/info.htm No-one I know have seen his trading statements for 1996-97 so I don't know if he is still an exceptionally successful trader! (Obviously he'd be way ahead of me, so when he speaks I listen!)
The Extension Objective - Rick Ratchford
The market has just broken past a previous major top or bottom. You want to figure out how far it my continue going before making a correction. Is there a simple way to do this?
The answer is yes. With just a few tips as I'll mention here, you can easily solve for a price objective when a market is extending.
Consider that prices have previously made a range from a top of 250 to a bottom of 200 and is now moving up. Let's assume that now it has surpassed the previous top of 250. What we want to try to solve for is where it might find resistance.
By taking the previous range it had just broken out of, which was 50 points (250 - 200), we can easily multiply a few ratios to use as extension objectives.
The ratios that are easy to remember are 25%, 38%, 50%, 62%, 75% and 800. Starting with 25% of 50, we end up with 12.5. Since it was the top we have extended past, we just add 12.5 to the top of 250 for 262.50. Continuing on, we do the same with 38%, 50% which would be 25 points or 275, 62% and so on to 800 which would make the resistance price 300.
Of course, prices can continue higher even still, such as at 125% etc., but not usually without a correction. Since we are looking for when the correction will likely start (to either get out of a trade and take profits, or get ready for the end of the correction) these ratios should do quite well.
Some may ask, "how do we know which one will actually start the correction?" Good question. If you are only dealing with prices, this will take some extra work. One way is to note if any of those extension prices match a top or bottom made some time in the past. Those would help isolate a few from the bunch. Another technique is if you can draw a trendline off previous tops and note if when prices hit one of your extension prices if it also hits close to the trendline.
The technique I use is to note which extension price it hits on my time day. The time days I use are Fdates coupled with cycle analysis. A less precise but quite effective method is to count the bars from the previous 250 top to the 200 bottom from our previous example. If it took 7 bars to drop, you can reasonably expect near 7 bars to top again. Not real accurate, but close enough to get a fix on a price many times.
Another method is to take a previous top to top and multiply by .618 and 1.618. If you have TTC, it can do this for you automatically. Enter the number of bars between the tops and multiply by those Fibonacci ratios, then extend them out from the second top. Do the same with previous bottoms as well. If you find the result will lead you to the area where it is close to the 7 bars (or whatever the previous drop was) from my earlier mentioned method, you have a good chance of the price at that time period, if from one of the ratios above, as falling on that time period. This increases your probability immensely.
Let Freedom Write - Publishers take on CFTC
Every American has the right to free speech, but the CFTC is trampling on this first Amendment entitlement, so state five commodity newsletter publishers and several subscribers who have filed a civil complaint in U.S. District Court in Washington saying the CFTC should not require them to register as commodity trading advisors (CTA).
"We would like the CFTC to restrict registration authority to those who actually manage customer accounts or give person-to-person consultation," says Scott Bullock, an attorney at the Institute for Justice representing the publishers, which include Bruce Babcock, Stephen Briese, Robert Miner, Frank Taucher and Bo Thunman.
Miner, publisher of Dynamic Trader Analysis Report, says he renewed his registration because he felt threatened by legal ramifications. The Institute for Justice says that an unregistered commodity publisher could be subject to $500,000 in fines and up to five years in jail.
"The CFTC has no right to impede on my business, when all I am providing is information," Miner says.
The publishers contend it was the CFTC's proposal released last year on the regulation of commodity information over the Internet that motivated them to go to court.
"After seeing the CFTC proposal, I was outraged," Miner says. "How can an agency believe they can have this sort of control and influence?"
However, last December the CFTC suspended the release, declaring it not effective. Instead, the CFTC will continue to rely on the CTA registration provision of the Commodity Exchange Act (CEA) to determine what Internet activity requires registration. The CEA defines a CTA as any person who "for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media . . . " It excludes banks, news reporters, attorneys, accountants, teachers, floor brokers, FCM's and publishers of print or electronic data of "general and regular dissemination."
When Dealing With Many Traders, Not Everyone Will Be Pleased
or Profitable - Bill Williams
First of all, let me say that I totally support your efforts at protecting all of our rights to free speech. I will support you with letters, in person, time, and/or money.
That is the first reason for this letter. The second reason is to reply to the complaint about me from Mike Cook which was published in your Sept/Oct issue.
Mike attended a four-day tutorial when our offices were in Mobile, Alabama in June of 1995.
During the beginning interview he said that he had quit his job twice before to trade commodities full-time and the results were "disastrous" [his words]. The first time he quit trading a mechanical system and stated the reason it was "disastrous" was that he always has "had trouble applying the rules" (again, his words). He further stated that his reason for attending the tutorial was that he "felt he needed direction."
I do not have any problem that someone doesn't like me, but when false statements are made, I feel the obligation to speak the truth from my point of view. He evaluates our approach as a "load of crap." That is his opinion based on his inability to use our methodology profitably. Personally, I liked Mike when he attended the tutorial and I still do. Being an ex-engineer, I found his background and expertise in concrete retrofitting after the California earthquakes fascinating. However, when he says that he can find no one who has benefited from our services, I must disagree strongly. We have trained over 700 traders in these tutorials over the past 10-years. Today well over 90% of our attendees come from referrals and our waiting list is six months. From those we have trained, we have over 600 unsolicited letters of appreciation for our contribution to their lives and their trading. Less than three months up we were audited by the NFA and they examined, inspected, and confirmed the quantity and quality of these letters. It is also important to note that we also showed the NFA the few letters we received from 'less than happy' attendees.
No matter what you do, when you deal with that number of traders, not everyone will be pleased nor end up profitable traders. Remember Mike had, by his own admission, already struck out twice. He did call me and requested a meeting the next time I came to California. I agreed to meet him in person (I was conducting an all day workshop for Futures Magazine and invited him to attend and I would meet him there) but he never showed.
In addition, Mike signed an agreement that said for him to get his tuition back he would have to justify that he was using our approach the way it was taught. I requested that he send me copies of his trades and statements showing that he had taken the proper trades as taught in the tutorials. He never did this.
Unfortunately, Dave, whenever you open an avenue for free speech you welcome anything that comes, justified or not. I have no need or intention to get into a name-calling contest with anyone. Life and our trading are just too good for that. What I might suggest for anyone interested in seeing where the truth really lies is to download and examine our entire Profitunity approach to trading.
All you need to do is to go to www.internationaltrading.com and download FREE our entire trading approach. It is not a 'black box' system and everything is there. If it asks for a password - it is "bill." If you have any problems call our office during office hours at (409) 945-8880 and we will walk you through the process. Once installed - it takes just over 4-megs - go through the Guided Tour which will show you how to use the program and will show you every signal that we use and how we use it. We are real traders and trade every day and always trade in front of those attending the tutorials.
The program will even give you the exact wording to tell your broker. To check to see if this method is indeed profitable, may I suggest that you download the fully functioning system and read the Broker's instruction for Coffee dailies during April and May of this year. In those two months you will see a $500,000 profit. Also, look at the S&P 500 from April 17 through July 31 of this year. Granted this is hindsight and hypothetical now and it was a spectacular run for the S&P.
But again, following only the Broker's instruction which prints the instructions for the following day (no intra-day trading) and by trading one contract per signal you would have over $2,000,000. Even if you allowed a whopping $10,000 deduction for each trade for slippage and gap openings you would still have approximately $1,850,000+. Now, if that is crap, I'll take a couple of loads of it. Don't take my word for it - try it yourself. And this is not a sales pitch because you don't have to spend one red cent.
I am doing this for two reasons: 1. I believe in our approach and demonstrate it daily in our own trading; 2. I also believe you come out better by 'casting your bread upon the water' than by closely guarding a "black box," and; 3. How can I possibly get hurt by you trading well and profitably?
In closing I wish you all good trades, good energy, and good life and especially you, Mike Cook.
Editors Note: The Headline of This Article is very true. No matter how good you are you will always have some unhappy clients. This is true with every company, be it involving trading or investing or any other business. This is what makes the CFTC investigation of Dave Green & Commodity Traders Club so maddening and upsetting. For example, they are sending requests asking our trading methodology clients to complete an 18-page Questionnaire. We have been told this may be the most longest and most extensive questionnaire ever sent to someone's clients.
A number of our clients have called us and said things like "due to the complexity, intrusiveness, magnitude and great detail of the CFTC questionnaire, it's almost impossible to answer the many questions without some things possibly being construed as negatives." They have also said the 18-pg Questionnaire is a perfect example of a blatant "fishing expedition" and "witch hunt" by this uncooperative, unfriendly, powerful and strong-armed government agency.
We have heard the CFTC has about 200 attorneys on their payroll who need things to do to justify their good government jobs. This is a large government agency which we understand has been threatened with extinction if a bill now before Congress is approved. This bill will apparently eliminate the CFTC and mandate the US Securities Exchange Commission to assume their duties. A number of vendors have told us this is why the CFTC seems to be engaged in a war with many commodity firms. Apparently the more notches they can get on their gun will be used as evidence to Congress to justify their existence.
Another very troubling aspect of the the CFTC 18-pg Questionnaire is the fact most satisfied clients will not answer and return it due to its amazing length, time involved in completing it and the fact its quite intimidating. However, the comparatively few clients who have complaints, failed to learn our method for various reasons, or perhaps lost their money trading will be much more likely to take the extensive time required to complete it and return it to the CFTC. In other words, due to the Questionnaire's magnitude and size they will get a significantly larger response from a small number of unhappy clients. This will easily overshadow the replies they will get from the vast majority of satisfied clients. This is very unfair and invites a seriously twisted picture and a false percentage of complaints.
Another Question for Greg Donio - Patrick Smith
I guess you did not see our question in the "other" newsletter as to whether you actually did those option spread trades or if you were "advertising" to become a vender. No matter. Your ad answered that question. We are still puzzled, however.
During my years as a derivative's broker, I learned that there was no faster way to convert investment capital to commissions than option spread strategies. Of course, I have no personal experience but some of my associates claimed that they could generate commissions of $1,000 monthly out of a $5,000 account by putting their customers into option spread trades.
So, the question is: If you can talk people into doing option spread trades, why not become a broker and make some real money instead of piddling around with $70 per customer?
Tradestation Was So Powerful I Had To Return It - Al Castro
There is a great software program on the market that can test securities and is comparable with Tradestation at a much lower price. Let me tell you about that program later.
Tradestation allows you to try their program for 30-days and if you like the program you pay $199 per month for 12 months. That's $2,388. Well I decided to try Tradestation for 30-days and boy was it a powerful program. It was so powerful that I had to send it back.
Their program allows you to historically test any kind of security (stocks or commodities) with any kind of trading system you have. However, you have to program the system into the program. This takes time and effort learning how to use their so called "EasyLanguage."
For instance, lets take an easy example of programming their system. Let us say that you wanted to buy long when the high of today was higher than yesterday's high, today's close would be in the upper 60% range, and yesterday's low was higher than two bars ago by 10%. You would program the following:
Today's High>Yesterday's High
Today's close in upper 66.00% of range
Yesterday's Low> 2 bars ago low by 10.00%
This is an example of an easy system to program via "EasyLanguage." However, it gets much more difficult as you expand on your trading ideas and systems. I viewed their videos to learn how to use the program and also learn how to use EasyLanguage. I was totally lost even though I have been trading for 2-years and have 5-years of computer knowledge. Their attempt to make "EasyLanguage" easier to use has failed at least for me. The only person it can benefit is one who loves details such as an accountant or an actuary. What about the rest of us who are interested only in trading.
Well as a trader, it is important that you test your system to see if it worked in the past before trying it the future. If your system did not make any money in the past, you can be assured that it will not work in the future. Of course, even if your system worked in the past, there is no guarantee that it will work in the future but it has better odds than a system that did not work in the past. Testing a system that has worked in the past certainly gives you confidence which is one of the characteristic of a successful trader.
As I was reading the Stocks & Commodities magazine, I found an advertisement for Investigator 2.0. This was a program for testing systems without programming. Isn't it amazing?
From trying to learn programming with "EasyLanguage" to using a program without programming. Well, I got the program and it was everything they said it would be. I was able to create patterns and systems very easily and it is fun. You simply drag the bars (high, low or close) to where you want it to be. The computer will actually write the program for you.
The program also has its own pre-defined patterns for testing indicators and oscillators. It will historically trade all of your securities for any system that you have. It will keep a record of your systems and it will test all your securities every day if you want to. It will tell you when there is a buy or sell signal. It will tell you if you have bad data that needs to be removed. And much more for a price of only $495. I highly recommend that all serious traders test their systems and use Investigator 2.0 as their program for testing.
One more thing, the support was personable and excellent. And they are going to improve the program by adding new systems which will be free for the first year. For more information about this program call Jeff at 1-888-474-6764.
More on the Futures Truth Controversy & Club 3000
Kent Calhoun of KCI Seminars
"The difference between Truth and knowledge is infinite," and can be measured in the difference between individuals and newsletters. The difference between CTCN and Club 3000 parallel those between me and John Hill. This could not have been better illustrated than in the previous issue. Dave forwarded my letters to John Hill, as I requested, allowing him to respond in CTCN to specific testing procedures I objectively outlined in a business-like manner. l made no personal statements concerning John Hill.
Club 3000 did not contact me with Mr. Hill's two letters that contained several false statements and personal attack on my religion and patriotism. They printed them without trying to find out if they were true! This has been Club 3000's policy for several years, print whatever allegations are sent, so long as it agrees with the editor's personal biased beliefs.
One message should be clear to every CTCN reader: Unless you want false trading results published about your trading account, or want personal account information published in Club 3000 News and sent to over 1,000 of their subscribers, do not open accounts with any broker who is a Club 3000 subscriber! Club 3000 may choose to publish false information about you without notifying you!
Once Club 3000 was going to publish false allegations that alleged I used a vendor's endorsement without his permission. The vendor had given me handwritten permission to use his testimonial as an endorsement, which I Faxed to Club 3000, who Faxed it to the vendor. The vendor recanted and wrote another negative letter printed in Club 3000 without contacting me. Club 3000 is so desperate for letters to their anorexic newsletter, which has equal ad space to information, he is willing to publish anything! Dave Green's last issue contained more trading information than a year of Club3000 personal diatribe.
Unlike Club 3000, which freely prints John Hill's lies without confirming their veracity, Dave Green demonstrated his integrity by presenting a fair open format of the issues separating John Hill and myself. I would have provided my 1099 confirming my profits to Club 3000 had they desired to seek the real Truth. Instead they chose to print over a dozen Hill lies and false allegations without verifying them. My does Club 3000 choose to print lies? Club 3000 does not understand the meaning of integrity nor are they interested in printing the Truth, or they would have allowed me a response to Hill's false allegations.
Integrity is more than just telling the Truth, or being honest. Integrity is a choice that must be made for each individual from the foundation of a belief system which governs how they are going to live their life. Integrity is how much an individual means to himself, and is a sign of self-respect. Apparently Club 3000 and John Hill have similar narrow-minded value systems based on ignorance, vengeance and greed. Do these guys even like themselves?
Bo Thunman defended his belief that astrology was a science by stating to me, when he went to school teachers believed there was "a man who lived on the moon." Can you image how this sounded to a person who has taught Newtonian mechanics, and Einstein's Theory of Relativity to high school physics teachers? I blew Thunman's stone age beliefs away with a Socratic syllogism. 1. Is there a seller for every commodity buyer? Yes! 2. Is price determined by the action of buyers and sellers? Yes! 3. Then can astrological trading affect only the buyers without sellers, or only the sellers and not the buyers to affect prices? Silence. Obviously, if astrology had any effect it would have to impact both buyers and sellers, and not one without the other.
Dave Green and I are barred from having any letters printed in Club 3000. Mr. Hill & Mr. Bo Thunman will not allow Dave Green or me to even subscribe to his Club 3000 News's slime green pages to be informed with the latest batch of personal attacks on Dave or myself. So how does Dave Green respond to their hatred and ignorance? With integrity! Dave sent his last issue to Hill for free, after he allowed Hill a forum to respond to my objections of this unethical business practices and improper testing procedures.
Mr. Hill misled (I will not use the word lied since it implies intent to misrepresent Truth while misled implies he may be simply ignorant of the Truth) all CTCN subscribers in his responses. He would like you to believe the NFA spent 5-days verifying his trading system's results. Not true! The NFA does not test trading systems, nor would they even look at Hill's $2,000 system performance, unless complaints were filed about it, (according to Brian Dempsey and Patricia Welter of the NFA in a 11/17/97 phone conversation.)
"The National Futures Association"' may check client complaints about a trading system if a trader's account is not being traded according to its instructions. Traders may call the NFA to verify Hill's false statements at 1-800-621-3570. I called the NFA to file complaints against Club 3000 and John Hill for printing, private and false information concerning my account performance traded with Hill's company. Civil damages may be sought against both. The NFA was probably more concerned with the $175 million Hill Financial has under management.
Club 3000 does not pay Dave Green for his newsletter, but allegedly receives illegal copies of it and they allegedly forward an illegal copy to John Hill, who allegedly stated this to Dave Green. (Mr. Thunman once commented to me about letters in CTCN before I even received my issues.) Imagine that. Is an FBI matter, violation of copyrighted materials, $250,000 per offense and 5-years in jail? These guys know copy machines.
Editors Note: This is correct. John R. Hill himself told your Editor last month he has received copies of CTCN in the mail forwarded by B. A. Thunman (Bo) of Club 3000 News. Club 3000 is not a subscriber and we resent them somehow getting our newsletter and then mailing it to another party without our consent. What makes this even more annoying is the fact we wanted to legally subscribe to Club 3000 but Bo refused to let us subscribe and rejected our payment attempt. They not only get our publication but even send it to a third party depriving us of much needed revenue and not even allowing us to see the content of their own publication, even on a paid for basis! Hows that for an unfair situation!
Ever wonder what John Hill did before starting his Gibraltar-based Futures Truth? Mr. Hill had a library whereby he would allegedly make copies of the most popular newest trading systems of the day, by Larry Williams, Welles Wilder, etc., then he would mail you these systems without the vendors' permission to do so. All you had to do was become a member of what I called Hill's Library Scam Club. (I knew several subscribers, who tried to give me copies systems from Hill to test, but I refused to do so.) Hill's membership fee was about $500 per year that allowed 3-systems per month to be checked out. The vendor got zilch.
Does this sound like an honest enterprise to you? Can you imagine someone doing this today with FT's "Top Ten." How would John Hill feel about someone sending his $2,000 system to be distributed in the public? What if you were the author of one of these systems, and had worked months to develop it and incurred financial expenses to do so? What if your non-disclosure documents had been violated by someone making illegal copies and sending them to someone else? Is this ethical? It is according to John Hill, who runs FT with the same lack of business ethics. No integrity. No honesty. Anything to make a dollar.
After several vendor lawsuit threats, Mr. Hill's newest scam was Futures Truth, (many professionals call "Futures Trash"). Hill would still get free trading systems from traders who bought them and violated non-disclosure agreements, or dishonest traders who received them without paying for them. What is receipt of stolen property? What about receipt of stolen intellectual property rights for software or hardware chip design? Hill tested systems, sold results, sold reports about how the system worked, and everything except the parameters. No integrity. No honesty. Anything to make a dollar.
Of course the actual vendor would never be paid from Hill. In the process, Hill would allegedly be able to "borrow" their systems' ideas and allegedly tweak them into "his" systems to sell them, while he could trade markets from others' work. My Ull volatility stop for S&P's was allegedly adopted into Hill's system after he tested my Ull. The difference? 1-tick! Bruce Babcock deserves the honesty award for his Hill's Half Truth system testing comment. Dave Green could tell you about when he supplied his monthly figures printed by FT, who refused to verify Dave's figures for themselves. How many vendor's do this now?
When Mr. Hill announced to me he would be rating my 5VBTP Method as a system, he never asked or paid for my work. I invited him to my seminar based on Hill's promise I could examine his 5VBTP testing results before he published them. Hill's promise was false. He sent out false 5VBTP test results in a manner the 5VBTP was never taught at my seminar before he sent me the results to approve. FT's President admitted FT's improper 5VBTP testing in a Club 3000 letter. I was advised by an attorney to sue Club 3000 and Hill Financial. Any other vendors treated in a similar manner may want to contact me.
Mr. Hill may think by admitting FT has a "conflict of interest" by rating and selling their own system makes it right for him to do so. It does not! Last week, Yale University stated "a conflict of interest exists when teachers have sexual intercourse with students they teach." Makes you wonder what it would be like to attend a FT seminar doesn't it? No matter how FT defines a conflict of interest - the customer really gets stuck in the end!
Gil Castillo attended a KCI Seminar, with Lou Mangini, as a charity case because he stated he could not afford to pay the admission price. He presented himself as a beginner who knew little about technical analysis. Tom Cruickshank, a real nice guy, was also a kci seminar attendee and asked about Gil in the last issue. When Tom forgot some of the KCI trading materials, I allowed him to also attend a KCI Seminar for free. The world is a very small place sometimes. Kindness knows no shame. My wealth lies in those I have helped.
OPTIONS & SPREADS: Occam's Razor, Tombs &
The fellow on the barstool said, "I invented a method to bet the horses that had to succeed, that couldn't possibly fail."
"So what happened?" his buddy asked. "The track opened."
His answer was another way of saying, "Reality intruded." So often the strategy plan of the would-be millionaire looks great on the map table but fails on the financial battlefield. But where else can gains be made except on that field?
Of course, reality can be a nuisance, but it is the mine with the paydirt and the vault with the hard cash. Let us recall the old comedy routine: The swindler tries to sell somebody an invisible horse but refuses to accept invisible money. The "realm of imagination" he hawks is supposedly great . . . until pay-off time. The con-man dishes out nonsense but demands cash not nonsense as payment. So does everybody else at the pay-off end.
Everybody from the computer wizard calculating the Dow to the busboy poring over the Daily Racing Form has plans and calculations for making a fortune, and one need not be Einstein to tend toward excessive theorizing. It helps if the calculations stick as close to hard reality as the tangible profits being sought. In the early 1300s, English philosopher and Franciscan monk William of Occam opposed the excessive theorizing of the Thomistic scholasticists.
His axiom, "Entities are not to be multiplied beyond necessity," became known as Occam's Razor, a trimming down of what was thought up when the mind creations became more than was necessary to explain reality. For example, if an assassination could have committed by one man, it probably was. If someone formulates a 10-man conspiracy theory, those other nine men are what William of Occam would call "entities multiplied beyond necessity." Occam's Razor would trim off all but the trigger-man unless there was compelling evidence for more.
Many people need a shave with that edge, such as the fellow with pad and pencil seeking numerical patterns at the roulette wheel. "Number 34 has to come up. It's due!" Did you know that the horse with the longest name usually wins the race? Stocks and futures contracts allegedly rise and fall in accordance with sunspots, or patterns in the Old Testament's Book of Numbers, or the lengths of women's skirts, or a number concealed in the Nancy Sluggo comic strip.
Spread strategies with put or call options do not bear the fingerprints of Rube Goldberg. They have no link with magnetic healing or the seven heavens of Islam and the Cabala. When I leave the Metropolitan Opera House after having seen Gounod's Faust, I carry with me not only rapturous melodies but a fascination for the centuries-past alchemy lab recreated on stage. Yet I would not think of using anything from the locked laboratory book in my trading calculations. And do not think that just because the data is on software instead of parchment that it is necessarily more scientific.
Ponder the words "practical, feasible, instrumental and functional." Option spreads apply well to this set of inter-related terms--instrumental when the function is profit. (Another word "pragmatism" is a tangled octopus to be dealt with later.) Woe and slack, both those words and the profits are so easily lost sight of in speculating and investing. You will not see Mr. Necktie consult Simon Magus or a carnival swami, and yet . . .
In his excellent book Winning in the Futures Market, George Angell wrote that from 85 to 90 percent of all futures traders have been known to end up on the minus side over the long haul. Then he added these "despite all the dead bodies" words of encouragement: "These percentages should not sound as discouraging as they seem. Many traders, despite their protestations to the contrary, are not serious about making money in the market. Rather, they enjoy the excitement of buying and selling, watching price ticks in the boardroom, and the risk-taking involved in trading commodities. Some of these traders are inveterate gamblers . . ."
What he describes is pathological, like the horse-player consciously wanting to make money but unconsciously feeding the excitement and suspense that electrify his nervous system, no matter how much he loses. Also, such behavior is unscientific for a very specific reason. In addition to Occam's Razor, another traditional scientific axiom exists that a theory or belief should be dropped if the evidence keeps repeatedly failing to support it. An example of what violates this is astrology. No amount of incorrect predictions will cause avid astrology buffs to drop their belief that theirs is a valid science. They admit to some errors and miscalculations but the system itself is sound!
For centuries, many quack cures thrived and survived from generation to generation no matter how many cemeteries they filled. Similarly, many horse-gamblers, futures traders and option traders have come out on the minus side consistently for years without ever discarding or even questioning their conviction that "This is a money-maker." For dedication and devotion that will not quit, the crap-shoot futures traders and option traders match any old-time bloodletter or leech doctor.
So as an option trader, how do I manage to pull in profits year after year? How do portions of the "licensed crap-shoot" money keep landing in my bank account? During World War One, with its trench warfare and its frontal attacks on machine guns (spaced side by side to enjoy "overlapping fields of fire") the custom was to send out three waves of infantry one after another, let them get devoured, then figure that the fourth wave would reach its objective. The success rate in options, futures and "initial public offering" stocks adds up something like that. So how do I keep placing in the fourth wave, not risk-free but alive and with the loot again and again?
To answer, I would like to quote George Angell again. What he wrote in Winning in the Futures Market about spreads refers mainly to strategies with futures contracts, but applies quite well to futures options and equity or stock options, my own vein of ore.
"Long-side" chances are probably about 50-50 of winning or losing on any single trade. You can, of course, improve the odds in your favor by trading only limited-risk spreads . . ." (page 28)
"Professionals, who make their living from the markets, are enthusiastic spread traders. This should give you an indication of the value of this form of trading." (page 53)
"Spreads can be very profitable on a consistent basis. Just remember that you have a trade-off when you undertake a spread position. You are willing to give up some potential gain in exchange for safety." (pages 63-64)
Angell's above-titled book deserves much recommending, even for traders like myself who handle only equity options and do not touch futures or futures options. Its writings on trend-following and charting fit well into the movements of stocks as well as futures contracts. A spread trader whether in futures or futures options or stock options must also be a trend-follower. Another, must read is George Angell's earlier strong-in-the-basics work Sure Thing Options Trading which several years ago helped get me started in option spreads.
The "trend" aspect deserves special mention. Since last writing for this publication, I have taken two profits with spreads using IBM call options. I chose IBM calls because the stock was trending upward and had a strong, conservative price/earnings ratio of 18. With the first, I bought 10 IBM call options with a strike price of 110 and an expiration date of October, and sold 10 IBM calls with the same strike price but a September expiration. The money I received from the latter paid for more than three quarters of the former and the rest came out of my capital.
Of course, this is the "horizontal" variety of the "time spread" or "calendar spread." I pulled out several weeks later with a profit of 54% annualizing to 378%. Subsequently I bought 10 IBM 110 January (1993-2014) calls and sold 10 November (1997) ones with the same strike price. Note the one-month gap this time between the Novembers and the Januarys. Later I closed out the position with just a 5% profit annualizing to nearly 40%.
I pulled out for a significant reason and despite a significant temptation. At the time I concluded it, the Novembers were worth just over half a point, the Decembers just over two points and the Januarys slightly over three points. Buying back the Novembers and selling the Januarys to close the position brought me some profit. Please note, however, that after buying back the Novembers I could have held on to the Januarys and sold the Decembers.
The Januarys had already been paid for--mostly by the sale of the Novembers when I opened the position and partly by my own capital at that same time -- so I could have held on to 10 Januarys worth a little over $3,000 and sold 10 Decembers worth just over $2,000, minus a bit over $500 to buy back the Novembers. Why, then, did I not simply pick up the phone and plunk $1,500 net cash into my brokerage account?
Because of the trend, friend. By this time, IBM shares had lost upward momentum and kept shilly-shallying in the high 90s and low 100s. As for its options, those 10 January calls were worth $6,375 when I opened the spread position and only $3,125 when I closed it. Fortunately, my sale of the Novembers had paid for nearly two-thirds the cost of the Januarys, shielding me from subsequent loss and allowing me some profit. Yet only a timely exit could prevent further melt-down.
Those Novembers I sold for $4,125 shrunk to $562 as of when I pulled out and at the time of this writing are expiring worthless. Bad stories all around me! My role as spread strategist kept me out of the first three waves of attacking infantry. Had I sold those Decembers, that would have obligated me to hold on to the Januarys for a few more weeks while the Decembers shrank in value, since the long (January) end of a spread covers the short (December) end. What if IBM stock remained lethargic and the related call options kept dwindling? Would a $1,500 gain on short Decembers be such a comfort if much of the $3,125 melted off the long Januarys? I ended the party when the stock trend drowsed. Worth repeating: A spreader must also be a trend-tracker.
When one speaks of "investment psychology," one is merging to somewhat "iffy" sciences. In the 1920s, arch-skeptic H.L. Mencken wrote, "The psychologist today could be like the pathologist but is closer to the osteopath." During the 1920s, osteopathic medicine was part science and part cult, though the former facet was expanding and the latter diminishing. The first school of osteopathy began in 1892, teaching a system of therapeutic bone-manipulation which any farm-hand not a dullard could master in a few weeks.
However, osteopathic medicine proved strongly eclectic, continually borrowing from conventional medicine. As its schools began teaching about endocrinology and enteropathy and ectopic pregnancy, the flunk-out rate increased alarmingly. It was losing its "old friends" or their next-generation counterparts. By the 20s decade it had ceased to be an easy road to a doctor's degree for ushers and bellhops, farm-hands and hospital orderlies.
Today the training for a D.O. (Doctor of Osteopathy), is the same as for an M.D. except that the D.O. also receives instruction in bone-manipulation. Yet how easily mankind steps back in time at the futures exchanges and options exchanges. The tractor driver or the livery driver brings out his checkbook and plays hunches. The grandmother trades after a smattering of relevant reading. The minister prays for bond futures to rise, completely forgetting that the short-seller prays just as devoutly the other way.
This is a return to 1890s osteopathy, or Ragtime Era chiropractic by correspondence, or homeopathic herbal medicine on the frontier. Wisdom is what fits into a saddlebag next to a charm to ward off rattlesnakes. If Arch Crawford tried to revive 1910 astrological medicine he would face arrest for quackery. However, his stars & planets' newsletter aims at your bankroll and not your vital organs so he is safe.
Admittedly, not all "esoterica" is necessarily hogwash. Despite controversies over theory, many people past and present have experienced physical relief via osteopathic manipulations. In trading, W.D. Gann may be compared to the years-ago doctor of osteopathy after he began borrowing extensively from conventional medicine. Gann's non-numerology and non-bibliomancy writings are to a substantial extent a re-write of Charles Dow Theory. Nevertheless the two W.D. Gann books in one The Truth of the Stock Tape & The Wall Street Stock Selector provides powerful trend-oriented ammunition for spread traders in stock options no matter where he obtained his information.
The spiral number-map from the Gann arcanum, the Square of Nine, was said by Halliker to derive from classical Greece's Pythagorean Cube and by R.J. Flower to be based on "the ancient Mesopotamian chart." Skeptics may dismiss it except that it contains a delightful Practicality Clause. What if a stock is falling when Square of Nine doctrine and theory say that it should be rising or vice versa?
Chris Kakasuleff in the first issue of Gann & Elliot Wave (now Trader's World) wrote about "what I call psychological inversions. You will be expecting a low, as predicted on a particular (Square of Nine) angle in the last cycle, but instead on the same angle in this (current) cycle you get a high. What you do here is invert or reverse all the highs and lows from the last cycle. . . . In overcoming this aspect of the Square of Nine in trading it's fairly simple to just watch the trend between the angles. If the market action is the opposite from what it was doing in the prior cycle, the trend may be reversing."
In other words, it is nice that you have your eyes when the map says desert sands and you find yourself facing an expanse of sea. "It's fairly simple to just watch the trend between the angles." Yes, and perhaps more anchored in reality than the quasi-Cabalistic spiral of numbers. How about Occam's Razor between the Nine and the Trend? In a modern observatory, you will not find a perpetual motion machine next to a radio-telescope. In trading, they perennially exist side by side and plenty of people choose the wrong item.
Mentally and psychologically, people are still people, easily bridging the gulf between the computer chips and the root-sorcerer's wigwam. Schools of osteopathy have become far more choosy in accepting applicants but brokerage firms have not. If you show up at the broker's office dressed as Julius Caesar, the folks there might hesitate. Otherwise, no warm body with a checkbook flunks out.
A young man was considering opening a shop. His brother arranged a meeting for him with two partners who owned a three-story property with store-front for rent. He failed to appear. Later he told his brother. "I overslept. But that's okay. I've been thinking that I might buy the building."
"Bill, with your credit history, who's going to give you a mortgage?"
However, another hurdle exists before that one. He will not even get out of bed for a business appointment. Yet he talks about buying buildings! A pathetic gap between aspirations and actions. The daydream climber of the snowy Matterhorn who stays home on cold days. The armchair jungle explorer who fears Dalmatians. Someone once said, "We judge others by what they have achieved. We judge ourselves by what we feel capable of achieving." Of course, we should believe in ourselves, our abilities and futures, but that "feel capable" can be quite a self-deceiver. Every saloon has its "feel capable" Andrew Carnegies hiding from the bill collector.
My parents owned a guest house in pre-casino family-resort Atlantic City. One family who rented mentioned in conversation that they had invited an uncle to join them at the shore, but he refused because he had heard that there were no bars in Atlantic City. Several miles down the New Jersey coast, Ocean City is a "dry" community with no bars or liquor stores. The shot & beer hearsay that had reached that uncle apparently misinformed him as to which shore point practiced Prohibition. He was determined to preserve and protect his barfly life-style but not at all determined to get his facts straight.
About a block from my parents' guest house, a grocery store was owned by a Jewish man who worked it long hours and stocked it so extensively that it was practically a miniature supermarket. Within sight of there, another grocery store was owned by an Italian who stocked it poorly and sometimes opened for business, sometimes did not.
After shopping elsewhere, my sister was passing the latter place when she realized that she had forgotten to buy an item. She went into the store and asked him. The grocer pointed to the brown bag she was carrying and said, "Get it where you got all the other stuff." His lousy business sense and lousier manners are beside the point right now. The key item is the "casual glance" essence of his knowledge. Could you imagine him going to the microfilm department of a library to dig for facts? Or phoning Canada to get information? He would have little knowledge beyond what he could gain from a "casual glance."
The amusing thing is, I can imagine all three of these characters taking up trading. Other potentialities exist. They could gamble at the track or casino. They could borrow from a loan shark who has a human gorilla sidekick. Still, the possibility persists that they could start trading futures or options as "the no-effort path to wealth" or the "don't-strain-your-brain bridge to easy street."
I call this "amusing" because their losses are my gains. When you purchase Chrysler shares, your investment capital forms some linkage with cash of people buying cars. With options and futures contracts, the only profits you can make come from the treasuries of other traders in these wasting-asset securities. Centuries ago there was a belief that crocodiles wept while eating their victims. Hence the expression "crocodile tears." Gee, it breaks my heart to do this but I'm still doing it. I do not cry false tears. Yet every time I take a profit, I wonder which would-be millionaires lost the buffalo I roast or salt away.
In my most recent venture, I watched Dell Computer stock for a time, with its beefy, multi-point options. However, I stayed away as long as it either rose or stayed at the same altitude. With its inflated (over 100) price/earnings ratio, it seemed a prime candidate for a decline, but I held back until it ebbed and ebbed again. Finally it fluctuated within the low to mid 80s, from a week's-earlier high of 103-7/8. The downward trend plus the weak P/E ratio made Dell appear a good prospect for a spread with put options. (Stock symbol DELL; option symbol DLQ)
For put options to be out-of-the-money, of course, the strike price must be lower than the share price. With a spread position, the strike price should be close enough to the share price to make the options plump but far enough that a slight fluctuation of the stock will not place the options in-the-money. 75 seemed about right. During the first week of November, options with November expirations were shriveled but Decembers and Januarys had girth. More exacting than at some times previous, I look for short-end options (Decembers in this case) with 2-½ to 3 points or better and a spread or gap of 1-½points or less.
I entered an order to buy 10 options/sell 10 options with debit spread of I-¼ points, the already existing gap according to the latest quotes. I bought 10 DELL/DLQ puts January 75 for 6-¼ points and sold 10 puts December 75 for 5 points, the difference being 1-¼ points as ordered. Stated it dollars, I bought the Januarys for $6,250, sold the Decembers for $5,000 which paid off most of the Januarys, and paid the $1,250 difference or debit spread plus commissions out of my own capital. Anticipating exiting commissions at pull-out time, the break-even point would be a gap or spread of 1-½ points or $1,500.
As I enter the battle with four parts other people's money and one part my own under my banner, I cannot help but wonder who paid the $5,000 (the December puts) that formed the protective phalanx around my $1,250 or $1,500. Was it the young "businessman" who talks about buying buildings but stays in bed? The barfly seeing the broker's pink slip through Canadian Mist? The gambler who hopes the system that failed with keno will work with options? The ballpark hunch-player or the casual glance shop-keeper? The esotericist who thinks that stock fluctuations are coded in the Bible?
Of course, part or all of the money may have come from intelligent traders more daring than myself. Nevertheless, you cannot help but be a philosopher about human nature when you make a profit off the man who bets the store on his mother-in-law's inmate number. I do not advocate trading for revenge purposes but the market's despotic indifference must be faced. The spread strategist makes money from financial hangings and burials.
A week after I opened the spread position, Dell stock plunged and placed in-the-money the December 75 Puts which comprised the short end. Toward the close of the November 12 trading day, the December 75s were 2-¾ points into the money and trading for 5-¾ points. This meant the option's price consisted of 2-¾ points "intrinsic value" and 3 points "time value." When shorted options are in-the-money the trader must consider pulling out to avoid an exercise. However, the option-holder or long-player is discouraged from exercising by the fact that he would take intrinsic value but lose time value, substantial in this case.
In-the-money options, when exercised, are assigned overnight, so the figures in the final hour or half-hour of the trading day are the key ones. The day closed with my short Decembers in-the money but the "time value" appeared sufficient protection against an exercise. However, my standing rule is, "One night okay but not two." I prepared to pull out if the puts remained in-the-money at the close of the next trading day.
For much of the next day, they were in-the-money. How would I pull out, if necessary? At one point, the Decembers were bid 7-1/8, ask 7-5/8, last traded 7-¼. The Januarys were bid 8-5/8, ask 9-1/8, last traded 8-¾. If I told the broker, "Buy back the Decembers at the market. Sell the Januarys at the market. Both to close the position," what is the worst that could happen? A buy-back at the ask of 7-5/8 and a sale at the bid of 8-5/8, for a spread of just a single point and less than that after commissions. I needed 1-½ points to break even.
I would have entered the transactions separately, one right after the other, instead of together. Also, I would have targeted the "last traded" figures to get away from the "worst" figures. When a spread is dismantled in two stages, the short end customarily goes first. I would have entered a bid to buy back the Decembers at 7-¼ and then offered the Januarys for sale at 8-¾. If nothing happened, i.e., no transactions soon, I would have compromised 1/8 point on either end for a slight loss for the sake of expediting.
So what happened? Early in the trading day's last hour, Dell rose to 75-¾, nearly a point out-of-the-money. Then the shares climbed further to close at 77-1/16. Back in business. In the nine trading days since then, time-decay has eaten at both the December and January options but more rapidly at the former, the standard process which gradually unearths the gold nuggets by widening the gap or spread.
George Angell wrote in his Winning in the Futures Market book "Although spread trading has been likened to 'watching the paint dry' -- boring, yet predictable -- there are risks involved. For this reason, you'll want to monitor at least the closing prices daily." Of course, I agree that risks are involved and that the prices should be monitored daily, especially the closing ones. However, I find nothing particularly boring about either risk shields or one profit following another. Speculating in options, futures or high-flyer stocks can be as exciting as a crap game but also as wallet-emptying. Spreads are like the jewelry store, experiencing slow periods but usually producing steady gains.
It is one day short of three weeks since I began the Dell spread. Today's closing prices: The Decembers last traded at 1-3/16, the Januarys last at 3-1/8. A spread of 1-15/16 for an after-commissions paper profit of $437.50, a 29% gain annualizing to 493%. Granted, these are graveyard profits. As you can see, the Decembers that people paid $5,000 for are now worth not quite a quarter of that. Also, folks who bought Januarys at the same price I did but without spreading are minus precisely half, from $6,250 to $3,125. Smith's "Am I Blue?" is Jones' "Many-Splendored Thing."
One must be practical. When I looked up the term "pragmatic," it turned out to be a word that took funny bounces. Merriam-Webster linked it to "practical" and the verb "to do," but in formulating opposites . . . well, judge for yourself from these definitions: "relating to matters of fact or practical affairs often to the exclusion of intellectual or artistic matters; practical as opposed to idealistic." Example cited: "Pragmatic men of power have had no time or inclination to deal with . . . social morality." K. B. Clark.
Must this be? Must practical men and women of finance be obtuse regarding fine arts and the good of society. Please, dear trader, let yourself be irrefutable proof to the contrary. Nearly everyone has heard about the cyclone-force controversy that surrounded Clark Gable saying the word "damn" in the 1939 film classic Gone With The Wind. Yet few people have heard of another controversy surrounding that same motion picture, a censorial dispute probably far more significant.
One-time Catholic publisher, Joseph L. Breen became the right hand of arch film-censor Will Hays. During the production of Gone With The Wind, Joe Breen had a dispute with producer David 0. Selznick. Frank Walsh wrote in his book Sin and Censorship, "Always fearful that any hint of discomfort connected to the birth process might dissuade some women from embracing motherhood, Breen insisted that shot of Melanie Wilkes gripping a towel, wincing in pain, and perspiring had to be eliminated. He finally grudgingly allowed Selznick to show a few beads of perspiration on her face and shoot the scene in silhouette."
Was that Joe's real reason? Another film, RKO's Little Men, showed actress Kay Francis milking a cow. A Breen subordinate speaking for him told the studio, "At no time should there be any shots of actual milking, and there cannot be any showing of the udders of the cow." Did he fear that seeing that would discourage people from drinking homogenized grade A? Or were wombs and mammaries difficult for Joe Breen to deal with once he became attached to what might be called the "bathrooms without toilets" notion of screen decency?
Breen was no lone saint. Several years later, David 0. Selznick produced Duel in the Sun, a bloated western which brought cries of "Filth": from many and "Tedious": from many more. The director of chaplains' services in Boston, Father John Sheehy wrote a piece published in Variety in which he said he anticipated "thousands of priests detained years longer in the confessionals seeking to dispel the evil images born of witnessing this alleged entertainment."
Anyone who rents the video to see what the fuss was about will end up scratching his head if not falling asleep. Everything being relative, though, Duel in the Sun was stronger than those singing cowboy movies in which the female lead appears briefly at the start to say good-bye and briefly at the end to say hello. Also stronger than those World War Two movies in which the soldier never smells perfume except on a letter from the hometown sweetheart. Pro-censorship "traditionalists" are never at a loss when you ask, "As compared to what?" They simply show the western guitar and the soldier in chapel "like in the good old days.
What if Mr. Joe Breen and Father John Sheehy beheld some classical art? In other words, what if they were more deserving of the word "traditionalist" which they freely applied to themselves? Bernard Berenson wrote in The Italian Painters of the Renaissance.
"In the figure, also, Correggio's command of light and shade, the exquisite coolness yet sunny transparency of his shadows, discovered new sources of beauty. . . . he remains among the very best who have attempted to paint the surface of the human skin. . . . the skin too has its importance; and its pearliness, its sunny iridescences, as in the 'Antiope, ' are a source of vivid yet refined pleasure. Without attention to all its aspects, no one could have attained to such a supreme achievement as the 'Danae, ' where we watch a shiver of sensation passing over the nude like a breeze over still waters. Correggio's mastery of light explains his colour."
Reactions? Father Sheehy probably would have noticed that viewing this frescoer sensuality did not cause people to collapse into quivering blobs of desire and then crowd the confessionals "to dispel the evil images born of witnessing." As for Breen, it is a Seabiscuit bet that he would have continued censoring milk pail scenes.
One can speculate on how they would have reacted to Piero di Cosimo's Magdalene which Richard Muther described in The History of Painting as "the portrait of a richly dressed young lady. But this lady stands at the window, through which the sunlight floods the room, enveloping the figure in bright light; gleaming upon her cheeks, skipping over her hair, glimmering upon pearls and rubies, and refracting in a thousand colours upon her dark green dress. Other Flemish traits are the use of the three-quarter instead of the Italian profile view, and the still-life, consisting of salve-box, paper and book, which he has grouped upon the window sill."
Probably still too luscious and luxuriant for a fellow who only grudgingly tolerated a childbirth-in-silhouette film scene. This "more than the guy can stand" theme struck near my roots a few years ago when my old neighborhood, the Italian community of South Philadelphia, sponsored an Italy Renaissance Festival. The official emblem of the festival -- imprinted on posters, newspaper ads, shopping bags -- was the top half of the Michelangelo David.
This symbolized more than the festival's organizers intended: A sticky mis-blending of more than one tradition: 50% Michelangelo and 50% Will Hays; Italian culture out in half by Disney TV tradition; Old World cuisine on the lasagna tray and "Those were the days!" Archie Bunker-ism in the armchair. So some of my paisans have fumbled. I ask you, dear trader, to do better at carrying the ball. Apply the word "tradition" to yourself and let it be worthy of the name. Guard society against its "guardians."
Also, the trader without more than one area of interest carries an extra hazard. Speculating can be fine as business but is lethal as "entertainment." Oscar Wilde wrote, "This suspense is terrible. I hope it will last." Use trading for thrills and suspense and, like the horse-player, you will gain excitement while emptying your bank account. It is less expensive to be fascinated by the wry wit and moral laxity of British Restoration drama, the atmospheric intricacies of Alhambra architecture, or the clouded-in-centuries mystery of Etruscan tombs.
Be the practical trader, of course, but do not be "pragmatic" in the dictionary sense. Fine arts and the good of society are also your domains. Nevertheless, success in trading means lawfully picking the pockets of other traders. Josh Billings wrote, "A wise man profits by his own experience, but a good deal wiser one lets the rattlesnake bite the other fellow."
Web Surfing - Rodney Lim
Here are some web pages that I tend to visist on a regular barsis. Hope you find some useful information here. Anyone want to share any others?
CME Real-Time Quotes
CME Globex Quotes
Allendale's Oopening Calls and Comments -- Grains and Meats
STA's Opening Calls -- Agricultural & Financial Markets
Robert Miner's Sample Market Anaylsis
Agriculture Online Daily Overview
Ipso Facto's Blue Plate Special Daily Recommendations
Dean Keller's Sample Report
Moore Research Seasonal Trade Review
Jake Berstein's Weekly Futures Market Commentary
Advanced GET: Sample Market Analyses
Futures Magazine Online
About the CFTC & Keeping Us Posted About Lawsuits!
Sorry, Trevor Byatt from Australia, but I just have to say it. You're being selfish by requesting CTCN (issue 40, Vol. 5-5) to suspend their reporting of commodity related lawsuits. As an American citizen I'm madder than hell that my government is trampling on my First Amendment right to read, write or disseminate information. How dare them tell me that I can only read about commodity trading if the author has paid them a fee to be registered by them? I want to read everything I can get my hands on and I will be the judge of what is beneficial to my trading and what is worthless. I don't need the government doing my thinking for me.
If my government wants to play big brother, then let them require that anything written or disseminated about futures and options have a disclaimer such as, "The author/publisher is not a registered CTA," but that's as far as it should go.
I am keenly interested in knowing everything there is to know about this industry. If you don't care to read about the regulatory problems, then so be it, but please do not ask that this information be kept from me. I want to know what is going on! You may not have these bureaucratic problems in Australia, but I bet that if your right to free speech were threatened you would be the first to yell and scream. Being silent about the abuses will only encourage the CFTC to be more abusive. You may want to be spoon-fed only trading strategies and money-making ideas, but if you turn a deaf ear to the very serious freedom of information problems commodity traders now face in this country, your source of information coming from the United States will dry up.
You say you would not want to be without CTCN, but unless you encourage reporting on the legal problems this industry now faces, you may not have the opportunity to read CTCN if the CFTC has their way. I would encourage you to join our fight for freedom of the press from down under and to get involved. Write letters, send donations to the Institute for Justice, and just bang the drums.
And, to Dave Green, I ask that you keep us posted within the pages of CTCN and not hide the information about litigation on the internet. I suspect many traders still do not have internet access. Besides, it's often too time consuming and inconvenient to dig out information from cyberspace. I like the printed (paper) form because I can pick it up from my coffee table whenever I want, or take it with me on my commute to work. Dave, don't let the CFTC make you back off. Don't let Trevor Byatt from Australia make you back off. Don't let anyone make you back off. You're doing an excellent job reporting on ALL aspects of the commodity trading industry. Thus, keep giving me all the news about all the various aspects of this business. If bickering turns someone off they can skip over that article.
Scale trading turns me off, but I know others would devour every thing written about it.
Editors Note: Sorry Trevor, you have been out-voted but in an admittedly non-scientific and possibly not accurate small feedback of our readers. We have changed our mind about writing about legal issues because all the clients who called or wrote wanted to read about legal problems and law suits. However, in part you have won, as we plan to limit most of it to the CFTC issues and avoid as much as possible discussing the other legal matters.
Member Comments & Requests
Mid-America Commodity Exchange Seat Rental - I'm curious if many of the members out there have ever rented a seat either on the CBOT, CME or especially the MACE. I'm interested in doing so as a way of lowering the transaction costs associated with day-trading. Will anyone out there in CTCN-land please give me a jingle at email@example.com
Does anyone have intraday data on advances and declines on the NYSE? If so, please call Howard at 800-484-1052 (press 4314 after tone).
We have received a number of calls from traders asking us if we know what happened to Mr. B.A. Thunman (Bo) of Club 3000 News. According to unnamed but reliable sources, it seems Bo Thunman has sold Club 3000 to his wifes cousin. We have also been told the cousin has never traded commodity futures (but has traded stocks) and therefore assumably is not familiar with commodity trading. A couple mutual clients told us due to its editor not being experienced with commodities it has allegedly already detracted and assumably will continue to detract from the value of its publication. About Mr. Thunman, we have also heard he has been busy daytrading the S&P 500 market since he sold Club 3000. He sure will need lots of luck to be successful at it!
We have several complaints over the past several years about this unfriendly rival. Of major importance is their allegedly not allowing some articles the editor did not approve of. In addition, they have also allowed negative articles to be published about a vendor but subsequently forbidden a positive article about the same vendor. This can be said by first-hand knowledge. Another problem is their disallowing certain parties to subscribe for no valid reason.
Perhaps the major problem with Club 3000 is their routine recommendation to inquiring traders who ask for a trading system recommendation that they contact Futures Truth and acquire one of the Futures truths "Top-10" Systems. They also maintain a strong association and very close link to the Futures Truth Website from their own site, virtually assuring Website visitors also end-up also visiting the Futures Truth site.
On the surface this arrangement may seem all right. However, its alleged by many parties the performance of the top-ranked trading systems listed in the Futures Truth Master Performance Tables rarely seem to perform as well as indicated once the unsuspecting trader gets the top-ranked trading system.
We have heard about many unsuspecting traders who have routinely purchased a trading system based mostly (or even solely) on its high ranking by Futures Truth. Once they start trading the system, its alleged the trading results are usually vastly inferior to the performance statistics published by Futures Truth. As mentioned before, John Hill and George Pruitt of Futures Truth have been asked a number of times to write an article on this apparent oddity but for unknown reasons it seems like they don't want to address this important issue.
Our battle with the U.S. Commodity Futures Trading Commission is an ongoing event. They continue to ask for more and more info as time goes by. "The CFTC's "strong-arm" tactics may eventually eliminate your Constitutional Rights to get our products & services!" A Press Release from Commodity Traders Club News. The following discussion about the CFTC was for the most part written by Curtis M. Arnold of London Financial, who is threatened with extinction due to the CFTC's investigation of them:
"The win and loss record compiled by the CFTC in actions or so called "formal orders of investigations" against commodity futures product and service providers is nothing less than uncanny, until you know all the facts. The facts are the U.S. Commodity Futures Trading Commission is set-up so that they can't lose, as it appears they are the prosecutor, judge, and jury.
They even collect the award (the plunder), which goes directly into their coffers. That's right, the CFTC appoints its own judge and pays his salary. Can you imagine what the effect would be on his career longevity if he ruled against the CFTC?
Once the defendant has lost his case in front of this appointed judge can, of course, appeal the decision to a higher federal court. But by then, his financial resources have in most cases been exhausted. You can see why targeted victims, emotionally drained and financially ruined, stand little chance of winning the way the system currently stands."
We can only hope that those representatives in Washington, who we elected to protect our interests and liberties, hear our collective pleas for action against this agency, before we decide to leave the commodity futures business. Our leaving this business would be a direct result of the CFTC. Sincerely, Curtis Arnold, London Financial.
Editor's Comments: The CFTCs powerful investigative tactics include things they have done like getting individual and company bank records from seven different banks in two states, going back many years, involving many different bank accounts maintained over the years at these many banks (both business and personal), and them demanding copies of every deposit and check for over $200. They even demand info on Bank Signature Cards, Loans, Safe Deposit Boxes and other totally private matters. One bank illegally (apparently in error) sent all the bank records of the spouse (not a party to the investigation) to the CFTC. In spite of the apparent error the CFTC said they intend to use the spouse's bank records, deposits and checks. The CFTC even filed Motions to defeat the attempt to Quash those illegally obtained records. This was in spite of the fact the CFTC admitted in writing they were not entitled to receive these third party bank records.
The amazing thing about this entire matter is the CFTC refuses to say why they want this private information and does not have to give the banks or court any reason for this gross seemingly totally unconstitutional invasion of privacy and apparent violation of the Right to Financial Privacy Act! How can this occur in America? Seems impossible doesn't it? But it's not! The U.S. Commodity Futures Trading Commission's power and authority is more akin to Communism than America! The CFTC has unbelievable and amazing power. More power than the Police. More powerthan any other government agency, including the I.R.S. It's beleived the CFTC has more power than anyone in America!
We can't understand why they are investigating. Perhaps its because of not being registered as a CTA. However, the National Futures Assn (NFA) has been called a number of times in the past and the NFA was always non-committal on the question about the requirements which demand CTA registration. Sometimes they have said things like "its a grey area," or "its up to the caller to figure it out, etc." They have been vague on this question in the past. In fact, a friend recently called the NFA are asked if he needs to register as a Commodity Trading Advisor and say's he got the runaround and non-committal response.
Perhaps they investigated because a mean-spirited person may have said trading profits were promised (not true). Perhaps they don't like the verbiage used in trading methodology advertising materials. However, the advertising included an offer for a very rare full 1-year money-back guaranty if anyone was dissatisfied for any reason. Subsequently, refunds or credits were provided to everyone who qualified for a refund under the terms of the money-back guaranty made in 1996.
Only about 15% of the trading method clients of CTCN requested a refund by the end of the 1-year guaranty time period. This means the vast majority (about 85%) of trading method clients were well satisfied with the product. We also have a continuous pro-rata money-back guaranty offer covering Commodity Traders Club News publication. It's very rare CTC ever gets newsletter refund requests. On the odd occasion there is one, a prompt and courteous pro-rata refund is given.
It's hard to imagine why the U.S. Commodity Futures Trading Commission is so interested in investigating to such extreme lengths, like mailing an 18-page Questionnaire to clients. Even allegedly checking Internal Revenue Service Reports and/or doing a Credit Report on the investigated party. However, how in the world did they find out the name and address of the seven banks they sent subpoenas to?
A note to any commodity product or service suppliers who may be reading this. Rather than fight the CFTC, as most do, regarding them demanding your mailing list or client list via their subpoena power, simply give it to them! At first we regretted doing this but some time later realized it actually helped us! They used this list to send their 18-Pg Questionnaire. Thanks to it, the CFTC ended-up getting lots of positive comments and testimonials about CTCN, which helped the CFTC in determining the scope of it all.
We did not like the idea of giving them our mailing list but in the long run it was most beneficial to all parties. We normally would refuse to turn this information over but had to do it to comply with the CFTC's "Subpoena Duces Tecum.@quot; It turned-out their subpoena duces tecum was only an Administrative Order, and a non-self-enforcing subpoena, but nevertheless something which would prove very difficult to fight.
Unfortunately, the CFTC is an example of the amazing power and authority a United States Government agency can have. Financial Privacy, Personal Privacy, Privacy Acts, First Amendment, U.S. Constitution, these are all things the CFTC allegedly ends-up violating, but we are sure not intentionally. We are convinced the CFTC does not willfully want to violate these privacy issues but in effect they do due to their amazing power. This is happening right now involving a number of financial publishers and trading products and service providers. As the Institute for Justice say's, it seems the U.S. government sometimes acts in ways which indicate you should not be allowed to obtain knowledge on futures. This sometimes is a factor in putting some commodity futures businesses out of business or stopping others from entering the business.
However, if the trading product author or supplier will register with the U.S. Government, subject themselves to fingerprinting, FBI background checks, costly, extensive and time consuming applications, payment of sizable fees and costs, including ongoing and considerable accounting expenses, be subject to unannounced audits, subject their website and advertising to constant scrutiny, and pre-authorize payment of large fines or license suspension with no due process of law, then the CFTC will let you register and produce commodity trading information.
Talk about "Big Brother" and a "Police State!" Unfortunately, this scenario is quite un-democratic and un-american! This is happening to many firms and individuals in the futures business. It seems the CFTC's scrutiny and rules go to extremes, as witnessed by sending hundreds of 18-Page Questionnaires to clients and the issuance of the many subpoena-duces-tenums.
Subsequent Editor's Note dated December, 1993-2014. Good News! A Settlement Agreement has been signed and the matter is concluded. Click-here for more details.
It would be extremely supportive of you if you would do CTCN and your Editor a huge favor by giving a testimonial type of letter. It may be handwritten or typed, short or long, informal or formal. Please write CTCN with a testimonial, or expressing your support of both myself and Commodity Traders Club, including any of our products or services you are familiar with.
Note: If we select what you had to say for reprinting, you may be assured we will never use your address or phone number or reveal any personal information, other than your name. In fact, even your name may be withheld if your desire. Let us know if you only want your initials used.
You may mail us a letter for any comments you have, including testimonial you elect to give about your satisfaction with any of our products, including our Real Success S&P Video Tape Educational Training Course, any of our other trading products and services you are familiar with, including Software Programs, the Commodity Traders Club News publication, and of course, very importantly, any personal opinion you may have on myself, Dave Green.
Still another alternative is to write to Senator Tom Harkin of Iowa, who we understand is the primary U.S. Senator involved in a Bill now before the U.S. Senate involving pending CFTC legislation. Write to Sen. Harkin at the U.S. Senate Office Bldg., Washington, DC.
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: firstname.lastname@example.org Our Website address is www.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.