Issue 47

How Much Should You Trust Trading Magazines' Tips?
Deborah Adamson - L. A. Daily News

You see them at nearly every newsstand: personal finance magazines touting the best investments or the hottest stocks. With all the subtlety of a 30-minute infomercial, they scream to readers the promise of investment success.

"Best Mid-Year Investments" SmartMoney declared in July 1997.

"Six Stocks Pegged to Earn 47%" within the next year, Money magazine promised in June 1997.

How good are these recommendations? Not very, based on a Daily News review.

The newspaper tracked the year-long performance of 141 stocks recommended in 21 articles in issues of four popular personal finance publications. Seventy-three stocks out of the 141 - or 52 percent - lost money.

Forget earning 47 percent or even modest returns; more than half of the stocks recommended in some articles by some of the nation's most popular personal finance magazines cost their readers' money. The lesson to be learned is that readers ought to beware - even when the advice comes from some of the best-known magazines.

The articles ran in the April 1997 to January 1993-2014 editions and were selected randomly to gauge the year-long performance of stocks through last year's bull market and this summer's bear. But he said that if professional investors "have slightly more winners than losers, they are stars."

Magazines' record is surprising, considering that most of the stock picks were made in a market which by every measure was hugely profitable. The findings are a cause for concern because millions of investors - through individual retirement accounts, 401(k) plans and personal accounts - have funneled billions into stock market in recent years, relying on magazines like Money, SmartMoney, Kiplinger's and Worth for advice.

If those magazines' readers had bought into index funds that tracked the Standard & Poor's 500 Index on the first day of that month's issue instead of buying the magazines' picks, the investors would have made as much as 45.88 percent (before fund fees and without reinvesting dividends). If they had bought at the worst possible day during that time, they still would have made 3.24 percent.

Comparing the stock recommendations against five indexes (S&P 500, S&P Midcap 400, Russell 2000, MicroCap 50 and Wilshire 5000 indexes) that better reflect the market segments of these securities, the magazines did even worse. Eighty-two out of 141 stocks, or 58 percent, did not beat the market.

For Money magazine, 23 out of 39 stock picks - or 59 percent did not beat their market segment. Seventy-four percent (20 out of 27 stocks) of SmartMoney's picks did not beat the indexes. Eleven of 20 stocks (55 percent) touted by Kiplinger's lost to the indexes. As for Worth, 28 out of 55 stocks, or 51 percent, did not beat the market.

If you took the average return per article, excluding dividends, and compared the result with a comparable index, 56 percent of Money magazine's articles did not beat the market. SmartMoney had 75 percent miss, half of Worth's articles did not beat the indexes and none of Kiplinger's articles beat the market.

To be sure, it's not easy to beat the market. Most mutual fund managers don't do better than the S&P500. Some of the stock picks in the articles performed well over 12 months but still didn't outpace the market.

Kiplinger's April 1997 issue recommended buying Chase Manhattan, which rose 42 percent in a year. But that didn't beat the S&P 500's 45.88 percent gain over the same period.

The results aren't much better even if the yardstick is simple profitability - whether a stock increased after a year (or, in the case of the January 1993-2014 special issue, nine months).

Using this yardstick, 19 of the 39 individual stocks recommended by Money from June to August 1997, or 46 percent, lost money.

Comparing the performance of all recommendations by articles, three of nine Money stories showed negative returns - 33% miss.

However, Money made a good call in an August 1997 article, "Don't Just Sit There . . . Sell Stock Now." Investors who acted on it would have avoided the October 1997 correction and the current bear market - providing they put the money in cash, money market accounts or bonds.

If someone followed the magazine's advice and bought stocks recommended in other articles in the same issue, the results would've been mixed.

For instance, $1,000 invested in each of the five stocks recommended in "Defend your Portfolio with stocks that promise income and growth," would have made $1,345, or 28 percent, in a year.

But if someone bought $1,000 worth of each stock recommended as hedges against inflation that also was in the same issue, he would have lost $1,247 a year later, or 26 percent. Indeed, four out of the five picks were losers.

As for SmartMoney, 16 Out of 27 stocks recommended in the May, July and October 1997 issues, or 59 percent, lost money. If each of the four articles examined was tallied separately, half-had declines.

In Kiplinger's April and August 1997 issues, our out of 20 stocks lost money - 20% miss. One out of four articles (25%) lost money. As for Worth's June and September 1997 and January 1993-2014 issues, 35 out of 55 stocks lost (64%) and three out of four articles (75%) showed losses.

Jersey Gilbert, financial editor for SmartMoney in New York, contends that one year is not enough time to decide a stock 's success. If an investor waits at least 5-years, "75 to 80%" of SmartMoney's stock picks will make money, he said.

Kiplinger's "preaches long-term investing" of at least three to five years, said Manny Schiffres, senior associate editor in Washington. Many stories from these magazines remind readers that their recommendations are for the long-term.

Publications' Staffs Short on Credentials

Just what are readers buying? Finance magazines offer readers stock recommendations of Wall Street pundits, star mutual fund managers, plus investment picks from the magazine's editors and reporters. Then there are company profiles and interviews with executives, among others.

Experts of Wall Street featured in these publications have to possess a stellar investment record before any national magazine gives them ink. But that's not the case with the magazines' own journalists, who often step into the role of investment guru.

Editors at Money, SmartMoney and Kiplinger's said they and their staff carry years of financial reporting experience that equip them to make good recommendations. (Worth did not comment.) For an expert opinion, they also might bounce ideas off proven fund managers.

But most don't have either a formal education in finance, such as an MBA or college business degree, or credentials such as a certified financial planner designation.

"It's hard to say what qualifies a person to analyze stocks," said Jersey Gilbert, financial editor for SmartMoney magazine in New York. He argues a business degree does not guarantee great stock picking. Instead, SmartMoney recruits reporters with analytical skills and trains them, he said.

Manny Schiffres, senior associate editor at Kiplinger's magazine in Washington, said he's been writing about personal finance since the mid-1980s and feels "very comfortable with my abilities in this area" especially "in a world filled with 28-year-old fund managers." He also consults with mutual fund managers he holds in high regard, those with proven track records.

In contrast, Consumer Reports financial editor Lou Richman has an MBA and so does three of his four financial writers. The magazine is more a consumer advocacy publication than a traditional business news publication.

Still, Richman says that while it helps to have an MBA, journalists don't have to possess a business degree to do their jobs well.

Indeed, there are personal finance journalists who have been covering the industry for so long that they've learned a lot, said Barbara Levin, executive director of Forum for Investor Advice, a nonprofit group in Bethesda, Md.

However, "there's no guarantee these people know what they're talking about. They don't have to have a history of success," said Barbara Roper, director of investor protection at the Consumer Federation of America in Washington.

Jane Bryant Quinn of Newsweek, one of the most famous personal finance columnists in America, frowns on journalists becoming stock pickers.

"Some reporters today are . . . turning themselves into financial advisers by picking, or promoting, mutual funds and stocks in print - trading on their credibility as a disinterested source," she wrote in the March/April 1993-2014 issue of the Columbia Journalism Review.

We justify it by saying, "Better us than a stock salesperson. Besides, look how our stocks or funds have soared," she wrote. "What kind of geniuses will we be when stocks go down?"

Buy and Hold? - Andy Abraham, CTA

We as good stock market investors have been promised Buy and Hold and you will have your retirement nest egg. Who will need Social Security? All we need to do is buy and hold?

The year is 1928 or 1972. That was then and this is now. It took approximately 25-years to bring your account back to par if you had invested in 1928 or 8-years in if you had invested in 1972. How about the Japanese buy and hold investors. We would still be waiting to get back to our original investment level.

I don't want to guess where the market can go to (15,000, 20,000 or 5,000). I don't know the future and I would be very wary of someone who says they do. OK, so what does one do to protect their nest egg, yet still have the advantages of upward movements in the stock market?

I'm a commodity broker with Angus Jackson and we trade mechanical systems for clients. Being a broker has given me the ability to see what has potential to work over time and what doesn't. Therefore, I developed a method of scaling in and out of the stock market using mechanical systems.

I use systems based on Price Momentum, Breadth [advancing issues, declining issues and new highs and lows], sentiment and interest rates. I use a synergy of systems because any one system can under perform or even stop working. I weight heavier on the Momentum and Breadth systems. The sentiment and interest rates can have somewhat of a lagging effect.

I want to participate if the market goes up but also scale out if the market gets choppy or directionless. I use a multitude of systems. My goal is to out perform the market and at the same time maintain a very risk adverse stance. Yes it can be done. In my model I use various systems and they allow me this luxury.

Some of the systems are my own and some are in the public domain presented by Ned Davis, Marty Zwieg, Gerald Appel and many others. The key to all this is besides having a system that you have thoroughly tested in all types of markets is the ability to pull the trigger. Pulling the trigger takes courage and the ability to the uncomfortable thing and is a contrarian. If in the beginning of October, someone would have told you to start buying the market you might think he was crazy. Or maybe now selling the market?

I scale in slowly in the market. If slightly more than half of my models are on a buy I will enter on a 5% exposure. As more systems start to flip to a buy, I increase my exposure. I increase to 25%- 35%, 55% and so forth, and if all systems are on a buy I will be more aggressive to maximize my gain. The most important attribute of the model is its defensive posture. If less than half my models are not on a buy I am safety-earning interest while sitting on cash. This year this has served me well. On July 31, my model had me in cash. I avoided this ugly drawdown but scaled in slightly in September with a 5% exposure damage was minimal and went to cash again. On October 12, we started in again. Recently the market seems to be possibly rolling over.

Breadth had deteriorated and massive divergence's existed. Our model had scaled us out from 90% to 65% exposure. Is this a correction or the start of something more vicious? I don't know nor do I try to predict tops and bottoms. At 1146, I will surely scale back to a much greater extent.

Only time will tell where the market will go. Maybe you are braver then me, but I have three children and a wife to care for. I don't want my nest egg to disappear. If you would like to see the hypothetical as well real-time results send me an e-mail at

Discipline Equals Success - Michael Calo

What does it take to be a successful futures trader? The answer, which would be the same regardless of the occupation you asked about, is - discipline. After years of trading and numerous discussions with both successful and unsuccessful traders, I have come to the conclusion discipline is the only requirement one needs to be truly successful in this business. Today, with the myriad of systems and newsletters inundating the market, a trader has a true variety of tactics available.

The problem is most of us are unsure of what type of trader we want to be. Daytrading, short-term, position trader, they all have their benefits and drawbacks. How many times have we, after careful thought and study, decided to enter a trade, convinced that buying and holding was the tactic. Once in loss, our resolve begins to fade, and we second guess our decision. Training to be a disciplined trader must begin with a decision. A decision to define your trading method and goals.

Whether you are a new investor with $5k or a seasoned trader with $500k, it is imperative to define a set of goals, and a strategy that fits your financial position as well as your personality. Let's take a close look at ourselves. How well do we really know our reactions. Once completing the process of paper trading and graduating to real thing, we may be surprised to find a new world of emotions. The calm and cool process used on paper fades quickly in the light of actual dollar gains and losses. If you ever day traded, in real-time, you can appreciate what I'm talking about. Before the market opens your analysis determined your direction and goals. Within 5-minutes of the open, the awful process of second guessing comes into play. The solution is simple and if you follow along with my thinking, I believe that by the end of this short article you can have a new outlook on trading.

For just a moment, forget everything you ever learned about trading. Clear your mind and consider the following statements as factual. Don't think about them, just accept what is said; 1. All markets are technically traded and fundamentally driven. 2. A majority of the thousands of trading systems, methodologies, and advisory services are profitable. 3. Successful trading is repetitive. 4. Wavering is caused by fear, indecision and undisciplined trading habits and result in Failure.

Accept these simple facts, and you're on your way to success. Find or develop a system or service you're comfortable with, one which fits your financial situation and personality. Then build a repetitively disciplined habit of trading that system.

Due to the large number of systems and programs, finding or even developing one can be time consuming and costly. Just as air is essential to life, so is your system essential to your trading life. Preparing your discipline requires you have faith in your trading system.

Just like breathing, we don't think about every breath we take, we simply breath because we are conditioned to live. Conditioning your mind to trade will require discipline, one which will eventually become second nature. This type of faith in a system can only be achieved by solid factual investigating of a track record, its drawdowns and profits. To be disciplined will require a thorough understanding of draw-down and cyclical phasing of your system. Sounds good, but all it means is that all systems will experience highs and lows. You only need to be aware of those times, and retain your overall focus and goals. Never alter your trading during good periods or bad. If you normally trade 1, 2 or 3 lots, then during a drawdown don't change. Consistency is the offspring of discipline and discipline results in success. Take a realistic look at the system of your choice. Are you prepared that this system may start into a drawdown phase when you begin trading? What if this system lost its first five trades, would you abandon it? How about the first 10 trades? What would you be thinking then? Before you trade dollar one, be convinced beyond any doubt that the system of trading you are using is going to make you money.

If you are not going to trade when your system tells you to, then you shouldn't be trading at all. Fear kills, don't fear loss. Accept it as part of being successful. It doesn't matter how long your system has been around or how well it has done in the past, it will have drawdowns. There are no perfect people, and therefore, there cannot be a perfect system.

Short of perfection then, we must accept a system based on its past performance. There are no crystal balls tuned to the futures markets.

By accepting these facts, you're ready for the next step; Setting goals. You must have both short and long-term goals. For example, I am a short-term trader, I look for momentum moves, intraday and interday. Before every trade, I have a loss limit and a profit goal. If the goal is not 2-3x the loss potential, I do not make the trade. A goal is essential to success. Some systems are goal oriented, and that eliminates your decision, but most are not.

Finally, to retain a positive attitude, look at the worst case scenario and be able to accept it. Look at loss potential and be sure you can live with it. Some experts believe that trading is like playing poker, you don't count your money. I believe that is a mistake a trader cannot afford to make.

Every tick is money either in or out of your pocket. Could you run a multimillion dollar corporation by not closely monitoring the profits and losses? I doubt it. You must have a keen awareness of profit and loss. Now, with a realistic understanding of potential loss, turn your focus back to the positive and remain steadfast in your decision as you begin to trade. Trading is not an art, or a science, or a religion. Trading is a discipline, a mind-set to do the same thing over and over, and over again. Day after day, week after week. Once you have a system, even if it is only 50% correct, if the system's gains are 2-3x the system losses, then you'll be profitable.

There is no magic to trading. It doesn't require a genius, or a mathematician. Just discipline. If you are the type of personality who needs to make it big, and make it quick, I recommend caution. However, an average trader can earn a high 5 or low 6 figure income with a reasonable time requirement. There is no other business in the world like trading. But if you're not successful it can be the most frustrating occupation on the planet. Futures trading statistics follow the real working world, only 4% of the population makes over $100,000 annually. Well, approximately 4% of all traders are successful. And the losses of the 96% make the profit potential substantial to the successful 4%. If you are tired of being one of the 96%, now is the time for change.

I believe that 1999 is the beginning of what may be the greatest opportunity for traders in the past 50-years. You don't want to be shooting from the hip, but following a methodical and disciplined plan that will bring you to success.

Black Box, Brown Box, Cash Box- Analysis of TradeAdvisor
by Stelar International - Rodney Marcantel

Software by design can analyze markets using proprietary algorithms or can allow the user to develop a trading system using existing technical indicators. In either case, these are black box type trading systems, where no intuitive thinking is required. Simply follow the signals and rules generated. A trader with a strong desire to succeed cannot rely on this type trading system to achieve long-term success in the futures markets.

There is nothing wrong with any of these trading programs. Each offers advantages for anyone looking for a trading system that provides a level of confidence when trading and works with their style of trading. But success with a trading program comes from employing something known as a brown box trading system. Money management techniques coupled with a brown box trading system can produce outstanding results and fill your "cash box."

Trading Systems - Black box trading systems are purely mechanical and require no intuitive thinking by the trader using them. Simply follow the system, its buy and sell recommendations, stop loss placements, target profit points, etc. and you have a system that requires very little thought and probably very little profits in the cash box. Trading systems like this needs help to perform adequately for the investor. That's where a Brown Box trading system comes into focus.

Brown box trading systems are not purely mechanical although they may appear to be so. A good example of one might include a black box trading program as described above and a plethora of intuitive filters derived from fundamental data sources, cycle theory, interrelated markets, and/or consensus figures. These are the filters that a black box trading system, whether derived from trading programs, technical indicators or a combination thereof, cannot make decisions by which buy/sell recommendations are derived.

Let's look at a brown box trading system that I have come to appreciate using a trading package that I have come to purchase solely on its black box record - Professional TradeAdvisor98.

Editor's Note: Rodney, please clarify what you mean when you say "it's a Brown Box System with a Black Box track record."

Addendum from Rodney: Regarding "Brown Box with a Black Box track record." In my opinion, a Brown box system is one which employs fundamentals and other non-programmable indicators. A black box trading system is one which follows strict guidelines, i.e., buy & sell recommendations, stops & objective points, etc.).

Is there such a software package that can by itself produce results that let profits run and cuts losses short with little drawdown per trade and plenty of upside potential? TradeAdvisor98 does this by itself as a black box system when markets trend but fails to perform adequately when markets consolidate or distribute. This is no different from many trend following systems and has been proven through many months of real-time paper trades taking into account some level of slippage on entry. By using a "black box system" like TradeAdvisor98 or any other technical trading package with intuitive filters, one can substantially improve upon winning trades and virtually eliminate many bad signals that result in many small losses.

Markets do trend over long periods and also at times consolidates to bring in new longs in downtrends or shorts in uptrends. This helps strengthen the next wave down or up (depending on the long-term trend). Sometimes this consolidation forms a sideways trading range and other times it's a corrective wave or bull/bear flag formation. Markets also have periods of distribution. It's these times that large specs work to dump their huge net short positions in downtrend markets before exploding higher thereby forming a new trend.

Being able to identify periods of non-trending action requires intuitive thinking. Fundamental bias may be shifting and/or a cycle low may be at hand. Understanding the overall market bias is crucial to success. And this understanding can be achieved many different ways like the ones just described. Another method might be to look at the weekly charts. But it is more difficult to catch the start of consolidation or distribution. However, it may help the cash box, once identified, in an effort to keep the trader out of some black box trades until the trend has resumed or turned.

Filters - Some filters I've come to appreciate include fundamental data, intermarket relationships, major market reports and cycles. Fundamental data might include a crop progress report or interest rate hike, certainly something difficult to program into a trading package. Intermarket relationships might include T-Bonds rising, by which causing equities to rise and certain commodity prices to fall or the relationship Live Cattle have with Corn prices. Cycles are also good predictors of market turns or distribution action. For instance, the CRB Index cycle low was due this past October 1993-2014, and since (as of this writing) has not been broken.

Whatever the method of filtering, one must develop a set of filters that turn a marginally profitable black box system into a highly profitable brown box system with less drawdown per trade. Sounds simple enough, but difficult when back testing with fundamental data or other intuitive filtering techniques.

Editor's Note: Rodney, you also refer to the use of "intuitive filters." What does this mean? Is intuitive based on hindsight or judgment, etc.?

Also, you apparently use your "Filter 1, Fundamental Basis." How is it possible to program Fundamentals into a system, black box or brown box? Also, after years of trading myself, I have learned frequently the commodity markets will go the opposite direction of the Fundamentals, so how can they be used.

This is especially true with a computer system which will only accept clear-cut yes and no conditions, with no room at all for ifs, buts, ands or maybes, and no allowance at all being possible for any judgment in the evaluation of the market and its fundamentals.

In addition, different people, including experts, will give different opinions on Fundamental News, so how can it be used with any Black or Brown Box System?

Addendum from Rodney regarding Filters: Intuitive filters are just that, intuitive. They are things you learn about certain markets like cocoa for instance which rarely trends or like knowing the seasonal tendencies in the grains and meats. I can elaborate further if you like. It's not possible to program fundamentals, therefore, fundamentals must be dealt with intuitively as one would use good judgment based on experience and awareness and not programmed.

What I've come to appreciate about TradeAdvisor98 are excellent back-testing features, which allows one to pick any period and scan for resulting Elliott Wave patterns and other technical indicators along with candlestick formations for sound technical black box results. Using Bollinger Bands, Andrews Pitchforks, Fibonacci Numbers Fan Lines, retracement levels and a host of technical indicators, TradeAdvisor98 has become an extremely useful, quick and easy trading companion.

The filters I've developed to complement "TradeAdvisor98" include:

1. Fundamental bias - Staying on the right side of fundamental news.
2. Weekly trend - Looking at weekly chart, did market break support or resistance of the previous weekly price bar?
3. Intermarket Relationship - Nikkei Index and Dow Jones Average, for instance
4. Consensus Figures - Too many buyers and not enough sellers (in an uptrend).
5. CRB Index Cycle - 7.5 year cycle low due this past October.
6. 50-Day Moving Average - Looking for three consecutive closes above or below average for possible reversal.

One approach to these filters might be to disqualify a TradeAdvisor98 signal with these and possibly more filters are applied to eliminate signals generated during periods when markets will consolidate or even turn. Drawdown with the black box system using stop system 2 has not exceeded $2,000 in any single market over the 12-month of real-time paper trades.

Editor's Note: Rodney, you say by using a "fundamental bias" drawdown has not exceeded $2,000 in six months. This sound too good to be true! Most all systems will have a "small" $1,500 drawdown in a matter of hours, certainly not much more than several days, let alone 6-months!

How is this possible? Does the "Brown Box" come into play? Is it possible you designed this (alleged) amazingly low drawdown system using any hindsight or optimization, like what you would expect in a "gray box" system, for example? Was a stop-loss method used involving the $2,000 drawdown system? If so, how did it work so well? How many trades and how many markets were traded? Was a target level used?

Addendum from Rodney regarding "drawdown" definition error: "Drawdown not exceeding $2,000." I guess the word "drawdown" was not the right word to use. What I meant to say was that no single trade exceeded $1,500 in losses. In actuality, drawdown at any given time did not exceed about $11,000 which interpreted means margin on all open positions.

The use of some good fundamental information and cycle theory helped keep me out of trades that would have otherwise been additional losses. This proves my theory and probably many others that it is extremely difficult to trade a simple black box system profitably over long periods without some level of human bias like fundamentals or Cycles or other indicator.

The largest losses being from trading cotton into a report, highly volatile natural gas, and Japanese yen, a market filled with overnight trading can easily create large gaps, highly risky markets.

Money Management - Two of the hardest things to learn in trading are discipline and money management. And to each it brings varying degrees of successes and failures.

The disciplined trader has mastered the ability to accept and minimize losses while sticking with winning trades. The undisciplined trader relies on emotion and fear resulting in cutting winning trades short and holding on to losing positions. Great deals of books referring to money management, though, only refer to the use of protective stops.

Money management is difficult for a new trader to understand. I've traded some 3-years now and only now begin to see its importance. Preservation of capital is rule number one. How one goes about achieving this goal and still profiting long-term requires a plan that can answer the following questions on each trade.

How many contracts do I trade? How long do I stay with a trade that initially moves against me? How do I add to winning trades? How do I go about removal of positions? Difficult to understand by so many, but even more difficult to execute properly and with optimal results.

If we were to look at those TradeAdvisor98 trade results using the stop system 2 that Stelar International developed, the proper use of money management would have yielded 4.5 times the same black box results on the first $40,000 profits.

Editor's Note: to Rodney, about your Stop-Loss System-1 and you saying "with proper use of Money Management" profits would have yielded anywhere from 4½ to 9-times "the original black box results." Does this also mean the Black Box system did not use any Money Management or Stops at all? If not, how was the drawdown so low for 6-months! It seems impossible without superb money management in the first place.

Is the proper use of Money Management built-into TradeAdvisor and fully mechanical or is it something which is optimized or is it something the user (Rodney in this case) figures out and applies himself? How critical is this to the results?

The next $40,000 profits would have produced nearly 9-times the original black box results and the next $40,000 would have been off the scale. Purely hypothetical, but worth time and energy to evaluate.

Addendum from Rodney regarding: "Brown Box with a Black Box track record." In my opinion, a Brown box system employs fundamentals and other non-programmable indicators. A black box trading system is one which follows strict guidelines (i.e., buy/sell recommendations, stop points, objective points, etc.).

Addendum from Rodney regarding money management: Stop system 1 was used which uses a very close stop loss. This is not the part of money management I was referring to. What I was referring to was money management as applied to number of contracts to be taken or added at some point versus just one contract every time.

So how does one achieve these levels of profit with a brown box trading system and applied money management techniques? The addition and removal of winning positions at key turning points in a market may hold the key along with the removal of trades which initially move against your position. Candlesticks can warn of such impending change along with other technical indicators. But it also takes a clear understanding of market behavior and cycle theory.

Knowing that your trade is proving to be successful as the markets begin to move is great and gives a feeling of success. But when to add to that success can bring about stress. What may be appropriate might involve the initial trade itself. If, for instance, the brown box trading system produces a signal to place a limit order in a given market, how many contracts might be appropriate to start with. Certainly no more than your risk capital will allow, whether 10%, 5% or 2% of the trader's account balance per trade. That's rule #1 - preservation of capital. So the minimum would be 1-contract. As your account balance grows with each winning trade, additional contracts could be added as preservation of capital is maintained.

Position Removal - Removal of positions may involve warning signs from your black box system. Technical indicators such as MACD divergence, overbought/oversold, harami candlestick formation are good warning signs that a trade should either be completely exited or partially removed. TradeAdvisor98 uses these indicators very well to provide warning signs.

Editor's Note to Rodney, about technical indicators like MACD (moving average convergence and divergence), candlesticks, Fibonacci, Andrew's pitchforks, etc. Personally, after many years of full time hard research, I found out most all (probably all) technical analysis indicators, including I believe those you refer to, are really lagging indicators, not leading indicators. How did you get them to work better for you as leading indicators?

These warning signs are excellent tools to aid a trader in money management. However, in my experience the breaking of support or resistance levels (on a close) still prove to be the best gauge of a market turnaround. I like to think that the use of the tools just described is best used for exiting a trade and not entering.

Other indicators for the removal of profitable positions would be projection levels reached. A trader should never enter a trade without knowing the target profit objective. TradeAdvisor98 uses Fibonacci Ratios to project levels of the next impulse wave. Whatever method used to obtain a target profit level, a trader should either exit parts of his position or remove them all together. If only trading a single contract, then one might protect the position at that level to lock in profits rather than removing it. As the next profit level is reached, additional positions should be removed or protection should be placed to once again protect the profits. Preservation of cash will certainly go a long way towards long-term success.

How would one go about protecting profits as projection levels are reached? The use of options may provide the necessary answers. In the case of being long the market, once a profit target is reached, you can protect those profits by purchasing an at-the-money put option. The intrinsic value of the option will decrease as the market moves higher, but will prevent being stopped out early if the market is trading near your profit target. Conversely, as the market moves lower, the put option would gain intrinsic value at nearly the same pace as the futures contract would be losing. Once again, preservation of profits.

Discipline - As my analysis continues, Stelar "TradeAdvisor 98" is proving to be a very good tool to my trading plan. Using that tool or any trading package will only be as good as the discipline and money management applied. So many traders give up on trading packages because they lack the discipline it takes to trade every signal and follow the rules of the system.

I have not traded TradeAdvisor98 with real money yet only because I feel it is very important to develop my trade plan and test TradeAdvisor98 fully under many market conditions. Most traders lack the discipline to do just that. Having to worry about your account because you're under capitalized is just one of many things that break down the discipline and brings doubt in every signal generated by your trading plan.

The updated article uses stop system 2 and not 1. I have since found stop system 2 is better.

PS: I''m working on another article a bit more generic in nature which deals with trading plans, based on my experience. It takes what I've learned to the next step, the refinement of the plan to "preserve capital."

Also, just because I haven't traded with TradeAdvisor98 with real money, does not mean the results are invalid. They are very valid when you factor in the slippage you are used to getting with your broker (i.e., 10%, 20%, etc.). Even with this amount of slippage, the results are still pretty impressive. In any event, many people will discount the results for two main reasons, lack of adequate funds and lack of discipline. It's sad but true. I know, I'm still wrestling with those.

The Lonely Life of a Futures Trader - Ted Nash

The bunch at the club over a round of good cheer were comparing investments they've been in this year. They have CD's and munis and variable annuities, small caps and large caps and conservative utilities.

When they casually ask, "which way do you go?" I proudly announce, "I trader futures, you know." "My God, what you're saying - it can't be true - a nice level headed guy like you?"

"You'll never beat'em no matter how hard you try." "They'll hang you out and leave you to dry." "Your losses will quickly multiply." "Your supply will fly without a goodbye."

Now realizing that futures have a maligned reputation, I listen to all this wild exhortation - not letting their remarks faze me at all, for what matters most - I'm having a ball.

Alignment of Stars - Analysis of a Trading Day
Ed Downs - Nirvana Systems

To quickly recap today's action (Friday, December 18) we were expecting a close just under 8900, and ended up very near that level. I've been bullish recently and clearly, the case for The 2nd New Bull Market is holding and still pretty good. (We had 1st New Bull in October). See Weekly Chart #2. (All charts referred in this article in print copy only).

But now, we have something very interesting happening. Look at the 60-minute Chart #3. Do you see that we are just under the 62% Retracement point? Now, as it happens, we are also at the 38% Retracement on the Daily Chart #1. Talk about Jupiter aligning with Mars! Whenever you have two key retracements in two time-frames, watch out! That's powerful stuff. So, I have to report that I'm expecting a downside bounce Monday of probably a hundred points or so (to 8800).

Anyway, if this analysis is right, we will see an explosive downside move at the Open, which could be good for 100 points or so. Shorts could be played for quick gains in this kind of scenario. But, I still believe we are going up in general, and would expect to see a reversal for the next rally after the initial decline completes (in 8750 to 8800 range).

This new round of volatility is creating a trader's market. We are going to see many opportunities on both long and short, that are profitable. I love markets like this because it's so much easier to hedge risk by being long and short at the same time in different issues. By doing this, you greatly reduce your risk should the market suddenly move a lot in one direction or the other.

Your Support Can Make a Real Difference
Institute for Justice

Vera Coking will celebrate the holidays in her home because we had the resources to stand toe-to-toe with the Atlantic City government and Donald Trump. Thousands of Milwaukee school children will now have access to good education and school choice has unprecedented momentum because we had the resources to sustain eight years of litigation defending Milwaukee's voucher program. And in cities across America, hardworking men and women are getting their first shot at starting their own businesses because we had what it took to fight the bureaucratic tyrants and powerful interest groups that want to keep markets closed.

The resources available to our opponents always dwarf our $3 million budget. But the fact that we can consistently achieve such success against well-heeled adversaries demonstrates just how effective we are in our unique approach to public interest law.

And it demonstrates how vital it is for us to have the necessary resources from you and people like you who share the principles we fight for. We have no endowment. We accept no government funds. No single contributor provides even 10% of our budget. Every contribution is important to us. That is why I am asking you to please join the dedicated individuals across the country who believe in our message of individual rights and limited government and support the IJ.

We would be very grateful if you would make a tax-deductible contribution of $100, but after you consider what's at stake, we hope you'll appreciate what a tremendous difference your support of $250 or even $500 will make for our clients.

What lies ahead are some of the most important cases we've ever taken on, at a time when our momentum is creating an irrepressible force for freedom.

For instance, our campaign to secure constitutional protection for economic liberty is now truly nationwide. In New York we are engaged in what The Wall Street Journal describes as an "an epic battle underway between inner-city entrepreneurs and the public transit monopoly."

In Nevada, the Institute for Justice is suing petty regulators who, according to the Las Vegas Review-Journal, tell our aspiring clients, "If you want to compete with existing limo companies, get lost." The Review-Journal's editors hit the nail on the head when they went on to say "The current regulatory system amounts to nothing more than a protectionist racket designed to protect existing limousine companies by limiting competition. That should not be government's role."

And Forbes captured the heart of our economic liberty work in a feature on our hairbraiding lawsuits in San Diego and Ohio noting that these cases are about "how stupid laws, and bureaucrats with nothing useful to do, stifle the entrepreneurial aspirations of a few thousand poor Americans."

Since our big win for Vera in Atlantic City, we have been inundated with requests for help from besieged property owners. We will be at the forefront of this issue working to establish a rule of law that secures property rights for all individuals. We have again teamed up with renowned scholar Richard Epstein on a U.S. Supreme Court amicus brief in a case that could finally set limits on land use planners' ability to abuse property rights through endless regulatory process. Zoning, asset forfeiture, and rent control are also in our sights for the coming year.

From Milwaukee all the way to the U.S. Supreme Court, we and our allies battled the teachers' unions, the ACLU, and the NAACP; and as The Wall Street Journal said, we "beat one of the most potent collections of special-interest groups ever assembled in a courtroom. These anti-choice groups have just lost a big one in a court of law." But we shall have to take them on again to get the constitutional cloud over school choice completely removed by the Court. Our other school choice cases (Arizona, Ohio, Maine, and Vermont) all become possible vehicles to accomplish this goal. In addition, we will be there to defend any and all choice programs as they are enacted, protecting the chance for every youngster to opt out of the failing public school monopoly.

And, the Constitution is clear about the protection afforded to free speech, but that doesn't prevent Leviathan from running roughshod over the First Amendment in its effort to regulate the free flow of information. We represent North Dakota farmer Roy Neset against the FCC and its army of lawyers seeking to shut down Roy's tiny radio broadcast tower. Roy woke the sleeping regulatory giant by rebroadcasting a talk radio show from his rural farmhouse out to his tractor while he worked his fields. The FCC claims he is broadcasting without a license, despite the fact that the FCC will not issue any licenses to "microbroadcasters" like him. Even though his signal doesn't interfere with any other station, the FCC secured an injunction to silence Roy and his radio. This case strikes at the heart of FCC authority to regulate based on the archaic and flawed concept of airwaves scarcity. We sued to protect Roy's rights and advance the notion that in the face of ever-improving technology, "ownership" of the airwaves lies with the marketplace and not with the government.

In our challenge to the Commodity Futures Trading Commission, you'll recall that we represent small commodity newsletter publishers and software developers who publish "speech" for a living. The CFTC says that they cannot "speak" about the markets under its jurisdiction without having a license to trade commodities, in spite of the fact that our clients neither trade commodities nor offer specific investment advice. This clear power grab by a government agency tramples the First Amendment's protection of the content of an individual's speech and must be vigorously opposed to protect our nation's proud tradition of open inquiry and informed public debate. We won the first round and we're in the process of filing our motion for summary judgment.

These cases are just a few on the Institute for Justice's very busy litigation docket across the country. Our courtroom work will be complemented by our unparalleled work in the court of public opinion, which, as you have seen, brings the vital issues at stake in each of these cases into the living rooms of America. It's our goal to focus public attention on the erosion of fundamental rights and liberties in this country, and make the government accountable to the people.

In addition to helping make all this possible, your investment also makes the Institute for Justice Clinic on Entrepreneurship at the University of Chicago Law School a nationwide showcase on the power of entrepreneurship and free-enterprise in revitalizing the inner city. In the short time since we opened its doors, the IJ Clinic and its law students have been pounding the pavement of South Chicago, helping aspiring inner-city entrepreneurs open a day care center, an educational software company, and an animal health care company, as well as set up street vendors, cosmetologists, independent construction contractors, and a copy business. It's so successful at offering an alternative to the pathologies of the welfare state that already we receive inquiries from other law schools wanting to open their own clinics based on this model.

As you can see, this will be a very exciting year. Our track record demonstrates our ability to accomplish what we set out to do. Such success comes not only from diligently pursuing our long-term mission, but also from maximizing unanticipated opportunities that are consistent with our mission. You can be sure that the courts and the national media will continue to recognize the vital role that we play in extending the benefits of freedom to those whose full enjoyment of liberty is denied by government.

Please help us keep this up by making a $100, $250 or $500 tax-deductible contribution to the Institute for Justice, 1717 Pennsylvania Ave., NW, Suite 200, Washington, DC 20006 - e-mail: - Thank you so very much.

Take In a Larger View - Rick Ratchord

There is an old saying about not being able to see the trees from the forest. When it comes to getting a fix on medium term direction of a particular market you wish to trade, this actually can be a good thing. At the level where the trees are, the daily price chart for example, you witness the market trending in one direction or the other, or going sideways, and must determine which way you wish to go with it.

At times you may notice that a market on the daily level is moving up. So you jump in long and just then you get hammered. Why? Usually this is because the medium term direction is down and you are trying to swim up a creek. Before you decide on a direction to trade, consider looking at the larger aspect, the 'forest from the trees'. It is relatively simple to ascertain predominant daily action by noting weekly trends.

Take out your weekly charts and note whether the bars are going up or down in a trending fashion. If up, you'll want to then look for longs only when position trading on daily price charts, entering on retracement bottoms. If going downwards, you'll be looking for shorting opportunities only, selling on rally tops. If sideways, find another market to trade unless you like to trade channel swings (hopefully you are aware of channel breakouts - be prepared).

Whenever I plan a trade, I look at the larger picture. I want to get a good idea which way the market wants to go. Obviously, this puts the odds of a successful trade moving into my corner, but there are other considerations to work out. So far I've given you a more simplistic approach to a somewhat complicated technique.

Be aware that even weekly trends can change at anytime. Yes, you can go to the next level up, monthly charts, and note which way it is moving to get an idea of likely, weekly direction. But be careful not to lose your perspective.

I have found that for those who may not have a good grasp of cycles, using the law of probability is the next best thing. What do I mean by "the law of probability?" Basically, when looking at weekly charts, the odds of a weekly trend change are low at the start of a new trend direction than one that has been underway for some weeks. In other words, if you notice the weekly bars making lower lows each week, then suddenly you get a weekly bar that makes a higher low and high than the previous week, the law of probability states that you are likely to continue making weekly bars with higher lows, thus now moving upwards or sideways, and less likely to continue on its previous course. Again, this is just the probability, since it can continue if it wants to and does at times.

While this new move is just forming, the probability of it continuing its original downward course is low. But, as each bar is formed going forward in time week by week, the odds become greater that another weekly turn will occur soon. Using this law of probability, once a bar veers off course, anticipate the new direction by trading in that direction. Use your daily charts and wait for retracements to enter in this new direction. Using stops on a daily level, you can minimize any adverse moves against you in the case the weekly trend hasn't indeed changed.

Considering the material just covered, it should become quite evident that if a weekly move has been a long time running in one direction and your just looking to enter the market, that maybe, it would be prudent to look elsewhere to trade until a weekly trend change is evident. The law of probability again states that the longer a move has been progressing in one direction, the higher the probability it will reverse soon, and you don't want to enter right when that happens, do you?

If you really would like to increase your ability to anticipate weekly trend changes, it would be to your benefit to study cycles. Be advised that the study of cycles is a very difficult subject for most, especially if you are not mathematically inclined such as in Algebra, Physics and Geometry. Yet, there are simple ways to get approximations, so don't despair. Some even have found aligning to planets, such as the moon, to be somewhat useful timing weekly cycles.

In any event, make sure to consider the larger view prior to putting on a position based on daily data. You'll want to make sure that you have at least found the right "forest" before you go stumping among its "trees."

Rebuttal to William Green's Article in Last Issue of CTCN
Neil Costa

William Green, in his front-page article "There's One Born Every Minute" (CTCN, Sept/Oct 98), pulled no punches in his discussion of Name Withheld track record, claiming "Name Withheld has a lousy record trading futures - but has made plenty trading on investor gullibility." I am not in a position to comment on any of Mr. Green's allegations, and will not attempt to do so.

I will, however, suggest that many traders across the globe owe Jake an enormous debt of gratitude for writing The Investor's Quotient. I'm an Australian trader who knows of no better book on the psychology of trading. It is written by someone who clearly "walks his talk," it is comprehensive and it is a most enjoyable book to read. I do not hesitate to recommend it to other traders who need to gain a better understanding of their behavior in an emotionally charged environment.

I have completed many psychology courses, including several at Masters degree level, and found The Investor's Quotient to be of far more use to me than all of the others put together. Frankly, I do not care if Jake completed his Master's degree studies in psychology or not - I judge his book on its merits, not on his qualifications. Should I ever have the privilege of meeting Name Withheld, I will not hesitate to shake him by the hand, and if he will accept it, buy him a well-deserved cold Australian beer. The Investor's Quotient has certainly earned him the respect of many traders in this country, I included, notwithstanding any alleged sins.

Editor's Note: Several members have asked if the William Green who wrote the article's critical of Name Withheld and Ken Roberts was related to me. The answer is no. Mr. Green is on the Forbes Magazine staff and not connected with myself or CTCN in any way.

I have only spoken with him once when he called me prior to the two articles, unsolicited, to ask for any input or information CTCN may have on Jake and Ken Roberts. I did have considerable comments to make but he chose not to publish them in Forbes Magazine.

There are Cycles, and there are . . . Rick Ratchford

Cycles - The two are not the same in trading. What? You might ask, is the difference?

Much of the talk about cycles here has recently dealt with HOGS. And what a great market to explain this kind of cycle research. Hogs have been pretty good in both types of cycle analysis.

Rick, what two types of cycle analysis? Okay, fixed cycles and dynamic cycles.

Fixed Cycles: Some markets, at least for a period, will follow a fixed cycle. Every x-number of days you are to expect a cycle turn in trend. Whether it is every 28-or12 days, whatever. Once you discover the cycle interval, you then count from one major top or bottom that number of days to see if another top or bottom forms.

The problem with fixed cycles however is twofold.

1. They tend to disappear all of a sudden without any warning, only to reappear at some unknown date in the future. Could be months or years?

2. Markets are not static, but rather they are dynamic. Ebb and flow, expanding and contracting. If they were fixed, we'd all have a nice map of when to expect turns, and there would soon be no market. Must change to keep you guessing?

Dynamic Cycles: Dynamic cycles are much more difficult to unveil, but well worth it. Since markets are dynamic, you will end with a top or bottom occurring at different time distances, rather than every x-number of days. It is easy for those familiar with radio waves to grasp this, but I will try to explain its development.

Consider for example the effect the moon has on ocean tides. It does not move up and down at equally spaced intervals, but rather they occur at different spacing. Thus, a mathematical model had to be developed based on where the moon and sun is at anytime to determine tides. Do a search on Tides in Alta Vista search. There is a website that will provide you the tide times for different bodies of water in the US. You should immediately note the differences of time and amplitude of each of these tide charts.

The influence of the moon depends on its location relative to any given longitude/latitude on a map. That is why at the same time each day, each place has a different cycle pattern. The markets move like these cycle patterns. They are not fixed, but dynamic. Those patterns are not the result of one thing . . . i.e., the moon. They are the result of the moon, sun, and other parameters. That is why it is not fixed. The influence of different Signals, if I may use that phase, distorts a purely fixed cycle, like a sinwave for example. This distortion is what you see in the markets.

If you take the cycle pattern for a given time, for a given market (see how complicated it gets?), and were to detrend or extract the individual cycles from the complete pattern, you'll see each component is a Fixed cycle. It's the blending of all these fixed cycles that distort into one that is dynamic.

One other thing. The stronger fixed cycle component in a dynamic cycle has its way. If one strong fixed cycle has to go against several weaker fixed cycle components going the other way, the combination (simple addition/ subtraction) will provide a wave that is the result of the difference.

For example: Let's assume that a particular market is influenced by certain external forces. Say there are four external pulls on the market (in reality, it is more a pull on the traders themselves, a whole other lesson). Say you have:

1. A (amplitude of 10) 28-day fixed cycle.
2. A (amplitude of 3) 12-day fixed cycle.
3. A (amplitude of 5) 5-day fixed cycle.
4. A (amplitude of 2) 14-day fixed cycle.

Now, if you have 4 fixed cycles like the one above, they obviously will be going the same direction sometimes, going in opposite directions at other times, and a portion thereof at other times still. Take a piece of paper such as a graph paper, and have all 4 start on the same vertical line. Using the amplitude values provided (start from the center line to have room upside and upside down), draw each as a nice even sinwave (looks like smooth camel mounds, upside and upside down).

If you take the power of each one (amplitude), and add them all up, you get the resulting wave for that time frame. The starting location is called level 0, so when it goes above it is positive amplitude, and when it goes lower it is negative amplitude.

So, starting from the center of the page, draw the first sinwave cycle with the amplitude of 10. That means 10 horizontal lines up from 0. Draw a smooth camel hump that will top 7 vertical lines from where you started, and drop back to 0 7 bars after that. Now draw it another 7 lines forward, this time below the 0 line making an upside down camel hump (or bowl) and then back up to 0 again. This also should be 10 horizontal lines down. This is one complete 28 fixed line cycle with an amplitude of 10. You should note that if you were to connect the open end that began this cycle, to the final open end, you would have a complete circle, or a 360 degrees. A end returning to the beginning to once again start over.

From the same starting point, do this with the other 3 fixed cycles above, but note each individual amplitude (horizontal above and below the 0 line) and the vertical forward lines (from 0 to top to 0 to bottom to 0). You simply take the cycle duration and divide by 4 to get the vertical moves. 28 cycle was 7 up, 7 to 0, 7 down, 7 to 0. Once complete cycle is 28. This is a true cycle. When a trader is referring to a 28-day cycle, he is usually going from bottom to bottom or top to top. That is half a cycle, but this is getting deep.

If you plotted your cycles smoothly and evenly, you will be able to do the next task. Take another graph sheet of paper. Staring at 0, you will start to draw the results of combining all these 4 fixed cycles together. Each line above zero is 1 amplitude value. Each line below is -1 amplitude value.

Now, vertical line to vertical line on the original paper is to align with your new sheet in terms of time. First vertical line, note the amplitude of each of the 4 cycles. If you started each one going up, they will all add to each other to end with a positive number. If they all were drawn starting downwards, they would all add up to be a negative number. If some went up and some down, they all add up, thus the result will be the difference between the up and down waves.

Let's assume you went up on all of them. Add up the total and plot it on your new sheet. From zero, move right one line and up one line to the proper amplitude. Do this for each line up and to the right if the number is positive, and line down and to the right if the number is negative. Each line to the right deals with Time, and the horizontal lines deal with amplitude. 0 to 10 up, 0 to 10 down. That is because our biggest wave is an amplitude of 10.

So, if 4 lines to the right we are sitting on an amplitude of say 6, and we note that on line 5 to the right of the original chart we have (+6, +2, -1, -3) for example, the result would be to move our line down to amplitude 4, as this is the result of adding the 4 amplitude values. So you would draw your line from 6 to 4 when going from vertical line 4 to 5. This was just an example. Once you are done from left to right, you now have a dynamic cycle which is the result of combining 4 fixed cycles. Those knowledgeable of radio waves or dynamic cycles are aware of this.

Well, this post is long, I apologize. Trying to squeeze years of experience in one post. If anything, I hope this enlightens you to the differences of fixed and dynamic cycles. The type of cycles I deal with is dynamic.

Commission Advisory - Consumer Warning -Beware of Promises of Easy Profits from Commodities Trading Based on Seasonal Demand & Other Public Info

Consumers need to be alert to efforts to sell commodity futures or options to them based upon a sales pitch that you can make a lot of money with little risk by rushing into the commodities markets in advance of seasonal changes or in response to publicly-issued reports or well-known current events.

The United States Commodity Futures Trading Commission (CFTC) is the federal agency that regulates the trading of commodity futures and options contracts in the United States and brings actions against firms suspected of illegally or fraudulently selling commodity futures and options. Over the past several years, the CFTC has brought actions against wrongdoers who lured customers by claims that one could earn large profits with little risk based on predictable seasonal demands, published reports, or well-known current events.

The Pitch - Companies often use advertisements on radio and television, as well as infomercials - program-length television commercials - to promote commodity futures and options. These advertisements may claim that seasonal trends in the demand for certain commodities or well-known current events create an opportunity to make big money by trading in commodity futures and options. The advertisements and infomercials promise quick riches - such as turning $5,000 into $20,000 in just a few months - with predetermined risk. A toll-free number will be announced or appear on the television screen inviting you to call if you want more information.

For example, advertisements on radio or television may urge you to purchase commodity options in heating oil because increased demand for heating oil in the winter is likely to push up heating oil prices. The pitch might go something like this:

It won't be long before cold weather is here. Heating oil inventories are down and demand is going up. There are warnings about shortages already. Get the facts on how $5,000 properly positioned can return $20,000 or more with just a ten-cent move in heating oil prices. Past performance is not indicative of future results and people can lose money. Low supplies and high demand equals higher prices. Get the strategies now by calling 1-800-XXX-XXXX. $5,000 can return $20,000 or more but timing and strategy is the key.

Similarly, in the spring, advertisements may tout commodity options in unleaded gasoline because increased consumption of gasoline in the summer is likely to boost gasoline prices. Or you may receive a phone call from a salesperson urging you to invest quickly in futures for certain agricultural commodities because El Nino has driven up prices on those commodities or a recently-issued government report has described shortages of that commodity.

What's Wrong With The Pitch? - These sales pitches are false. Seasonal increases in the demand for commodities do not necessarily result in the increased value of an option or futures contract on those commodities because the market has already factored seasonal demand into the price of futures and options. The same is true of well-known information like El Nino or government reports.

The markets respond immediately - within a few hours, often a few minutes - to new information. In other words, the prices of commodity options and futures contracts already take into account all known or predictable market conditions, such as seasonal changes in demand for a commodity or known shortages of a commodity. The advent of the summer and winter seasons, or the latest United States Department of Agriculture report on crop size, is not news that is known to only a few.

Moreover, claims that the risk of purchasing commodity futures and options can be predetermined or fixed are misleading. Purchasers of commodity option contracts can lose every penny of their investments and because futures contracts are "leveraged" or "margined," futures investors can lose more than their investments.

You May Be Pitched Via Radio, Television, The Telephone, Or The Internet - Aside from television and radio advertisements, you may hear these sales pitches in telephone call solicitations, e-mail messages, Internet advertisements or web-sites, or during discussions on Internet chat rooms. In recent months, concerned consumers have forwarded to the CFTC's Division of Enforcement a number of unsolicited e-mail messages transmitted over the Internet. These "spam," or mass-mailed, e-mails tout investment opportunities in a variety of commodities, typically predicting high returns based on seasonal price trends in a particular commodity or on weather-related news developments such as El Nino. Also, in some instances, the company that has produced and arranged for a television or radio advertisement is not registered to offer or sell commodity futures or options, but instead will sell your name to brokers who will then make similar claims in a telephone sales pitch. In a subsequent, high-pressure call, a salesperson may repeat the seasonal come-on, or a similar claim, and urge you to act quickly to seize this "can't miss" opportunity.

Warning Signs Of Commodity Futures Or Options Come-Ons - If you are solicited by a company that claims to trade commodities and asks you to commit funds for those purposes, you should be very careful. Watch for the warning signs listed below, and take the following precautions before placing your funds with any commodity trading company that offers leveraged or financed commodity transactions:

ü Avoid Any Company That Predicts or Guarantees Large Profits Because of Predictable, Seasonal Changes in Demand, Published Reports, or Well-Known Current Events

ü Stay Away from Companies That Promise Little or No Financial Risk

ü Be Wary of High-Pressure Efforts to Convince You to Send or Transfer Cash Immediately to the Firm, via Overnight Shipping Companies, the Internet, by Mail, or Otherwise

ü Be Skeptical about Unsolicited Phone Calls about Investments, Especially Those from Out-of-State Salespersons or Companies with Which You Are Unfamiliar

ü Prior to Trading, Contact the CFTC or Other Authorities, Including Your State's Attorney Generals Office Consumer Protection Bureau, and the Better Business Bureaus and the National Futures Association

ü Be Sure You Get All the Information about the Company and Its Track Record and Verify the Data. If You Can, Before You Invest with Any Company, Check the Company's Materials with Someone Whose Financial Advice You Trust

ü Don't Deal With Individuals Who Won't Give You Their Background

ü If in Doubt, Don't Invest. If You Can't Get Solid Information about the Company and the Investment, You May Not Want to Risk Your Money

For More Information and Contacts - General information on the commodity futures markets and the CFTC is available through the World Wide Web. Members of the public may report suspected wrongdoing to the CFTC's Website at You also can communicate directly with the CFTC's Division of Enforcement via e-mail at You may also write or call the U.S. Commodity Futures Trading Commission, Division of Enforcement, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581, 202-418-5320.

"Is Trading Simple?" - H. F.

As a former therapist and now full-time trader for the last 12-years, I find it disturbing to see that trading is being described as simple but not easy. While it is important to not put things into a category that describes something as difficult and therefore in turn set up unnecessary barriers in a person's mind, it is vitally important to a person's self-esteem to not encounter failure after failure after failure with something that is supposed to be simple.

If we encounter a failure with something that is difficult it is much easier to handle emotionally than if we fail at something which is simple. Failing in something which is simple causes people's confidence to disappear and that is the worst thing to have as a trader. Failing at something which is simple has many people questioning what is wrong with them. Why can't I do this simple task. If it's simple then everyone else must be able to do this. So why can't I? How come I'm so stupid, if trading is simple, because all I have is mostly losses or only a small improvement in my bank account and in most cases not nearly enough to live on?

Part of the "trading is simple but not easy" slogan has come from people who have something to sell, either seminars, books or videotapes. It's understandable that no one is going to sell a seminar that will be very popular if it's titled "learn how difficult trading really is," or "come and find out all the difficulties you have with trading."

In my opinion, trading takes time and is neither simple nor easy in the way that is commonly understood for the words simple and easy. It is certainly simple and easy in a Zen context where we allow ourselves to move outside certain rational understandings, but this is not the time to go into that area.

For something to be simple, anyone should be able to do it and do it with a high rate of success. If we look at the August edition of Futures magazine on pages 78 and 79 we find a review of the performance of public Futures funds for the six months to the end of June. So if trading is so simple, we would expect to find, particularly with professional fund managers, whom one would expect to be experienced, skilled and having access to and using top performing systems, that their performance would be outstanding and reflect how "simple" it is to make big returns consistently. Well, I don't call it outstanding when more than 50 percent of these professionals have a minus return for the six-month period. Of 189 fund managers, 101 lost money and the balance averaged very meager returns.

It's Nice to see Some Advisors & CTCN Writers Admit to Losses and
Do Not Put Me to Sleep - Patricia Morgan

I saw a copy of your latest issue in my broker's ring binder. You asked for feedback on Greg Donio. Well, his article in that very issue almost knocked me off my chair. He actually admitted that he had a losing investment. I thought financial advisors reported their gains but never their losses. Perhaps I was wrong to generalize.

I respect Mr. Donio's good intentions as much as I respect anybody's good intentions, but it can't make much difference in a field of nonsense like commodities and options. Every so often somebody tries to make astrology more "scientific" or gypsy fortunetelling more "ethical" but it cannot help amid such nonsense. Nor will it help in your street-peddling branch of finance.

Speaking as an investor in blue chip stocks and bonds, commodities and options are charlatanism. Frauds do the selling and self-deluded people do the buying. The first chapter contains scads of would-be millionaires and the last chapter contains scads of sad, sad stories. You might as well just form a seance group and forget trying to be "scientific."

Judging from just one issue, Rick Ratchford, Greg Donio and "J.L. from Wimauma" are among the few financial writers who do not put me to sleep. Sorry to say, however, essentially they are interesting horse parlor conversants before everybody goes home with empty wallets. Your publication gets high marks for frankness, I grant you that. After those Name Withheld and Ken Roberts exposes, if you were any franker you would be a reporter covering night court.

Well, Greg Donio, you Certainly Have some Flowery Ways
J.L. from Wimauma

Ya got me. But I never said that making some "quick" money wasn't one of the sweetest "Accomplishments" going. I just said that, for me at least, the greater accomplishment is to understand how I did it! It's so nice I'd like to do it again! You know, "Teach a man to fish . . . "

You certainly have some flowery ways to give great advice. Try "Protect your backside or you won't be trading for long." I think that you voice many traders' conscious attitudes very well. My "It ain't the money" emanates from the subconscious and mine seems mainly concerned with simply "feeling good." That's the mind that made me for years, stupidly lose every time I got over $40 grand and brilliantly make money each time I got under that figure. Call it my "comfort zone," it was like the bloomin' Berlin wall. (Now my "wall" is at $60G - that's progress.)

Another way of saying all this is that I'm in the enviable (or unenviable) position of knowing if I hit the million $ lottery tomorrow, I wouldn't change my truck, my home or my woman. I'd probably just buy a couple more trading books and trade a "few" more contracts. It's called contentment. My being "poor" all my life sure comes in handy now.

For Pete's sake, just a $100 per trading day is almost twice my income in many years! Am I just saying "Money isn't everything?" (For example, try good health right up there next to, yes, "feelin' good" and oxygen.) I'd bet that even you "feel better" after a perfectly executed profit of $1,000 than after a sloppy, lucky $2,000 performance, and that's my point. Hello, Sub-conscious!

But on to Greg's favorite topic - options. I've already changed my mind since starting this article. Again (after many years) I thought they would work for me. I can't get the "hang" of them. I understand the "insurance" function, but buying near enough to the money with enough time value left to protect my futures, costs an "arm and a leg." And I mustn't be "nimble" enough to write the darn things. Greg's probably got the right idea with "spreads," but notice he isn't doing it with commodities. For Pete's sake! (I'd like to strangle that Pete.) I've decided that with what I spend on a good (but wasting) option, I can take three "cracks" at the position I want if I use a tight stop. I could get it on the first try, you know.

One more thing. I had to prove to myself again that trading 10-minute bars with an OB/OS RSI isn't worth the effort. All of those small profits made the win-loss ratio look great until the inevitable big loss takes them all away. Back to giving positions time to make some money (with that tight stop)! I keep thinking that I can improve the wheel! Greg, you'll be pleased to know that I must have known your advice was forthcoming. (Trading develops intuition, you know.) Consequently, I decided to make some money this last month and did real well. But be forewarned, I could decide to "feel better" again at any time. You keep on making us think. We never get enough of that. Healthy investing to all!

OPTIONS & SPREADS: Gaslights & Green Eyeshades
Greg Donio

Centuries ago, map-makers had an unwritten rule: "Where you know nothing, place terrors." Thus the blank spots on maps became monsters' lairs, islands of giants, crevices 1,000 miles deep and the ocean boiling at the Equator.

During the Age of Exploration after Columbus, many explorers had an unconscious rule which, if made conscious and put in words, would have been something like, "Where you know nothing, place gold fields."

Both these viewpoints are exaggerated, but what makes them relevant to today? It would be no exaggeration to say that today's speculators are cartographers and explorers, that they face risks and the unknown, that their maps contain blank areas which their expeditions and imaginations must fill in, and that some will carry profits in the ship's hold while others will not survive. How are you filling in those unknowns?

Passbook savers view speculation as vampire land. Neophyte traders view it as the dump-wealth-in- your-lap land of El Dorado. Let us assume that you have had a fair piece of experience. You are familiar with the region's diamond mines and its lions and leopards. At times you have acquired gems and at times claw-marks. So what next?

All experienced traders are NOT created equally. Some make the same mistakes over and over, for years even. Others bring about "improvements" in their procedures which make as much difference as changing deck chairs on the Titanic. Famous last words: "I would not have suffered those losses in the past if I had the method I have now. I expect to make a fortune." Still others do things differently and really fare better than previously.

Good Truism: If you fire enough shots, you are sure to hit the target eventually. Bad Truism: If you take enough steps, you are sure to step on a land mine eventually. Bad Side of Good Truism: If you bet on all the horses, you spend more than you win. Good Side of Bad Truism: You lose less in the explosion if you limit your risk. The Thread That Connects All This: Be Stingy With Your Capital Dollar and Be Informed.

An acquaintance of mine, a futures & options broker who asked not to be named, saw a statement I made in print: "Those who have read books on options are invited to respond." He said, "You're crazy, to put it bluntly. If I only accepted clients who've plowed through McMillan and Angell and Caplan, I wouldn't be able to pay my office rent. Remember this and remember it good: A suitable client is anybody whose check-writing hand was not shot off in the war. Sure, it's sad that they lose, but they can see as well as anybody that the ocean doesn't swarm with yachts, I mean, yachts carrying suckers who wrote a check to a broker. But they still expect fabulous wealth, riches oozing out of the woodwork. You do spreads, huh? That says it all. You drain everybody else's bank account just like I do."

I have stated in previous articles that gains from option spreads resemble coffin-maker profits and a skim off the suckers at the gambling den. These words are written a few days after Thanksgiving, and I give thanks not only for profits but for ongoing profits. One CTCN subscriber, a New York medical doctor, wrote to me and asked about my five-year track record. I have been doing option spreads only since 1995, the same year I began writing regularly for CTCN. My transactions have been detailed down to the dollar in those articles, so I have been trading in a display window. Anyone curious about my track record may consult backissues. In dollars as well as instances, the gains have substantially outweighed the losses.

While my win record is not 100 percent, I can report consistent profits in a financial boxing ring where "consistent" is a word not often uttered. The good doctor's letter prompted me to take a look at my first CTCN article, in the issue dated October/November 1995. It opened with a trade I had done months earlier, buying 10 June call options with a strike price of 70 and selling 10 April calls with the same strike price--a horizontal calendar spread. In dollars I had bought $4,000 worth and sold $2,500 worth and paid the difference of $1,500 plus broker's commissions. In points, I had bought options worth 4 points each and sold options worth 2½ with a difference or "spread" of 1½ points.

Like the president of Prego Spaghetti Sauce, I like to think I got better as I got older. An option spread of 1½ points seemed just fine then. I have since evolved toward smaller or skinnier. A point or less than a point seem excellent, 1-1/8 and 1¼ good, 1-3/8 fair, 1½ half a warning flag. Something else did not change. The article contained three "substantial advantages of spread strategies" which still stand:

1. The likelihood of a profit is over 90 percent as opposed to over 90 percent losses when options and futures are "played long."
2. You "make out like a bookie" in that you use plenty of other people's money--amplitude that sweetens the pot.
3. Other people's money cushions and shields your own investment capital when markets, portions of markets and individual stocks and futures contracts become tempest-tossed.

The latter does not guarantee against a loss but it helps to make losses fewer/smaller. I recently came across corroborations of other items in that three-year-old article. That piece quoted Wasendorf & McCafferty's book All About Options: "A negative personality rarely earns profits consistently. They are usually attracted to options for the wrong reasons -- to make a lot of money fast without exerting much effort. Therefore, they don't spend the time required to learn some of the more complicated strategies that are more conservative by comparison."

By quoting magician/author Cecil Lyle, I compared above "wrong reason" traders to amateur magicians who consider adding a particular trick to their repertoires but lose interest if it requires more than casual preparation and effort. They want Houdini-like spotlights and applause but God forbid they should have to sweat a little. A recently-discovered old critique found likewise.

In 1944, critic Edmund Wilson wrote of a then-decades-old book on magic: "From the directions and diagrams of Hoffmann it was possible to learn the rudiments of sleight of hand and how to build your own apparatus; but magic has, it seems, fallen a victim to the same pressures that produce outlines of philosophy and digests of famous novels. A growth of interest in nonprofessional conjuring has been accompanied by an increasing reluctance to take any trouble about it, so that the amateur is likely to satisfy himself with devices that require no more skill to operate than the jokes on sale at novelty shops."

Like dice and trick decks, perhaps? The growth of "nonprofessional conjuring" has been paralleled by the growth of nonprofessional wrong-reason trading, each with aversion to "exerting much effort" and aversion to spending "the time required to learn some of the more complicated strategies." Gann's Maxim: "Handle speculation like a business, not like a gamble." As with many pieces of wisdom, no one speaks out in disagreement but multitudes of people violate it. Every speculator will say, "I'm not a gambler. I'm a businessman. Do you see a roulette wheel?" No, but the lack of effort and learning time gives such "business activity" an uncomfortable kinship to exploding cigars, wizard's powder, The Pharaoh's Lucky Number Dream Book, and How to Win at Poker by a man who died broke.

Handle it like a business? In the minds of many who take up trading, the fact that learning the arithmetic of dice-rolls is easier than learning a business keeps matters in the back aisle of the novelty shop. Even older than the above Edmund Wilson quotation is Philip L. Carret's book The Art of Speculation, first published in 1930. Carret wrote, "Speculation is no simple business. The amateur cannot take a few thousand dollars' capital, fifteen minutes a day of time, treat it as a sideline and be any more successful than he would be in any other business. Indeed, speculation requires broader knowledge, closer attention, sounder judgment than the average business."

Then as now, plenty of traders handled it with an unbusiness-like blend of on-the-side dilettantism and addiction. The author also said, "Familiar observation of the sources whence a stock broker's customers are drawn lends force to the indictment against the speculator. The lawyer whose partner neglects his practice to spend profitless hours pouring over the quotations in the morning paper and haunting his broker's boardroom is one strong critic of stock speculation.

"The business man who has seen a promising subordinate lose interest in his job as he caught the fever of the ticker is another. Then there are the well-known figures, whose origin no one seems to know, but whose authenticity no one questions, that 95 percent of traders in stocks lose money in the long run. These are readily available to the critics of stock speculation."

A defender of speculation, Carret viewed skeptically the "well-known figures." Today with futures and options, the "90% losers" figure persists despite the tendency of telephone hucksters to deny it like tobacco executives denying smokers' funerals. The fact remains that trading attracts the dabblers and the poorly-prepared and the hypnotically-induced like no other businesses. Did textile-wholesaling or toys or the granite monument business ever bind spells and lure people like yesterday's ticker-tape or today's tote board?

When advising traders or would-be traders, I am often the big turnoff, although that is not my intention. I turn off more than a few seekers-after-wealth when I advise them to read or study perhaps a quarter or a third as much as a jeweler reads the gemologist's manual, the dealer's guide, the basic principles of accounting, a couple of chapters on the history of gem-setting. Not seeking to bother their brains with complexities, they want fortunes fast and easy. Plenty of times I have quoted Philip Carret: "Speculation requires broader knowledge, closer attention, sounder judgment than the average business." Reactions-wise, that statement is a 12-word party-pooper.

Also I turn off plenty of traders or would-be traders when I talk about business-sized profits and not avalanches of wealth. 25 or 35 percent profit in three weeks or so? You gotta be kidding. They want astronomical multiplications of capital, and not slowly. If any clerk or secretary can make a vast fortune so quickly and easily, then why are there not a couple of million Lear jets each serving champagne to a clerk or secretary? Handling it like a business means dealing in realities. Finding Inca gold in three easy lessons is not reality, but many venturers expect something similar.

Did you know that "parquetry" meant an intricate floor design? Edith Wharton's novel The Age of Innocence portrayed Manhattan high society during the 1870s. Let us indulge in a divertimento that will turn out to have a bearing. Her novel sparkles with the following evening vignette:

"Mrs. Beaufort, then, had as usual appeared in her (opera) box just before the Jewel Song; and when, again as usual, she rose at the end of the third act, drew her opera cloak about her lovely shoulders, and disappeared, New York knew that meant that half an hour later the ball would begin.

"The Beaufort house was one that New Yorkers were proud to show to foreigners, especially on the night of the annual ball. The Beauforts had been among the first people in New York to own their own red velvet carpet and have it rolled down the steps by their own footmen, under their own awning, instead of hiring it with the supper and the ballroom chairs. They had also inaugurated the custom of letting the ladies take their cloaks off in the hall, instead of shuffling up to the hostess's bedroom and recurling their hair with the aid of the gas burner; Beaufort was understood to have said that he supposed all his wife's friends had maids who saw to it that they were properly coiffees when they left home.

"Then the house had been boldly planned with a ballroom, so that, instead of squeezing through a narrow passage to get to it (as at the Chiverses'), one marched solemnly down a vista of enfiladed drawing rooms (the sea-green, the crimson and the bouton d'or), seeing from afar the many-candled lusters reflected in the polished parquetry, and beyond that the depths of a conservatory where camellias and tree ferns arched their costly foliage over seats of black and gold bamboo.

"Archer was distinctly nervous. He had not gone back to his club after the Opera (as the young bloods usually did), but, the night being fine, had walked for some distance up Fifth Avenue before turning back in the direction of the Beaufort's house. He was definitely afraid that the Mingotts might be going too far; that, in fact, they might have Granny Mingott's orders to bring the Countess Olenska to the ball.

"Wandering on to the bouton d'or drawing room (where Beaufort had the audacity to hang "Love Victorious," the much-discussed nude of Bouguereau) Archer found Mrs. Welland and her daughter standing near the ballroom door. Couples were already gliding over the floor beyond: the light of the wax candles fell on revolving tulle skirts, on girlish heads wreathed with modest blossoms, on the dashing aigrettes and ornaments of the young married women's coiffures, and on the glitter of highly glazed shirt-fronts and fresh glace gloves."

You can read between the lines that the red carpet, diamond shirt-studs and mother-of-pearl hair ornaments were paid for by Vanderbilt rails & shipping, Astor furs, Morgan banking, varieties of interest and dividends, profit-taking on stocks, bonds, promissory notes and instruments resembling futures and options. I used to feel that people who ventured into investing and speculating too easily envisioned themselves beneath gaslight flames and gilded sconces. Now I wish more of them would think like that.

Several years ago, I knew a man who bought a block of penny stocks costing a few cents a share in a type of business about which he knew very little. He shrugged, "It's a risk, but I have to admit that owning 10,000 shares of anything sounds so good." I picked up on his line of reasoning instantly. Owning 10,000 shares of something made him feel like a tycoon, like he had "arrived." It made him feel on par with the mogul riding a hackney coach from Wall Street or the Gold Room or the Bankers' Club to the Beaufort mansion.

He did not say quite that much but I noticed that he had some scribbled notes that he took from his pocket to glance at. I glimpsed the ballpoint words "dress circle." Merriam-Webster defines "dress circle" as "the first or lowest curved tier of seats above the main floor in a theater or opera house." Clearly this man was thinking cognac and cravat. That seemed a thin basis for venturing a hefty chunk of change and still seems it. Yet in the years since then, I have come to respect that man more if only in contrast to other traders and investors whose thinking hints of novelty stores.

Yes, everything is relative. Back in the 1970s, I made a profit with mail-order on the side and so I wrote a monograph on how to start a one-person mail-order operation. I advertised it for sale in the "Money-Making Opportunities" section of one of the supermarket tabloids. It received a very poor response. No wonder. It was surrounded by ads that said, "Make Thousands of Dollars Each Week!" The couch potatoes and barstool ponderers did not want business-sized profits but mountains of money instantly. You may already be the new Rockefeller!

The tabloid-readers who answered those "Deed to Fort Knox" ads were not in the least made skeptical by the sight of every barfly and supermarket customer not hiring butler & maid with the thousands of dollars per week. When I began to do more advising on stocks and equity options recently, I encountered this type again with increasing frequency. The nice guy who knows beer can labels better than he knows financial intricacies wants to own his own diamond mine, and fast. He never notices that the many who drank beer before him never carry off vast fortunes with the ease he expects. "Speculation is no simple business" Phil Carret said. Yet it hypnotizes and lures people like car dealers' conventions or meat-packing or booksellers' guilds never do. And it disappoints more.

I find myself wishing that more traders would aspire to an opera box or a seat in the dress circle, or would admire the paintings in the drawing room. That would have to mean fewer "wrong reason" traders and fewer dabblers trying to trap crocodiles. Alas, speculation attracts increasing numbers of couch potatoes and barstoolers whose techniques are small improvement over the water-witch with the dowsing rod.

Many a broker does not discourage them because he must replace the find-water-with-a-stick people who left his office last month and cried all the way to the pawnshop. The Holy Grail is even worse than other questionable Holy Grails: It is rusty tin with "get rich quick" engraved on it. Anybody with an unparalyzed check-writing hand qualifies. You call this "handling it like a business" like you call an outhouse the Beaufort mansion.

One need not be a club man wearing a top hat, but more of them in the trading realm would mean fewer green eyeshades and chips-by-the-ashtray mindsets. More Pompeiian artifacts and fewer beer can collections would also count as a plus. There is nothing wrong with a song like "Louisiana Hayride" except when the person listening to it is a lottery-player who writes down license plates. Then he and thousands like him plunge into futures or options, which is to say, try to spear live sharks after reading both sides of the instruction sheet. A person who has been hypnotized by the Dance of the Vulcan Maidens in Verdi's opera Aida or has heard Shostakovich create a crimson twilight via music possesses a better chance of distinguishing the financial penicillin from the snake oil.

A long time ago I came across a riddle which sounded ridiculously simple but which fooled everybody. Gradually I realized it was a personality test in miniature. The riddle: Who's buried in Grant's Tomb? But wait. It's multiple choice. Is it (a) Grant, (b) Grant and his wife, or (c) nobody? Not as easy as you thought, huh? The correct answer which nobody gets right is (b) Grant and his wife. Those who say (a) tend to be routine people giving the routine answer. They may be inert matter managing to put one foot in front of the other or they may be diligent folks doing a full day's work for a full day's pay. But challenge and adventure are not their things. Financially they would tend to be passbook savers.

Those who say (c) are usually venturesome types intrigued by an "empty crypt" mystery. Curiosity, a thirst for challenge -- they have these. Financially, they include many speculators in stocks, futures and options. On the minus side, they give the wrong answer to the riddle and they count among the massacre-like losses in these financial fields. Also on the minus side, many in this category have a weakness for fascinating theories with thread-thin evidences like UFOs and the Bermuda Triangle.

The answer (b) has evidence and probability on its side: Husbands and wives are usually buried together. In addition to being correct, the person who gives this answer has a good claim to being evidence and probability oriented, scientific-minded and businesslike. Such a person tends to be skeptical toward flying saucer reports and "make a fortune overnight" pitches. He or she has the best probability of gaining business-sized profits. I toss in an extra merit badge if oils and frescoes have influenced how they see, like Archer Newland in The Age of Innocence: "Newland leaned back in his chair and smiled at her. She looked handsomer and more Diana-like than ever. The moist English air seemed to have deepened the bloom of her cheeks and softened slight hardness of her virginal features; or else it was simply the inner glow of happiness, shining through like a light under ice."

In the movie Harlow, Martin Balsam in the role of film studio head states a key business rule: "To know what to avoid as well as what to do." Skepticism toward "instant wealth" sales pitches stands essential because they multiply like roaches and, worse than that, they change their shapes to impede detection. Among the latest is "Become a Day-Trader!" proliferating in the "Help Wanted" ads and the "Business Opportunities" classifieds. "How Would You Like To GET RICH DAY-TRADING? Trade With Up To 800 Accuracy!" According to the Oct. 8, 1993-2014 edition of the Wall Street Journal, "State securities regulators have stepped up their scrutiny of daytrading, worrying that smaller, fly-by-night firms are luring too many novice investors into the business and creating unrealistic profit expectations, sometimes with advertisements promising quick riches."

According to a lawsuit filed in Texas, one couple lost nearly $50,000 of their savings as a result of the day-trading come-on. The suit alleges "highly leveraged" investing "incredibly churned, on margin" and "with tens of thousands of dollars in commissions and fees."

Perhaps inevitably, old scams have come in a tidal wave to a new medium -- computers and the World Wide Web. The Wall Street Journal for Oct. 29, 1993-2014 said that since cyberspace is pretty much unregulated and anonymous, "the Internet is a magnet for unscrupulous stock promoters in search of a fast way to reach millions of potential investors. Many violators are more traditional, penny-stock, boiler room operators who have traded cold calls for cyberspace," this according to SEC enforcement chief Richard Walker. In the same issue, the SEC chief of Internet enforcement John R. Stark stated, "All types of scams are finding their way to the Internet. You have Ponzi schemes, pyramid schemes, public offerings, oil and gas fraud, every kind of fraud."

Handling it like a business. Knowing what to avoid. Technology advances but suckers do not wise up. As in the old days of bucket shops and gold bricks, the dupes and patsies still think that a bountiful angel is dropping a Klondike deed in their laps. Venturesome types who believe that Grant's Tomb is empty also believe that Yukon gold flows through the Web. The spell of the tickertape machine has been replaced by the spell of the computer screen. As in the days of candlelight and Curb, an encore of the envisioned big bankroll, the busy check-writing hand, the cry of, "I got taken!" The more things change, the more the bunco squad has to work overtime.

I do not expect to see any cyber-suckers looking at Roman bronze in the Metropolitan Museum. CTCN subscriber Simon Wainer, one of the leading gemologists on Manhattan's Jewelers Row, showed me some silver settings based on centuries-old designs from Valencia and Florence. Although Mr. Wainer talked readily about computers, my instincts told me that his name will not appear on the growing list of traders and investors buying the Brooklyn Bridge over the Internet. This cannot be said for all the bar & grill Cornelius Vanderbilts who cannot recognize a Dry Gulch three-card monte game disguised in silicon.

In the Blondie & Dagwood comic strips, a neighbor's little boy Elmo tells Dagwood, "I've been thinking about what I want to be when I grow up. I decided I want to be very, very important." Then the kid adds, "The rest of the picture is still a little fuzzy." That could be the story for many speculators. They want to be very rich. Worse than a little fuzzy, the rest of the picture falls apart terribly as to details. To change one's thinking, to alter the way one's mind works, is a tall order. But with all those "Capture Fort Knox!" cavalry brigades of traders suffering 90% casualties, those in the saddle remain too tolerant of ride-off-a-cliff strategy. Are improvements possible?

We are stuck with the Over-All System. With so many people trying for vast fortunes, either most must get massacred financially or everybody makes millions and a basket of paper money buys a can of coffee. If everybody gets a raise, nobody gets a raise. Coffin-maker profits and bankruptcy lawyer profits--sad--but real world people do not live forever and everybody does not prosper. In the real world, the improvements must occur inside one person's skull. All humanity will not prosper but he might. Tet if he avoids driving off a pier, he will be an exception.

In Orson Welles' classic film Citizen Kane, newspaper publisher Charles Foster Kane represents low-grade, sensationalistic "yellow journalism." He hires or steals a group of reporters away from a higher-grade, respectable newspaper. Kane's unsentimental business manager remarks, "He'll have them changed to his kind of newspapermen in less than a week." The idealistic, optimistic drama critic responds, "Of course, there's always the chance they may change him without his knowing it."

It would be nice if all changes occurred in a favorable direction, good blood always altering bad blood instead of the reverse. Some art books turn male nudes into waist-up shots and female ones into facial close-ups. Evidently, the prudes influence the art works but not the other way around. I stated in a previous article that a businessman becomes a crap-shooter far more easily than the reverse. Yet to indulge in a bit of macabre symbolism, a person can switch from the empty crypt category to the two Grant corpses.

I advised a man on option spread strategy via Fax. Subsequently he told me, "I'm glad you steered me toward horizontal calendar spreads. When I only played options long, I succeeded but it was the hardest thing in the world to repeat that success. You can't call something a business unless you can make a profit repeatedly. I find that with spreading, it's not perfect but the odds are so much more with you than against you. With you instead of against you. I didn't think that was possible on a one-man basis."

Let us condense that into a Maxim: Aim for repeated profits instead of overnight riches.

Also let us conclude with another item from Edith Wharton's novel The Age of Innocence. Rumors circulated on Fifth Avenue that the owner of the Beaufort mansion was momentarily menaced by "unfortunate speculations" in railroads and "threat of insolvency," also extortion "by one of the most insatiable members of her profession." (This was 1870s New York, not 1990s Washington.) Chapter 27 begins:

"Wall Street, the next day, had more reassuring reports of Beaufort's situation. They were not definite, but they were hopeful. It was generally understood that he could call on powerful influences in case of emergency, and that he had done so with success; and that evening, when Mrs. Beaufort appeared at the Opera wearing her old smile and a new emerald necklace, society drew a breath of relief." Where you know nothing, Gilded Age jewels become good omens.

A Number of Comments - Vern Tyler

1. William Green: Maybe it's me. I am not clear of the citation in the "Read More" note, i.e., what or where is contact info for the publication? Is it planned to run more of Green in CTCN?

Editor's Note: Mr. Green is with Forbes Magazine. We have asked him to participate in CTCN's forum again in the future. The "Read More" note should have been omitted, sorry for the error.

2. Writers in CTCN: I see that Goldfarb (pg. 3) provides Voice/FAX and E-Mail info. I would like to see each writer provide an E-Mail address, at least where each agrees to it. Many times, I would like to send a comment or question to the writer, otherwise narrow in scope and most likely it wouldn't be useful to send it to you first.

3. Donio: Ignore the occasional gripe about the length of his copy. His material is well-written, absorbing and is written from a perspective of decades of practical trading experience. We're all aware of the amounts charged by clever promoters for seminars with a lot less content than one of Greg's pieces!

4.Name Withheld: I recently purchased his "Bible" on a $39.95 plus S&H promo. I regularly get Taucher's Almanacs'. I want to compare the two, largely to see howName Withheld's work supports Taucher's. The Almanacs are considerably more thorough; the two works have different purposes.

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Editor's Comments

Look for some major enhancements to our website effective in January. By the time you read this our new very powerful Search Engine should be fully operational. It replaces our old search engine which wasn't nearly as powerful or comprehensive as our new one.

It's probably the "best" website search engine there is. It has some amazing search capabilities you must see and use to appreciate. In addition, we have added lots of helpful new content to our website so there is a lot more valuable information and online trading knowledge for you to search for.

To check it out visit our expanded website

In addition, we have added several other new and useful features to our website. One of them in particular (beside the new search engine) you may find extremely helpful and quite possibly also lucrative, as it could easily bring our members some revenue. More on this in our next issue and also within our website.

In reference to the CFTC, many of you have expressed concern we will go out or be forced out of business by a direct result of the CFTC's investigation.

Good News! The CFTC has now accepted my Settlement Offer in which we neither Admit or Deny their accusations. The Settlement Offer ink is now dry and the matter is concluded.

After spending the past 2½ years dealing with the CFTC and addressing their concerns, we are more than glad to put it behind us and move forward. We expect, during 1999 to attract many new members as well as keeping our present members. We also need to be successful with our other product and service offers to make us more financially viable. We can then continue to serve our members and provide even more knowledge and trading tools in the future. To this end we will be announcing a number of new trading related products and services in the near future and during the New Year. Please visit our Website for more details. A Happy and Prosperous New Year to all our trading club members.


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.

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