"Ask Mr. EasyLanguage" Book Review
Raymond F. Kohn
"Ask Mr. EasyLanguage" by Samuel Knight Tennis (©1999), 235 pages, $49.00. Published by Traders Press, Inc.
The focus of this book is to expand your understanding of "EasyLanguage" programming code developed by, and used exclusively within the custom programming features of Omega Research products like: "SystemWriter Plus," and the various versions of "TradeStation."
The author describes "EasyLanguage" in this manner: "EasyLanguage" was developed in 1987 by Omega Research. Its purpose is to provide a simple, logical 'plain English' programming language that requires little programming background from its users. It was designed to allow traders to describe and test their trading strategies, to program signals based on those strategies, to historically back-test those strategies for profitability, and to generate trading orders and alerts when market conditions meet the specific criteria.
The author, Samuel K. Tennis, was the senior programmer for Omega Research. He worked with Omega Research for over 10-years developing "SystemWriter Plus," and various versions of "TradeStation." In addition he created the "EasyLanguage" programming language to facilitate the development and testing of customized trading ideas within the various Omega Research products.
He was the acknowledged programming expert at Omega and acquired the nick-name "Mr. EasyLanguage," hence the title of the book. Currently he is doing custom programming work for a wide variety of clients including those currently using Omega Research products. This guy earns his living as a professional computer programmer.
Prior to beginning this book review, I'd like to give you a little background about myself so you can better understand my personal point of reference. When I first got my hands on a computer, (back in the old days when vacuum tubes were just being replaced by the silicon chip), trading software didn't exist. Does anyone out there even remember when "punch cards" were used to enter programs and data into computers? Or, does anyone recall some of the early legendary names like Commodore 64, Sinclair, Altair, and TRS-80.
Well, I was one of those people that loved new gadgets, so I bought one of these early machines and spent a lot of time learning computer programming. What a thrill it was to spend hours writing a program to add 2 + 2 and have it actually equal 4.
Eventually I began to write my own trading software programs to run on one of these archaic machines. You'd be amazed at what I was able to do with just 64K of memory. (Today, a microwave oven has more computing power than I had back then.) As time passed, I moved up to better and more powerful machines (as they became available), and as sophisticated trading software became available I shifted over to purchasing pre-written trading software instead of spending time writing my own software. I didn't want to be a computer programmer; I wanted to be a trader.
Eventually I purchased "SystemWriter Plus" from Omega Research. And, as a tribute to that program, I still use it today, developing and testing new trading ideas. It's a great program. I quickly learned the "EasyLanguage" programming code contained within "SystemWriter Plus," and am very comfortable using this language. If I get a trading idea, I can usually whip together a program, get it de-bugged and running smoothly within just couple of hours, and have performance results evaluated before the end of the evening.
When I first learned "EasyLanguage," I used the Tutorial and Reference Manuals provided. Within a short time I was writing custom programs to test my own trading ideas. Omega's Tutorials are well written, and are an excellent training tool for the dedicated student.
This book, "Ask Mr. EasyLanguage," is NOT A TUTORIAL for the novice programmer who wants to learn "EasyLanguage" programming. In the Preface, the author states: "The book is roughly divided into two sections. The first is the language manual and the second is questions and answers. I have not tried to provide a tutorial. This is not "for dummies" or a "master in 21-days" approach. In fact, you need a reasonably good working knowledge of the "EasyLanguage" programming code before you read this book. The author makes the same observation in one of his Section Summaries.
There is on odd paradox I noticed as I read this book. The author is a stickler for "defining his terms" to insure that both he, and the reader, has a clear understanding of the proper use and meaning of many "words" used in the programming process. Yet, at the same time, you have to be on your toes and very alert as you read this book to avoid confusing many of the words "he" uses. Here are some examples:
In the preface the author states the book is divided into "2-sections." Yet the book contains "7-sections." He has used the term "sections" to describe a broad division of subject matter contained within the book, and also uses the term "sections" to describe what might better be referred to as "Chapters" within the book. So right off the bat, he is using the same word, "sections," but with two different meanings.
Now, don't get me wrong, this is a really picky little thing and of no consequence, but as you get deeper into the book, you find that this problem of "confusing cross references" becomes a chronic problem requiring the reader to have a far greater understanding of "EasyLanguage" in order to distinguish between which "word" is a significant computer language specific "word," and another word which is just a descriptive highlight without any special significance as a computer language "word." Let me give you some examples:
The author uses Bold Face type to highlight a word he wants to give added emphasis to -- but he also uses the same Bold Face type to highlight a significant "Key Word" that has special meaning to the computer within the programming language. After awhile you're not really sure if you're looking at a special "key word," or just a highlight for added emphasis. You have to literally rely on your prior knowledge of "EasyLanguage" to distinguish the difference.
In another example: Many words that have special meaning to the computer within the programming language itself do not have spaces between them, such as: "CurrentDate," or "AvgTrueRange," or "NumWinTrades," "Value99," just to name a few. Yet throughout the book the author writes other words such as "KeyWords," "SkipWords," "StudyBar" without spaces between these words as if they too had the same unique programming status as other reserved programming language words. Yet, this is not the case. The word "SkipWords," despite the way it is written, (without a space between the two words), is NOT a reserved word that has special meaning to the computer, but is used by the author as a descriptive word to identify a group of unique reserved programming words called Skip Words.
Just for your information -- A "Skip Word" is a description given to a number of reserved computer language words which can add readability and clarity to your program, but are ignored by the computer program, therefore, when a "skip word" is used in a programming statement it will not alter the interpretation of that statement by the computer. The computer will literally "Skip Over" a "Skip Word" when it comes across the word.
For example: Skip Words include the following: "A, An, At, Based, By, Does, From, Is, Of, On, Place, Than, The, Was. Below are two statements that are both interpreted in exactly the same way by the computer. But the added "Skip Words" in the second statement make the statement more user friendly and readable: Buy Market; - Buy at the Market;
The computer will actually ignore the Skip Words "at" and "the" in the second example, but when the programmer reviews his program at a later date, the added Skip Words make the statement more readable. This feature becomes more important as your programming code gets more complicated. If you have ever done any conventional computer programming you know that there is no such thing as a "skip word," and a single unexpected character will literally "crash" your program.
In addition to Bold Face type, and Connected Words, there is another typeface used throughout the book, which resembles a Hi/Lo All-Caps Orator typeface. It too is used throughout the book for various words, which lack a similar context. All and all, this mix of typefaces was not used judiciously or with any preconceived plan, and thus the typeface mix actually creates confusion instead of adding clarity. Be on the lookout for this problem as you read the book.
The book is divided into seven sections (or Chapters). Section I is called "EasyLanguage Basics." This section provides a very basic overview of a number of topics and the author uses this chapter to define the proper use of various "EasyLanguage" programming terms and words. This is done to insure that the reader has the same "frame of reference" as the author. However, if you were not already familiar with "EasyLanguage" programming code before you read this section, you would quickly become lost due to the lack of detail. Remember, this book is NOT a Tutorial. You literally have to have prior knowledge of what he's talking about, in order to understand what he's talking about.
Section 1: "Writing Statements" - Once again he uses this chapter to further define the various types or classification of statements. Such as: Declaration Statements, Assignment Statements, Decision or Conditional Statements, etc. And, once again, you had better have a good working knowledge of "EasyLanguage" programming before you read this section.
However, certain topics such as the Assignment Statement, If Then Else... Statements, For and While Loop Statements, contain more detail than has been typically offered on other subjects in the book. As a result the reader comes away learning some valuable lessons on using these statements.
Section 3: "Functions, Procedures and Programming Tips" - This section is only 22 pages long, yet contains a "List" of over 300 "Built-In Functions" that are included with the TradeStation program. When I use the term "List," I mean "List." There are many pages of bold-faced Function names with NO descriptions as to what they are, or how they are used. In the summary for this section the author states:
"In this section we have gained an. appreciation for the depth and diversity of the functionality available in EasyLanguage. There is not room here, nor is it the purpose of this hook, to describe each function in detail. Omega's documentation does that in some detail. I hereby request that you go through that documentation at least one time in great detail.
The information in this section is intended to he used exactly as presented. As a list "
Anyone who already owns SystemWriter Plus, or TradeStation has already seen these lists in the manuals. I'm not sure what the author's purpose is to re-list these things here. However, he has grouped the various Functions by "type" or "purpose" which could be helpful if you are working on a program and need a list of the various functions that are unique to a given subject, such as a math trig function.
Appendix "A" also contains a list of reserved programming words along with adjacent descriptions, which was well done. I believe a similar format would have been worthwhile for Section 3.
Section 4: "Advanced Topics" - At this point the book starts getting a bit more interesting. The author states: "When you combine the subjects covered in this section with the questions and answers in the following two sections you can gain powerful insights into the 'outer limits' of EasyLanguage programming. " This section includes some very advanced topics such as Multiple Data Series, Drawing Tool Functions, and most importantly at the end of this section he lightly touches on the subject of programming logic -- although he calls it "Programming Style." It is only 1½-pages, yet gives the reader an insight into the importance of "logic errors" which can cause your program to not run properly, or give erroneous results. Below is an example to better clarify what programming logic means.
Consider the "EasyLanguage" statement, which reads as follows: If High > Highest (High, 10) then Buy at the market; For those of you who don't read "EasyLanguage," this is what the statement is saying: If today's high is greater than the highest high over the past 10-days then enter a market order to buy.
Can you spot what's wrong? This statement is evaluating the highest high over the past 10-days, which includes today's data. Therefore, if today's high represents the highest high over the past 10-days of data, it would be impossible for today's high to be greater than itself, (since today's high is equal to today's high).
To solve the problem it would be an easy matter to change the statement to read as follows: If High >= Highest (High, 10) then Buy at the market; Here we changed the statement to read: If today's high is greater than, or equal to, the highest high over the past 10-days, then enter a market order to buy.
Problem fixed. It is quite amazing how a simple statement, like the one above, can cause logic problems that will affect your test results. That's the unfortunate joy of computers -- they don't understand what you "mean," they only understand what you "say." These logic problems can be further compounded when you get involved with writing mathematical equations. It becomes very easy to overlook the "Precedence of Operators" when writing math code. Fortunately, the author spends a great deal of time in Section I discussing this subject in detail. He deserves kudos for recognizing this subtle, yet common, programming problem and spending as much time as he did on the subject. "Excellent."
Personal Hint -- When I do programming, I avoid the entire problem altogether by using "Parentheses" within all of my mathematical equations, thus giving me absolute control over the precedence of operations.
Section 5: "EasyLanguage Demystified" (and) Section 6: "EasyLanguage Spoken Here Program Listing." These two sections are the heart of this book and very worthwhile. Sections 5 and 6 consume almost half the book. Section 5 is written in a "question and answer" format, which is a really nice touch. If you can imagine yourself just getting started writing EasyLanguage programming code. You very quickly begin having questions as you get started, or questions on how to accomplish a given task within the program -- Instead of calling Omega's technical support line, just thumb through Section 5, and you'll probably find the answer, or at least something close to it that you can use.
There are 20 questions in Section 5; however, each question typically has many related sub-topics included, thus providing the reader with much more information than the 20 questions would imply.
Section 5 is fully integrated to be used with Section 6. When the reader is given the "Answer" to his question in Section 5, he is also provided with a reference number, which is used to identify the actual programming code solution, which is listed in Section 6. The numbering format is simple to use and very helpful. For Example: A given reference might be 6.01a - Study "skt.EZL Template" The "6" references you to the answer in Section 6 of the book, the " 01 " references the first question that was in Section 5 and also directs you to the first answer or related program listing in Section 6 -- and the "a" is a sub-topic identifier.
The word "Study" is a general classification identifier, and the "skt.EZL Template" is the name of the Study. "skt" stands for Samuel K. Tennis, the "EZL stands for EasyLanguage, and "Template" describes the nature of the code.
Once you find what you are looking for in Section 5, you would turn to Section 6 and review the code. The pre-designed templates of workable EasyLanguage code contained in Section 6 are specifically designed for you to copy and use within your own custom programs. You just add the code to your existing program using the TradeStation programming editor making any changes that are appropriate, and run it. Problem solved.
Section 7 -- "Quizzes" - This is the last section of the book. I felt like I was back in school again.
Hint: I'd like to pass along these observations. Memorizing all the nuances of "EasyLanguage" in order to pass a quiz is meaningless. I write a lot of code, and am constantly referring back to Omega's Manuals to insure proper syntax, or to clarify my understanding on how a particular line of code might work. There is just too much code in "EasyLanguage" to even bother trying to memorize it all. Some of this stuff is so arcane that you can easily forget subtle nuances from day-to-day, let alone trying to retain all this stuff over an extended period of time between code writing sessions.
However, what I found to be of significant value are the actual questions and answers contained within the "Quiz." You could literally review the questions and answers in the "Quiz," and use it as a review of the entire book -- The Q&A were absolutely terrific as a quick review and learning tool. In a strange way, I think the questions and answers contained in the "Quiz" are a better reference aid than some of the sections contained in the book.
Don't skip over Section 7 just because it's a "Quiz." Try looking at it from a different perspective and you will see its true value.
Appendix "A" is also a very helpful list of the "reserved words" that are used in TradeStation 5. The reserved words include a brief definition, which was very helpful. This is a very nice Appendix. In addition, when you want to find a particular topic, the index at the back of the book is well cross -referenced and an invaluable tool.
Hint: On a personal note for those of you who want to begin writing your own programming code. Select a "programming style or format" that works for you, and use it regularly as your own personal template. Your template may begin with a "Title Line" at the top, followed by a "Detailed Description" of what the program is supposed to do. Then organize all your variables, and other declarative statements. Finally, once all your foundation statements are completed, then you can begin writing your operating program code. This is only a suggestion based on what I found works well for me. It doesn't really matter what format you select. However, it will be extremely helpful to always use that same format as you write other programs. It will not only help you organize your thoughts, but will make it easier to find errors when you are debugging your program.
In closing -- nothing is going to replace Omega's Tutorials and Manuals for learning "EasyLanguage." However, there is a lot of good information in "Ask Mr. EasyLanguage" that can be very helpful to even the experienced programmer -- It can help you solve a variety of programming dilemmas. It's an excellent reference that can add depth and added insights as you learn "EasyLanguage" programming.
Comments on My Book's Review by Samuel K. Tennis of Vista Research
My comments on the above book review I deeply appreciate your review, especially on Page #1. However, the tone seems rather opinionated and in some points I am not sure you are totally fair. Perhaps I will get to that later, but first, my comments:
You might want to mention that all the EasyLanguage code mentioned in the book (and more) is available, upon request, by e-mail.
In paragraph #4, perhaps "Samuel K. Tennis" so my "trademark" is mentioned once.
Paragraph #12 - A large number of readers will disagree that "Omega's Tutorials are well written and are an excellent training tool for the dedicated student." Though it may be TRUE, they just love to hate Omega's documentation and you are the first I have heard to make this comment. Perhaps it should stand, just because it is so very controversial!
Paragraph #14 - I disagree. the book was intended, and has
been accepted so far, as an entry-level book, and is definitely meant for the
non-programmer. I use it to "train" my clients on EasyLanguage to
save them time and money!
Paragraph #23 - (begins "In addition..." For what it is worth, the Editor(s) went to great pains trying to use the typefaces consistently. I will review book again with these criticisms in mind.
Paragraph #24 - You might want to start this with "In my opinion..."
Paragraph #25 - You might want to insert "This book is [a Language reference manual] NOT a tutorial."
Paragraph #26 - Once again, I protest "you had better have a good working knowledge..."
Paragraph #27 - "As a result," seems to waken the statement.
Paragraph #36 - You might want to change "past" to "most recent."
Paragraph #44 - The sentence "If you can imagine yourself just getting started writing EasyLanguage programming code." Does not flow.
Paragraph #53 - You might want to say "TradeStation 4 and TradeStation 5."
Paragraph #55 - Again, you may take heat saying "nothing is going to replace Omega's tutorials and manuals for learning EasyLanguage." Have you seen the quote from Mark Brown (yes, Mark) on my web site?
Their documentation still has to toe the corporate line by implying that "no programming knowledge necessary."
"ALL IN ALL, A VERY GOOD REVIEW"
After it is published, may I reprint it, list it on my web site, and/or quote from it?
Editor's Note: Sam, upon reading your critique I was worried at first but happy once I read at the end it was "a very good review." Yes, you may reprint it with proper credit and CTCN's copyright notice plus our http://www.webtrading.com website address. By the way Members, we highly recommend Sam for custom Omega programming. Contact him by: E-Mail: firstname.lastname@example.org Website http://www.vista-research.com
A New Trader Paying Incredibly High $195 Brokerage Commissions at Concorde Trading Group & Trading Problems There - Dave Wilton
I was introduced to commodities by a phone call from Terry Overbey at Concorde Trading Group Inc. on about 7/10/99. He told me about heating oil and how it was priced low in summer and raised in price as consumer demand rose in the winter. A sure way to make a lot of money.
My account was opened 7/15/99. I bought 5 contracts of Oct heating oil. On or about 8/16/99 I got an early morning phone call from broker who woke me out of a sound sleep. He said that Terry was home sick. He told me he suspected a sell off of heating oil and urged me to sell my 5 heating oil contracts, take a profit and buy back. So we sold the heating oil and bought back 5 heating oil contracts and one cotton contract.
I was paying them $195 per contract round-turn. I thought that at that price I should be getting the best of the best and I put my faith and trust in them. Heating oil had gone up and I made a good profit on the first trade. Later that day I checked cotton on the Internet and found out that of all trades that this one must be near to the worst. They were also charging me a $20 fee per contract listed as "STD BKR." I don't know what that was for.
Then on or about 9/11/99 Terry Overbey comes back into the picture and urges me to sell my 5 Nov Heating Oil and take a profit. At that time my net liquidity was up to $9978.11 from an initial investment of $5500. So we bought 6 Dec heating oil contracts and a day later 2 Nov natural gas contracts. Then the market started to deteriorate and I became suspicious this business of shifting brokers back and forth and the cotton and natural gas contracts going nowhere and at that time the brokers made more money then I had.
My decision to get a new broker happened when another broker phoned me in hopes of getting my business. When I mentioned I was trading with Concorde, he said, "Oh, yeah, they started you out in heating oil didn't they?" I took this to mean this was a ploy of theirs with all new traders. So I decided to get a new broker. Transfer papers were faxed to Concorde by a broker from U.S. Commodities Group on 10/4/99. Then I waited and waited. About a week later, I phoned Concorde Trading and asked what was happening with my account and was told that it had been transferred.
Then I called Vision LP, which I believe was the clearinghouse, and was told that my account was at around $2000 and she'd check into it. Next day I phoned Vision LP again and another lady told me my account was at around $3000 and they were waiting for my new broker to contact them agreeing to accept the transfer. My new broker told me they were giving me the run-around. He told me to contact the branch manager at Concorde to see what I could find out. So I phoned Concorde and asked for the branch manager and a man with a strange accent answered. When I told him the problem I was having, he said for me to wait a minute.
Then another man answered and he told me the account had been transferred and that it was out of his hands. During another phone call to my new broker, he asked me if it was all right if he spoke for me as if he were I and asked for my social security number to which I agreed. He got back to me later and said Vision LP told him that Lind-Waldock was holding up my account. By this time my stress level was pretty high. Who was Lind-Waldock and what were they doing with my money?
At one point between 10/4/-10/21/99 Dec heating oil dropped 10¢ in one day. I had hoped to be out of heating oil before this happened.
I believe it was the last man I spoke to at Concorde or someone from the NFA who told me to contact the president of Concorde at their Florida headquarters on 10/21/99. I did and the president said he would look into it and the next morning of my account was finally transferred.
During the interim a man from a trading firm phoned trying to get me to become his client and I told him about my account being held up. He suggested I talk to the NFA and go into arbitration and I may be able to get reimbursed for funds that I had lost. So I phoned the NFA and they sent me the necessary forms. I phoned my new broker and told him about the forms and where they asked to name a figure of how much I had lost. I was pretty green about trading commodities and couldn't figure out how much my losses were. I asked my new broker and after checking my balance sheets with Concorde, which I had sent him, he said about $10,000 plus $2000 for expenses and punitive damages, whatever that is.
PS: NFA told me they didn't have a Terry Overbey listed as a working broker at Concorde.
What is a Reversal? Rick Ratchford
One thing, which is as sure as death and taxes, is the term Reversal not meaning the same thing to every person. I get questions from time to time, especially after posting a reversal forecast, as to what those Reversals mean to us, the trader. Although this subject has been touched on several times in the past, I'll go over it again here for those not aware of this.
First, the term Reversal is self-explanatory. It simply means a "change in direction." If price is moving down and then makes a Reversal, we can assume it will then be moving up. The reverse goes for price that is moving up, as it will then move down following a Reversal.
Other terms for Reversal are Swing or pivot. They are pretty much used interchangeably. A Swing goes from up to down to up again, continuing in this pattern indefinitely. A Pivot can be likened to ones pivot foot in basketball, where you can pivot from facing one direction to facing the opposite direction.
The first thing to understand when we are discussing Reversals is this . . . "What is the Time Frame in question?"
You can have Reversals occur in any time frame. And just because it occurs in one time- frame, say a 5-min. chart, it does not mean that it will show up as a Reversal on a much longer time frame, such as a daily or weekly chart. So the first thing you certainly want to make clear is the Time Frame Reference for the Reversal.
Yesterday I posted a Reversal date for the S&P-500 market. The time frame in question is the daily time frame. On your daily price chart, you should note a bottom or top form for the Reversal date in question, followed by at least 2-price bars or more forming in opposite direction.
Example: Obviously we can see that on a daily price chart, SP-500 has been forming price bars with lower highs and lower lows the last couple of days. When one is expecting a Reversal for this market at this time, you would be looking for a price bar to make a lower low within a standard deviation of one price bar of this reversal date.
Following this price bar which forms a lower low, you would expect at least 2 or more price bars making higher lows then the newly formed Reversal bottom. The easiest way to visualize these Reversals or Swings is to learn how to plot a Swing chart. There are rules for one-day SC's, two-day SC's, and three-day SC's. When dealing with Reversal dates, you would want to use the one-day variety.
Say you have a daily price chart in front of you in paper form. If you were to take a pencil and draw lines from the very top to the first bottom, then up to the next top, then down to the next bottom and so-forth, you would in simplistic terms be drawing Swings or Reversal points.
One book I have come across which teaches how to draw swing charts is called "pattern, price and time Using Gann Theory in Trading Systems" available through Wiley Books. It is also taught in the time price trader available at http://fsoftpublishing.com
In short, as long as price bars form lower highs and lows, you continue to draw your line down to the most recent lower low. Once a bar forms a higher high and higher low than the bar preceding it, you then Swing up the line from that lower low to the new higher high. This process continues till end of your price data on the chart.
Those peaks you drew are the Swing or Reversal tops, and those valleys (or upside down peaks) are the Swing or Reversal bottoms. Therefore, when you have a Reversal date to work with, you are looking for the price bar that forms this Reversal or Swing to occur within a standard deviation of one price bar of that date. Therefore, going back to SP500 at the moment, since the price bars formed are making lower lows, we keep drawing a line downwards looking for the next Swing which can only be one thing, a swing bottom. Swings always alternate from bottom to top to bottom . . . and on and on and on.
One final note for the less experienced in Reversal Date use. At times the market can quickly form a Swing top and then a swing bottom within just one-day of each other. You've seen this happen many times. Market makes a bottom, shoots up and makes a top the next day, then drops again like a rock. How would you decide on the swing associated with any Reversal date?
For one, if they both do not occur within one price bar deviation of the date, then only the swing that does fall within this deviation can be considered. If they both occur within this window (one on the very day and one is a day late . . . thus one standard deviation off), you would then employ other aids or stand aside. Such aids are moving averages, support/ resistance price zones, etc. This post will not be dealing with these aids, but it is worth a mention. Hopefully for those who were not clear as to what a Reversal is, this is now much clearer. Let me state that, when I deal with a Reversal Date, I'm not looking for an one-day swing. What good is that? It is expected that Reversal dates will produce swings followed by 2 or more price bars moving in the opposite direction. When this is with the trend, it is very useful.
W. D. Gann and Market Timing - Peter Lim
William D. Gann was extremely interested in planetary alignments. Gann mapped an equal 360-degree orbit for each planet in our solar system. The 360-degree cycle is also the foundation for price and time projections using a Gann Wheel.
Gann then studied planetary alignments relative to earth. The concept is similar to finding confluence points of overlapping Fibonacci price projections. A planetary confluence point in time for Gann would suggest a high-risk time objective for a trend reversal. It does not imply a market top or bottom. Just a change in direction.
Confluence points in time relative to planetary alignments is a hypothesis that remains to be proven if it is valid or not for the markets. However, if there is validity to Gann's planetary alignment work, the solar system alignment we are approaching 5/5/00 with key dates through 5/28/00, can be viewed as single greatest confluence point within our lifetime.
The inner orbital planets of our solar system will align May 5, 2000. Being aware of this time objective certainly merits intellectual curiosity as this will not occur again for nearly 6000-years.
Consistently Lost Money using Lou Mendelsohn's Vantage Point
Would be interested in hearing from traders who use Market Technologies "Vantage Point." I presently have four expensive programs, but have consistently lost money on them.
Vantage Point uses inter-market analysis (usually other interrelated commodities are inputted into each program) with a simple daily output, which predicts the market direction and strength over the next two to four-days.
After almost a year of usage - self-directed following a previous year directed by a broker knowledgeable in the system, I have consistently lost! One reason was the need to use reasonably tight stops -- 5% on a $10,000 account. Another reason seems to be that the system works better if a long-term trend exists. It does not take into account any technical system.
I would like to hear from others who have used this system and any of its numerous programs. e-mail me at email@example.com
Why Your 56K Line is Flaky: Data Comm Primer - Vern Tyler
Read the Editor's report, in the summer 1999 CTCN, of difficulties with dialup service using a modem at 28K and 56K. While not a trained computer specialist, I have used home PCs and online services since 1992.
Most aftermarket, add on modems include documentation on their use. Some is better than others. In the comprehensive booklets, see the table of line transmission standards (the various "v." protocols). Recall a modem sends/ receives an analog signal. As transmission speeds increase, the requirements of the condition of the line become increasingly rigorous.
The report noted line condition and effects of noise. Apparently, any line has some noise. Usually, it is well below (attenuated) the line level of the transmitted signal. The engineer shorthand is "S/N" (signal to noise) ratio. It is expressed, usually, as "-dB" (decibels). The more negative the figure, the better. Decibel measure is not an arithmetic progression. It is a log relationship of the intensity of the measured sound to intensity of the measurement standard.
In my experience, noise levels can be sloppy when the signal is up to about 9600 bps. As speeds increase, noise becomes increasingly critical. Since higher and higher speeds likely require lower and lower noise levels, then 56K is a very demanding protocol. Most likely line condition and noise is at least four times more critical on a 56K line compared to 28K.
This may be more than you ever wanted to know about analog lines. Digital options are also available. There is a Federal program to enhance telecom services in rural areas. Many locales have competitively priced digital subscriber line (DSL) service through local telephone providers. A subscriber should be within 3-miles of the local switching office, and can use an ISP that supports DSL service. Local telco can advise on availability of a competitively priced 280K to 320K line. Similar service is widely available in large cities.
If that's not an option, cable TV providers are introducing Internet via cable service. I can get service here, in the next few weeks, via Comcast. They advertise the service (when it's on its best behavior) runs at 3,000 Kbps, or 100x faster than a 28.8K modem.
Security issues are important when cable service is used. A computer placed on cable service uses the line between that machine and a cable operator node. It's the same line used by many other subscribers. The result is the same as adding a location to a network of other computers and other users on the same line. It's much like telephone party line service of years ago. Subscribers shared a line with as many as 8 to 12 others.
The cable company should provide instructions in the matter. To protect a single computer location, it is critical to adjust Network Preferences in the operating system. File Sharing and Print Sharing options should be disabled. A multiple computer small network connected to cable service is handled differently. Each machine should be password protected, and a firewall program should be considered.
Finally, Internet service is provided by DirecTV satellite. It is a 400 Kbps service on receiving via 18-inch dish. The dish usually requires a clear line of sight to the SW/SSW horizon. Data sent from the subscriber is routed over a dialup telephone line (and outward traffic is limited to modem speed). Call 1-800-DIRECPC or see www.direcpc.com. Retail stores featuring DirecTV may not have information on Internet service (at least my local Best Buy is of no help).
For more particulars on any method, Computer Shopper and PC Computing have published any number of articles. They are both Ziff-Davis magazines, and articles may be available on the Z-D web site. And, the above should explain why 56K could be flaky! Comments or questions may be sent to HwyHaulier@aol.com
All About Moving Averages
reprinted with permission of Technical Traders Bulletin
There is probably more actual money being traded today using moving averages than with all other technical indicators combined. Because they can be used for everything from finding very long-term monthly trends to setting stops for daytrading, and for anything in between, moving averages have been the subject of more discussion in technical literature and elsewhere than any other study. One reason they enjoy such popularity is when the markets trend, these simple little lines work as well or better than indicators, which require a Ph.D. to interpret.
Moving averages smooth out market fluctuations and short-term volatility and give the trader some idea of which way market is going. Just as important is what they don't do. Unless you plot them as an oscillator, they provide no overbought/oversold information at all.
They are trend-following indicators of the purest sense. They show the direction of a trend, yet they don't measure how strong or weak the trend is. Their function is to identify the direction of the trend and then smooth out or dampen its volatility. Moving averages do these things very simply and very well.
Types of Moving Averages
There are so many possible types and combinations of moving averages that it is impossible to list them all. Most of the more esoteric varieties were created in the 1970's, when moving averages were considered to be very sophisticated and advanced technical analysis tools.
A lot of talented and creative technicians spent most of their time figuring out new ways to improve and employ moving averages. This interest in moving averages was well rewarded; the 70's were a time of endlessly trending markets when moving averages worked extremely well. Most of the more inventive types have since fallen into disuse (like Maxwell's "modified accumulative" or "average-modified"). Three major categories have survived the test of time: simple, weighted and exponential.
Simple Moving Averages
The simple moving average is calculated by adding and then averaging a set of numbers (usually daily closes) representing market action over some specified period of time. The oldest data point is dropped as a new one appears; thus the average 'moves' and follows the market. A line connecting the daily averages will have the effect of smoothing recent market volatility. A large data set representing a large amount of past data will create a smooth line. A smaller data set representing only more recent data will create a more responsive line.
Weighted Moving Averages
The simple moving average gives equal weight to each point in the set of back data. The weighted moving average assigns greater importance to more recent data by weighting each day's data differently. This is usually done by multiplying the most recent data point by a given number, adding the result to the overall calculation, then multiplying the next most recent point by a lesser number, and so on. The resulting line will be more responsive to recent market activity than the simple moving average.
Exponential Moving Averages
The simple and weighted moving averages are only capable of reflecting the data in the number of data points chosen for the calculation. The exponential moving average assigns greater importance to more recent market action like the weighted moving average. It also takes into account all of the data in the data set, leaving nothing out. A daily exponential moving average uses the life of a futures contract. A weekly or monthly exponential moving average uses as much data as you give it.
Despite the seeming sophistication of weighted and exponential moving averages, nearly every test we've seen or done ourselves has shown the simple moving average to be superior to the others in terms of trading results. Our own research indicates that weighting the data to emphasize recent events makes the indicator overly sensitive, negating the original purpose of the moving average: to smooth out market action.
Weighted and exponential moving averages tend to generate more trades in tight, trading-range markets than simple moving averages. The result is usually costly whipsaws. We recommend using simple moving averages only. Save your system's complexity for other things, like money management and risk control.
Multiple Moving Averages
Moving average trading systems can use either a single moving average or any number of moving averages in various combinations. We've used single, dual, triple, or even quadruple moving average systems. We suppose that any multiple is possible, but the variations with only three or four can easily become overly complex and frankly, we see no advantage to using anything more complicated than necessary.
Single Moving Average Systems
The simplest and often the most effective moving average is the single moving average. It is most useful as a long-term trend indicator, rather than as a daily trading device. For example Colby and Meyers, in their book The Encyclopedia of Technical Market Indicators, optimized for a single moving average over 75-years of monthly NYSE data, using a simple reversal system. They found 12-months to be the optimum number, beating a buy-and-hold strategy by a large margin. In our experience, this simple 12-month moving average is a stock market timing device that's hard to beat.
The basic rules for trading with a single moving average are simple: buy when prices rise above the average, sell when prices drop below the average. This results in a simple reversal system that is always in the market. As you might imagine, a reversal system is very susceptible to whipsaws and should only be used as a long-term trend indicator.
Dual Moving Averages
The most popular moving average systems use two moving averages. These generally consist of a longer-term average that serves to define the trend, and a shorter-term average that gives trading signals as it crosses the longer-term average. The best known of these is Richard Donchian's 5-day vs. 20-day system.
Most research we've seen shows that dual moving average systems tend to be more profitable than other types. The research also shows that they, like just about all moving average systems, have their ups and downs. They are notorious for giving back too much of their hard earned profits. Anyone who traded Donchian's system (which, by the way, is not a simple reversal system, but uses an elaborate set of filters) during the trending 1970's made regular and substantial profits. The same system lost heavily during the middle and late 1980's. The basic signal with two moving averages is the crossover. Buy when the shorter average crosses over the longer, and sell when the opposite occurs.
Three Moving Averages
The most popular triple moving average is the widely followed 4-9-18-day method popularized by R. C. Allen in the early 1970's. The third moving average opens up a huge number of potential trading possibilities.
Generally speaking, when a market has bottomed the major indication of a trend change is the 4-day crossing the 18-day. The confirming signal is the 9-day crossing the 18-day. As prices peak, the preliminary indication of a possible trend change will be the 4-day crossing the 9-day. This may be an early point to take profits. The trend reversal will be completed only when the 4-day and the 9-day cross the 18-day.
We like the triple moving average systems because they offer the advantage of a neutral zone as opposed to the reversal trading called for by the single or double moving average methods.
For example, in the 4-9-18 system discussed above, when the 4 crosses the 9 we exit our position and we don't take a new position in the market until the 9 crosses the 18.
We also like the triple system because the 4 crossing the 9 is a quick profit taking mechanism that overcomes some of the problem of giving back too much profit that we mentioned before. We believe that exits should always be quicker than entries in a successful trading system.
Four Moving Averages - Overkill?
Using four moving averages is neither as strange nor as difficult as it sounds. Used properly, the four moving average approach addresses some of the problems inherent in moving averages while losing none of the advantages. The method uses the four moving averages in sets of two. The two longest moving averages are used strictly as trend identifiers and are most easily utilized when set up as an oscillator moving about on either side of a zero line. The two shorter moving averages are more sensitive and are used for timing the entries and exits (usually on a crossover basis) only in the direction of the longer-term dual oscillator.
Trades against the trend are, by definition, filtered out. If an uptrend exists (as defined by the longer-term oscillator) only long trades will be taken as signaled by the shorter-term crossovers. Conversely, only short trades will be taken in a downtrend. There will be neutral periods during trend corrections. There will also be neutral periods during sideways markets. Whipsaws will not be eliminated, but they will be significantly decreased.
Most traders use a variety of filters to decide if the initial signal is valid. Filters come in two categories: price filters and time filters.
I. Filtering signals by price normally means waiting for the price to meet some additional criteria before entering the trade. This might be determined by measuring the amount the price has penetrated the moving average or measuring the distance that one moving average has crossed over another. The trader in this instance is looking for confirmation that the moving average crossing was not a random price event but is indeed a trend change. The new trade is not taken until the price has exceeded the moving average by a minimum amount. Another variation of this filter would be waiting for prices to move by a given percentage after a crossover. Our favorite filter or confirmation method is simple: wait until you get a close in the new trend direction.
2. Time filters involve waiting a number of time periods after the crossover before trading in the new direction. Many moving average traders have observed that most of the whipsaws are very immediate and a slight delay in entry can avoid most of them. The waiting period would typically be from one to five-days. If the price stays on the new side of the moving average for the minimum time period, it is assumed that the signal was valid. Obviously the waiting period will tend to reduce whipsaws, but it may also give such a late entry that a major portion of a move may missed.
Which Moving Average To Use?
There is no real answer to the question of what combination of moving averages works best. We once saw a matrix, which contained the year-by-year results of every moving average crossover between 1 and 100 going back for 15-years. The conclusion of this study was that moving averages only worked if you knew in advance which combination to use in each commodity each year. Frank Hochheimer did the largest published test results that we're aware of in the early 1980's at Merrill Lynch.
We have done considerable work in this area ourselves and have tested hundreds of thousands of moving averages. We don't believe there is a magic answer. In practically every case, moving average values which worked well over past data just don't hold up well in present-day trading. This holds true whether they were optimized values or not. In testing, however, and in others where actual trade listings were available, one phenomenon kept reappearing.
As obvious as it sounds, almost any moving average combination is profitable if a market is trending, and almost no combination will produce profits if a market is not trending. The answer therefore is not in the search for the perfect moving average. It is in the search for a reliable system that will isolate the markets in which moving averages will be profitable. Then we want to trade those markets in a manner calculated to capture the most profit with least drawdown. Non-trending markets, as we have stated many times before, should be avoided or traded using a counter trend type of indicator.
How To Make a Moving Average "Work"
Moving averages are the simplest and most elegant trend-following study available. Within their limits, they can also be very effective. The limitations of moving average systems, however, can be severe. Most markets spend more time consolidating than they do trending. A non-trending market can be a tough, an even fatal test for the most carefully chosen moving average trading system. Here are some of our thoughts and conclusions on how to help a moving average system survive.
1. Try to confine your trading to only the trending markets. Diversification helps, but don't trade all markets indiscriminately. At any one time, less than 50% of all markets can be defined as trending. Most of the time the actual number is considerably less than that. Find a way to objectively define a market as trending, and only then apply moving averages. We recommend Wilder's DM1/ADX as a reliable study that indicates the extent to which a market is directional or trendless. A simple explanation is when the ADX is rising, the market is trending, and when it is falling, the market is directionless. We also believe the Commodity Channel Index indicator has some applications as a tool for finding and measuring trending markets.
2. Moving averages in general react too slowly to be useful for exits. Use an alternative exit strategy. We think most common mistake made with moving averages is using the same set of moving averages for both entries and exits. If you use slow averages you will do well on the entry side, but will be too slow to exit and give back most of the profits. If you use faster moving averages, you'll have better exits but find yourself getting whipsawed on the entries.
Mini S&P & Ed Moore - J. Hoyer
Information (request) about trading the e-mini S&P. It is comforting to see that a better trader than me also has problems trading that contract profitably. However what I would like to ask is not directly related. Does any member have any experience with learning from Ed Moore - ($4,500 for the learning package)
Editor's Comment: We've heard both good and not so good about Ed Moore and his trading methodology. This does NOT reflect poorly on him as this "good and not-so-good" scenario is true with basically every trading method, trading system and trading product vendor, not just Ed. I am sure Ed is very knowledgeable and tries real hard to do a good job for his clients.
This diverse positive or negative feedback on the same trading systems and trading methods also has occurred with CTCN's own trading methods and trading systems, such as our new Real Success Methodology and old Swing Catcher Mechanical Trading Systems!
For example, I recently concluded a string of 14 out of 14 winners in real-time trading (not hypothetical) until my winning streak ended (yesterday) with a bad trading day. However, some clients may not have experienced such a successful run in real-time, as Real Success is not 800 mechanical and results will vary.
Seemingly contrary feedback and experiences are especially so with non mechanical methods which are partially subjective and not 800 mechanical, as I hear Ed's approach is, or our Real Success method.
It's because your success or lack thereof depends to a large degree on both how well the method is taught, your skill at learning it, and most importantly your discipline and success at applying it in real-time trading situations. Some traders do it real well and are happy with a trading system or trading method they acquire and others are unhappy with the identical system due to these reasons!
In trading commodity futures personally since 1982 and also offering trading products and services to traders since 1987, I have NEVER heard of a trading method everyone liked or everyone disliked.
Another apparently odd event is the fact several times in the past I have received letters, e-mails or phone calls from 2 different traders on the very same day, one saying the trading method he is using works like the "Holy Grail" and the other trader saying the same exact trading method is a rip-off and worthless, after both had traded it during the same time period!
We will be discussing this subject and a lot more at our Year 2001 New Millennium Trading Seminar and Workshops - Go to http://www.trading-seminars.com for more details. You really should attend!
Using CSI Data with Omega's RadarScreen - Bob Pelletier of CSI
Since Sheldon Knight's "How Clean Is Your Data?" article appeared in the September 1999 edition of Futures Magazine, we have received many calls from people wanting to know how to use CSI data with their trading software. RadarScreen, which is Omega Research's 2000i product, was a program of special concern.
Data format compatibility was not really the problem; it was more a matter of convenience (or lack thereof). While Omega requires only 10 or 12 mouse clicks to use RadarScreen with all of the stocks in their own historybank.com database, any outside database require about 40 keystrokes per stock, plus a requirement to enter the stock symbol twice and the full stock name once.
The 2.7 million required mouse clicks take the bulk of the time to identify all of CSI's stocks with Omega's 2000i product. Whether or not it was the intent, the result of these extra mouse-clicks is to effectively discourage use of any third-party database.
Since so many Omega Research customers wanted to use CSI data with their RadarScreen, we added a file to UA containing all the stock information, and included programming (CSPs StockScanner) to automatically supply the many mouse clicks required of RadarScreen to use a vendor other than Omega's private label of historybank.com.
These enhancements reduce the cumbersome procedure to a totally automated 14-step process. We've included a document file called RadarScreenlnstructions.doc in UA version 2.0.1 that gives instructions for using CSI's Unfair Advantage database. The steps are fairly easy to apply, but the process takes considerable disk space, and one very long step must be endured to get the job done in perhaps one full weekend.
If you missed Mr. Knight's article, you may be wondering why anyone would go to such lengths simply to use a different data supplier. The article reported that Omega committed some 21.75 errors and omissions per year per data symbol; whereas CSI, the best overall vendor, committed 4.48 per year per data symbol (based on a controlled study using S&P 500 futures and a CBOT commodity).
If equivalent performance can be extrapolated to stocks, then the result of any trading experience might be dramatically improved by using CSI for your analytical work. Omega's projected error rate of 21.75 errors per year (250 trading days) translates into .087 errors per day. If RadarScreen scans a 30-day period for any given stock, the chance that all 30-days of data is error free is less than 6.6%.
Investing real dollars on such slim prospects of accuracy would, it seems, certainly violate anyone's level of tolerance.
A summary conclusion of the Sheldon Knight study compared the performance of Omega's data bank with CSI using a simple breakout system and found that Omega's profit performance, over a 2-year period, varied by as much as 50% below that of CSI.
Data source does make a huge difference in results, not to mention the enormous waste of time in analyzing thousands of stocks without gaining a sound conclusion and dependable course of action.
To their credit, Omega Research allowed us to run an advertisement in their Omega Magazine demonstrating the superiority of CSI data over their own. Omega makes a great product, but restricting vendor choice through millions of required mouse clicks and unnecessary procedure is not a way to foster great customer satisfaction. In a full-page letter published in Stocks & Commodities Magazine's Nov. 99 Edition (pg. 27), Bill Cruz of Omega Research said in the introductory topic sentence of his letter, "Your financial success is important to us." If he really means it, perhaps he will listen when you ask he make his products work as well with outside databases as with his private label database.
Editor's Note: I have known Bob Pelletier and been using CSI for end-of-day market data since the early 1980's. During these many years I knew CSI and their data quality was by far the best, even without specific evidence. The Futures Magazine article on testing data quality now proves my view. For more info on CSI please visit the CSI link on our website http://www.webtrading.com/links/csi.htm
Losing While Winning -
reprinted with permission of Technical Traders Bulletin
There is an often-repeated story in futures industry about a famous trader at a major Wall Street firm who was assigned the difficult task of helping some valuable but "unlucky" clients recoup their previous trading losses. The trader setup a system of communication where he would send wires to the respective brokers who would then relay his advice to the clients and confirm back when the trades had been implemented.
The trader sent out his first wire and suggested that everyone should buy soybeans. The communication worked well and the trader promptly received confirming wires indicating that everyone had indeed purchased soybeans as instructed.
The first trade went surprisingly well and within a few days the positions were very profitable. The trader then wired instructions to take the profits from the long positions and to go short. Again the confirming wires flowed in promptly. The trader seemed to know exactly what was going on in the markets and the reversal became another nice profit, which was quickly followed by two more winning trades. Then he made a fifth recommendation that produced a modest loss.
Assuming the clients were all well on the road to recovering their previous losses after having four winners in five trades, he boldly sent out his sixth recommendation and waited for the usual confirming wires. When he received none, he assumed a communications problem and rewired his instructions. Again there were no responses. Annoyed that the clients and brokers would have lost faith after only one losing trade, he picked up the phone and began calling the brokers. To his total dismay, he learned that the clients were all broke again and some had even less money than when he had begun the project.
The trader learned after each winning trade, the clients became more enthused about the project and the trader's ability to call the markets. The clients had all begun confidently pyramiding their new profits and had quickly become over-extended. They assumed he would be right again and again. With bigger and bigger positions, the eventual but inevitable loss took back all of the new profits plus more besides.
The trader had learned a valuable lesson and was unwilling to continue project without control of funds as well as the trading decisions. The well-intended project failed because of the absence of money management disciplines. As illustrated by this true story, importance of proper money management far outweighs the importance of good trading signals.
Analyzing Across Time Periods - Geoff Lewington from Australia
This article shows how analysis across time periods can be meshed together.
The Choice of Analytic - First of all, you've got to choose an analytic or statistic to use. I rather like Displaced Moving Averages (DMA's) and I'll go on to define these a little more carefully first. In truth, it's not really that important to this little note which statistic you prefer to use.
In my opinion any swing trading algorithm will do. In truth, there are enormous mathematical correlations between using DMA's, Turtle Techniques, Swing Charts, Point & Figure Charts, the list goes on. But the mathematical similarities are another story. I choose DMA's because they seem to work for me.
Displaced Moving Averages - Now just to be clear, I define an "m by n DMA" (call it DMAmxn or simply mxn) as the "m period Simple Moving Average displaced forward n periods."
If there are ten closes, we have enough data to calculate six 5 (say) period SMA's, each of which is plotted 3 (say) periods ahead to become the DMA5x3 (or 5x3). These averages, then, extend to the right of the end of the data on the chart. The chart shows the 2SPZ9 (SnP contract, floor session only) on an hourly basis using Candles and 3 DMAs; viz.:3x3, 8x5 & 2lx8.
The S&P Dec 99 Hourly Chart shows how the averages project into the future. That forward projection, in my opinion, is one of the best properties of this method. You always know ahead of time where your analytical support and resistance lines lie.
Many chartists claim great results using only simple moving averages; but back-testing is invalid, because the statistic itself is not known before the market closes. Signals are invalid, because they can't be taken until the next time bar, and this distorts the results significantly.
Editor's Note: I once reviewed a fully mechanical trading system that was based on displaced moving averages. It's a coincidence these two examples are based on Moving Averages. They could be based on almost any technical indicator, not just moving averages.
This trading system seemed amazingly profitable at first glance, with consistent winning trades and surprisingly low drawdowns. However, upon further review I discovered the computer program used to calculate the trading system's P&L Reports was basing the trades on false assumptions. In all likelihood the developer (who I knew well and seemed honest) did not realize this was occurring.
When doing back-testing P&L Reports, his computer made the false assumption the trading system knew a day In advance prices for the following day. The computer already had this info from its database and was using tomorrow's prices to calculate trading signals of the day before!
Of course, this was not possible, unless the trader had a Crystal Ball to see the future! This made a huge difference in the trading systems performance, going from a very profitable computer back-tested trading system to a losing trading system.
It took me a long time to convince the developer this was happening with his trading system, which he seemed to deny at first as he thought his trading system was the "Holy Grail." I am not sure to this day if he ever really believed this was happening as he seemed to not understand or perhaps really did not want to hear what was really occurring with his computerized back-tested trading system he believed to be "Holy Grail."
Also notice that I've drawn the DMAs using stepped lines. That's what they are. Using straight or curved lines through the points can be misleading. A DMA is one number per period, not a line.
The Trading Algorithm - Okay, so you know what a DMA is. But how do you trade the thing? Glad you asked. My number one golden rule of trading is "Never trade without a stop loss." And that generates the trading algorithm. You go with a break by the market of at least two DMA lines and use the outermost line as your stop loss.
Ah, you say, but you've got three lines. Yeah, I know. The three lines I use are 3x3, 8x5 and 2lx8. I usually use the 3x3 and 8x5 as if they are one; taking the outermost of the two as the value to use. Occasionally, when other analysis leads me to take a view, I will elect to enter the trade on a break of the first two lines only. When I do this, I'm always very cautious as the market approaches the third line.
Got that? It's not too difficult is it?
But it's not exactly what I really do. It has some problems. Over a length of time, this algorithm is likely to fail. You get some really great trade entries, and some really profitable long swings. But ultimately, the system promises to take that gap between the lines away from you.
If you don't do something slightly different, the stop losses and churning will outweigh the winning runs. Bugger! Is that really right? Turtle Traders do something very similar; they stop-in on a break of the 20-day extreme, and stop out at the 10-day extreme (simplistically anyway).
They make money only in the long run, and diversify over many markets to achieve a consistent return. The 20/10 thing is really just the same as using two DMAs of different lengths. But I can't do the diversification bit, I'm just a little punter, so I have to add some more complexity to the algorithm. And this is where multiple trading periods come in.
Watching Multiple Trading Periods. I'll start with a graph. 2SPZ9 again at the same time but showing 4 different time periods: 5-minute; 30-minute; hourly and daily. So the chart means something to you all, it was taken after the close on 10-21-99 which was the day IBM sold off 20% and led a general market decline which was subsequently all but reversed in the last hour of trading. Its been a volatile period and so is a good warts and all representation of the approach. <<> >
And this is how one might analyze these four charts all at once. It's not there, but I know from my other charts, the S&P-500 Weekly Chart says this market is going down. The weekly bar-chart was broken much earlier at 1350 and where weekly resistance now lies. Too far above to allow safe trade entry now, but useful information as it tells us that this is a bear market according to the weekly time frame.
Next have a look at the daily. What a mess. If you'd traded just this time frame and taken each signal, you'd be broke by now. Still this chart is also telling a bear story. And that last little spike above the DMAs at 1340'ish was one of the best trade entries for a while.
If you traded the line (sold against it) you would have made a loss as you stopped out the other side. But what the line did provide was the knowledge that a failure right there was likely to be important. It made you look for other confirming signals.
So then have a look at the hourly chart. You think the market is going down longer term, and you're looking for a safer entry around the area of possible failure in that 1340 area. The Hourly did it for you. The trade was to sell on a break of the Hourly lines or sell on stop at 1334. Great trade, look at the move.
Without watching any other time frame from then on, you should have stayed short all the way down to about 1280. Now, since that break back above the DMAs, the market has retested the 21x8 DMA twice. It has held both times and this tells us that this line means business now; it is potent support.
The 30-minute bar-chart has a few stories to tell also. First, using the 30-minute, you could have stopped out of your shorts on a break above 1267, a saving of 13-points. Worth considering; maybe the trade was to buy back half using the 30-minute. Not as easy as it looks, as that would pretty much have been a stop on close, after which the market gapped up on Globex on Texas Instruments profit results.
Anyway, the second factor that this chart showed, is the support it provided after the IBM related sell-off. The 21x8 line was definitely broken, and this short signal was not invalidated till later when the market finally rallied through 1285. Here a 1285.5 stop was the way to go. Have a look, though, at how the market hovered over that line; there was a lot of work being done there and that line too must have some serious potency as support now.
So far you probably guess that I sold 2-lots at 1334, bought one back at 1275, and the other back at 1280. I might have even gone long 1-lot from 1280 because of that hourly chart. Well, almost. You forget I'm human and I'm the guy that picks the trade. That scenario would have been perfect. But as the girls keep telling me, I'm not.
This is what I really did. I slept through the 1334 (I live in Sydney and needed sleep badly that night). So I sold one the next day (only one now because the risk was greater as the resistance was further away). Bought it back at 1277 (on that gap up). Sold it again at 1281 and bought it back at 1274.5; just because my gut said it'd fail and test the old resistance (old resistance becomes support).
I then went long 1-lot from 1282 to 1292 selling only because of the obvious impact of the IBM news. Remember I can only go long 1-lot because the daily and weekly analysis tells me this is a bear market; and I sold quickly for that reason. Then, remember I'm a bear now, I sold one at 1288 and one at 1285 and placed a stop at 1292 all on Globex. You can see it on the 5-minute chart; a break of 1292 was bearish. The market had already gapped, so I figured 1292 was enough room.
This is where I lucked out a bit. When I saw that the market had broken the 1280 level, which appeared so strong on the 30-minute, I split and dropped my stop to be one at 1285.5 and one at 1286.5. Got stopped on the first one. Market failed from there. I had definitely brought the stop too far down too soon, you can see it's below the top line on the 30-minute chart.
I grumbled at my foolishness, but I didn't resell it. Thank goodness, because it wasn't long before the phone rang to tell me the second lot had been stopped out also. Opportunity missed to take profit on this last venture, but I made a little bit, and with IBM down 20% the potential reward for staying short was rather large. Perhaps, though, I ought to have watched the 30-minute and hourly levels for reversal a little more closely.
What was that? What's he mean? Not a bad example really. I made money, so I look good; that's important. But think of the principles that are evident. I'll list them.
1. Longer period analysis identifies the long trend. Trade with this trend. Don't fight it.
2. Longer period support and resistance lines provide likely targets for retracements and therefore also form ideal areas to fade the market and enter a trade with the trend.
3. Sure, trade with a shorter frame, especially if you're looking for a potential reversal in a higher frame. You know, sell the 5-minute in anticipation of a larger break in the 30-minute or hourly. But in this situation, don't just set stops based on the 5-minute; be aware of potential rejection at those higher time frames. The market might not be ready to accept your genius; it might bounce.
4. Once broken through, a market can often return to retest the old lines of resistance or support. What was once resistance, becomes support, and vice versa.
Ultimately, this is a more complicated approach to trading. I have no idea how I'd program this for back-testing. And anyway, no matter what the system, it's the trader that makes the trade, so judgment is paramount.
Editor's Comments: Thanks Geoff, your thoughts on how to combine various time frame charts are interesting.
You might be interested to hear your Editor has been working on this subject for many years. I have always realized as a fact (even before a trading model or any testing), if there was a reasonably accurate way of blending various time-frame charts together, it could turn out to be highly predictive and profitable.
After many years of research on this I now believe we have finally discovered how to do this. It's not fully mechanical and I don't believe it can be made fully mechanical. However, it can be taught and you can learn how to do it .
The specific methodology we recently developed for blending various time-frame S&P-500 bar-charts, e-mini-sp in particular, will be covered extensively at our upcoming Year 2000 CTCN Seminar and Workshops scheduled in San Diego, California May 7 thru May 10, 2000.
At our upcoming trading seminar we will teach attendees how to blend 1-minute, 5-minute, 15-minute and 30-minute e-mini-sp bar-charts together to predict short-term market direction and trade in this direction.
Several other potentially very profitable daytrading techniques will be taught, including how we accurately place stop-loss orders and project target prices based on both Negative and Positive Maximum Excursions. Plus, our trade entry techniques based on retracements within Keltner Channels and Keltner Bands, etc.
We'll tell you what defines a bullish or bearish intra-day chart? This is the million-dollar question! Our answer is not fully mechanical and is not the traders "Holy Grail" but is definitely an advantage to have in trading futures markets.
We will show trading seminar participants exactly how to deal with the big problem of even if you manage to blend the various time frame charts, how to deal with the fact the long term charts are lagging in that it will be a number of bars before they react.
For example, you would not want to be long based on a long-term (for intra-day day-traders) 30-minute bar-chart chart being bullish, waiting for its delayed bearish reaction, as the short-term charts are already reacting to. Our Seminar will teach you how to deal with these problems in a hands-on interactive way over the course of four-days of personal learning.
By the way, I had 2 out of 3 winners again today (maintaining my high percentage of wins recent track record) but still only made $75 due to the incredibly small e-mini SP contract size what with a 100-point move only equaling $50, coupled with the incredibly high (by comparison to full-size contracts) broker commission rate! This has happened before even to a greater extreme!. We now have ways to conquer these problems! More on this later.
High Commissions Trading E-Mini S&P and Stock Indices - Tony Robson
I have read your e-mail regarding S&P commissions. The original splitting of the full size S&P contract and the introduction of the e-mini SP was always seen by myself as a way of extracting more money from the traders to put in the pockets of the brokers and the (Commodity) Exchanges making the task of making money trading even more difficult.
Whenever I developed a trading strategy and find out after a time, the commissions are greater than the profits earned I look very seriously at if the brokers are making more than I am making and whether it is worthwhile.
Being based in England I only trade the FTSE Futures. This suffered a similar fate to the S&P in that the points value was cut from £25 a point to £10 a point with as you can guess the commissions staying the same at between £15 and £20 a round turn (pushing up dealing costs). Fortunately, the FTSE can now be traded over the Internet and I now trade through this medium with a round turn of £8 (U.K.).
It might be worth your U.S. S&P traders to look at Interactivebrokers.com who advertise S&P e-mini trading for $9.90 a Round Turn (all fees included). I don't have an account with them and cannot vouch for how good or bad they are, but it's about half the price you may currently be paying.
Editor's Note: Several club members have e-mailed us about trading e-mini S&P's at Interactive Brokers or Reifler Trading Group. Both offer comparatively low e-mini commission.
For more details and the exact commission rate (including All Fees), we visited both their websites and also sent them both e-mails and made telephone calls. We are still researching these two brokers and waiting for them to get back to us with more details so we can evaluate them better. Unfortunately, both these firms seem real slow or even totally non-responsive with communication attempts from us, which unfortunately may not reflect well on them and is something to be concerned about.
Perhaps this is a misstatement but it's hard to escape the thought regarding if a broker is poor at communications which may mean significant business, and profits for them, as in this case, can you imaging how slow they may possibly be at responding to problems, questions or other difficult issues once your account is opened.
Their website addressees are: InterActive Brokers www.interactivebrokers.com
Reifler Trading www.interactivebrokers.com
Unfortunately, we have also had poor communication problems involving other firms and one broker (who we have known and dealt with for a long time), in particular. This broker seems to ignore most of our e-mails and also rarely returns phone calls or contacts us as they said they would do.
For example, they offered to originate a conference call with myself, my Account Manager Broker and its President to discuss the commission rates they could offer CTCN clients but never did call, even after many follow-up requests by us for the promised conference call.
It's also fairly rare they respond to our e-mails about other subjects, either sent to the Broker or its President, this is in spite of the fact it could mean brokerage trading clients for them!
The least any firm can do is reply to communications, even if a reply accomplishes nothing positive or is even negative in nature. At least the you know the company cared enough to respond.
One problem with e-mail correspondence (voice mail too) is the fact it's easy to ignore it. Some recipients seem to think perhaps the sender will forget about it or maybe believe the e-mail was not delivered for some odd reason!
At this time we are actively speaking to several brokers we are familiar with and evaluating their services. We want a broker we can recommend to clients (and use ourselves) who offer fast fills, good service and low rates.
Plus, a Website Sponsoring Broker who will also be financially supportive. We need this for low commissions availability to our members and also to keep membership costs low.
Also, very importantly, they need to offer CTCN members low brokerage fees, on e-mini-S&P trades in particular, where the commissions are critically important, much more so then regular Pit Based futures markets.
One commodity broker we are negotiating with may be offering commissions 33% to 40% lower than the typical round-turn commissions now being offered to our cub members by another brokerage firm.
Lower commissions will help your bottom line a lot, especially involving trading the popular e-mini S&P Contract.
Cross your fingers and hope we are able to successfully negotiate Commodity Broker Sponsorship and accompanying lower commissions for our traders club members. For up-to-date details and its availability go to our website http://www.webtrading.com
Online Real-Time Data Feed Problems & Phone
Line Connections - Ken Korff
I noted you were planning to mail CTCN. I prefer and can accept the issue via e-mail.
Dave, thanks for your fine comments. Your past comments (on data feeds) confirmed my suspicions after double-checking everything.
Editor's Comments: Ken, we're not ready to use email or Internet delivery for this Issue to all club members but may try sending it via e-mail to some members. If you get this issue via email, the charts will not be there and some formatting may possibly have problems. Will be doing a better job with future online issues.
By the way, we are lacking many client email addresses so it was put on the back-burner for this issue but hopefully we will get most e-mail addresses by our next issue.
We ask everyone to please provide us with their e-mail address for our records and for our next issue. Even if you think we already have your e-mail address we would still appreciate you sending it to us.
Some of our e-mail address records are not up-to-date or have been lost due to our switching data bases recently and some unexpected data base data input problems.
We plan on sending future CTCN Issues electronically providing we get everyone's e-mail address.. An excellent way to make sure we have your current e-mail address is by adding yourself to our Microsoft LinkExchange ListBot (Opt-In) E-Mail Mailing List at firstname.lastname@example.org
Simply send a new message to email@example.com and you will be added to both our free opt-in e-mail communications list and also our client list for future electronic delivery of Commodity Traders Club News.
You may also post messages and articles via our e-mail communications list this same way. By sending an e-mail to firstname.lastname@example.org we will forward your message to list members, which currently numbers about 1000.
It's known as an Owner Moderated List, meaning we approve all messages before they are transmitted to everyone on the list. Please participate in our new interactive online forum.
After more than 3-months of continuous daily Hell dealing with PC Quote (and it's working within Omega's TradeStation 2000i) I have found out thru lots of bitter experience the same thing you have about 56K Phone Line difficulty.
It may not be entirely PC Quote's fault but could be the fault of the Telephone Companies with inadequate or noisy phone lines. Once they all convert to the new Fiber-Optic Cable Lines it should solve the problem but it is likely many years away!
The fact I have recently switched to E-Signal also seems to have helped, as it appears to be much more reliable and stable than PC Quote.
Here is something interesting about the 56K and 28K (and 33K) Phone Lines. Sometimes my live data feed does in fact connect using the 56K Connection at a real connect speed of 49,333, a very good speed. However, due to so-called noise in the lines it frequently lost the PC Quote Signal and there was no easy way to reacquire it other than a complete re-booting of my PC.
Thru lots of trial and error on my part and almost no worthwhile help or else wrong answers or bad advise from Tech Support at PC Quote, Omega, my Local ISP and Telephone Company (U.S. West) I learned myself the 28K Connection works well. I switched back and forth between my Local ISP's 28K Phone Number and 56K Phone Number.
I learned there is absolutely no perceivable difference between the phone connections, from what I can see, as far as the price quotes speed goes. I compared the two connections perhaps a hundred times over several weeks and am convinced it makes basically no difference. If there is a speed difference I doubt if it's more than a fraction of a second.
I believe there is little if any difference in the speed of the ticks arriving at my computer and TradeStation 2000i Screen as the phone line connection speed in my opinion has little (if any) significant bearing on the quotes speed as the ticks are not continuous but only change every few seconds or sometimes even longer intervals, on average.
It seems to me the connection speed would only make a significant difference on a continuous and steady Internet feed, such as when downloading or uploading a file or getting a web-page, etc. I have both my ISP's 28K and 56K local access phone numbers and have switched back and forth many times for experimentation.
It appears to me there is in fact a big difference when I connect at the two speeds and do web-surfing or program downloading and uploading but this is based on a 800 constant data input and output flow. This is not the case with occasional (non-continuous) quotes coming across every few seconds or so, rather than a continuous data flow.
For the past two weeks I have given up on trying to use the 56K Line and now use the 28K Line exclusively. Since doing this my Real-Time Data feed is now working much better, in particular the E-Signal service, compared to PC Quotes past poor performance. There have only been a few isolated data flow interruptions since using 28K, compared to constant and never-ending connection problems with 56K connections.
The reason I know 28K Connection are in fact almost instantaneous is because sometimes when I am on hold at the ZAP Futures Trading Desk, perhaps calling with an order entry question, I get a Free Floor Squawk Box to listen to while on hold. This is where you hear a continuous dialogue of the bid/ask prices on the Exchange Floor and S&P Trading Pit.
I once listened to it for about 15-minutes as I watched the live-ticks on my TradeStation 2000i ProSuite Screen. The ticks were only a few seconds behind the Squawk Box bid/ask Quotes. Sometimes it seemed they were almost simultaneous to what I heard verbally.
There is one oddity I have always been worried about and never been able to get a satisfactory answer on. It seems like many of the ticks are missing.
In other words I would hear say 10-quotes verbally but only see perhaps 3 or 4-ticks on my screen. I have noticed this same oddity in the past when using data from both Signal and BMI.
At one time a few years ago someone at DBC Signal gave me an explanation about why their online real-time data feed seemed to have lots of missing ticks. They said they do not report the ticks that take place at the same price, only different price level trades.
I am not sure if I buy this odd explanation and of course always wonder why they would do this in the first place. Why not report all trades, why only some of them?
Perhaps there is another explanation for missing trade ticks. If true it sure makes Trade Tick Volume Study technical analysis worthless, as the reported Tick Volume would appear to be basically meaningless.
The Large Profit Trades Compensate for The
Numerous Losses - Ivan Mark
My feedback on many of these questions is Many of these (trading) systems do "work," of course some better than others. Investors should be sure to know when to use the system and when not to. This is only done by following past suggestions and doing your own analysis.
I have found that the best money is made when the trade would yield a large "potential" return. That is watch the weekly charts and see when it turns on the weekly stochastics. This will indicate a larger "potential" trade profit.
After all it is the large profits, which will compensate for the numerous times "we" or the system was incorrect. Last advise if nobody really knows which way the market is headed so watch your trades carefully and be sure to enter you disciplined stops in case your trade is sour. Cut your losses and let the winners ride.
I have found you must do your homework yourself and use other peoples trading systems only as a guide. Timing of the entry into the trade is also very crucial. Best spots to enter trades are where everyone else has set stops.
Greg Donio's Option Contributions adds
to CTCN's Content - Rick Roe
I enjoy Greg Donio's contributions. Not only do I gain investment knowledge but I find his style and command of our language beautiful. While I'm concentrating on my trading skills his articles somehow serve to give me perspective and remind me of why I'm working so hard.
As a member I'm pleased to see how far Mr. Green has come in the development, distribution and content of CTCN and I think we as members are very fortunate to have someone as articulate as Greg as a prolific contributor. If you want to see the other side of the coin go to any investment newsgroup and read some of the inane, boring and many times profane postings.
Editor's Note: Yes Rick, many online Usenet Newsgroup Postings are worthless! Many are amazingly obscene and incredibly nasty toward trading product vendors in particular. I have seen some online postings, which should have been reported to the Police.
Such as an actual threat to the life of a well-known trading course vendor Mr. Kent Calhoun of KCI Seminars. I recall an obviously mentally sick commodity trader asking on the Newsgroups for the address of Kent's home and a plan to run Kent down with his Pickup Truck as Kent walks down his street! Also, some nasty Newsgroup Members doing online postings trying to get Kent's 800 number so they can swamp it with junk phone calls all day to make him pay a huge 800 number phone bill! (luckily for Kent, he did not have an 800 number at the time).
I have seen many other very hateful and obscene postings with every four-letter word you can think of mentioned against people like Larry Williams. No one deserves what was said, especially Larry Williams who has contributed so much to traders knowledge for many years.
These constant highly negative postings from this a group of nasty people are the main reason myself and CTCN stopped participating in these online Discussion Groups, such as Misc.Invest.Futures, RemarQ, DejaNews, etc.
Two-Years Doubling My Money and
Three-Months To Give It Back - J. D. W.
About 4 or 5-years ago I bought Keith Fitschen's program, as well as Randy Stuckey's, and one designed by Future's Truth. I don't remember the names since the programs are all now hidden somewhere in my attic.
My idea was to have my broker trade three of them at the same time to diversify signals with the "best" programs available. At least the best as designated top of the list by Future's Truth.
I cannot say which program did what, but the bottom line is that it took me 2-years to double my money and 3-months to give it all back. At that point I stopped trading. I believe all these programs participated in the disaster.
Before I bought Aberration, Keith Fitschen sent me a copy of his own monthly statements to show how well he did, but I noticed that there were options trades as well; so his statements were not actually a reflection of his own trading.
Not very encouraging when the author of a program has to give you modified statements in order to sell his system. Incidentally, I still have the programs and don't mind selling them if anyone is interested.
Editors Note: We know John R. Hill and George Pruitt from Futures Truth well from the past when we published their Top-10 Rankings, though its been a long time since we last spoke. They seem to be honest and reputable. Nevertheless, we stopped reporting their trading system testing results as our clients found them of very dubious value based on actual trading. We have been warning clients for several years that rarely, if ever, does anyone report achieving results anywhere near the trading performance reported by Futures Truth.Many times we have asked Futures Truth to try and explain in an article this odd scenario but they consistently ignore all our requests for their insight and feedback on this subject.
Cut Losses and Let Profits Run - Cutting
the Wrong End - Rick Ratchford
We've heard it time and time again. And yet, even well-seasoned traders will let this obvious wealth tip go right through their fingers. "Cut your losses and let your profits run."
For most people, something inside them just keeps them from following either part of this plan. And this something usually can be narrowed down to their "gambling" self.
Those who take chances by not cutting their losses short are taking a gamble. They are gambling that the loss they have accumulated so far will soon decrease, bailing them out of a bad spot and possibly providing them with a winner. They will do this rather than take a sure loss, one that they know the amount up front.
For example: A trader may be in the red by $1000. If the trader were to cut his losses now, he knows exactly what his loss is, $1000. However, by staying in a losing trade, he is taking a chance that he might recover. But this also leaves him open for deeper losses of an amount he is not aware of. That known amount is put aside in favor of possibly making it much worse. Thus, a gamble at best.
The odds of such a losing trade is much larger to get worse than better. Yet, for that small possibility of improving a bad situation, the trader gambles with mounting odds against him. Eventually the loss gets to become a size, which forces the trader out. This is how many wipe out their accounts.
There is another side to this. Letting one's profit run. Most traders, especially those who have a series of losses, will jump on the first sign of a profit. They've done their homework, and ended up in a very good trade.
Now there is some profit in the kettle, they immediately abandon their original expectation of a sustained move in their favor, and cash out. Here is where they decide not to put on their gambling persona, out of fear they exit early.
For example: A trader may be in the black by $1000. The move has only gone about one-quarter of the way towards the trader's original expectation for the move. However, fear of losing that $1000 kicks in and the trader cashes out. The problem here is that the odds were now in his favor to continue. A winning trade has a higher probability of continual success, and should be exploited. But fear usually wins out for those who just can't seem to get ahead.
Letting your losses grow, and having the mentality to allow that, but on the opposite side losing that edge and cutting your profits short is a sure recipe for disaster. A good trader must learn to watch those profit situations carefully, but run like heck at the first sign of losses.
What makes it difficult to adhere to these common sense principles is the desire we all have to produce a winner. We want to be right all the time. Who really wants to lose? This inner desire to be right all the time is what hurts even the best of market forecasters.
There exist several market analysts that produce forecasts of outstanding accuracy. Big players may use the advice of these ones due to their incredible ability to determine market action. However, many of these analysts themselves may not do as well as those using their work. Why? Because of the need to be right, the one doing the prediction has his ego tied to his work, which makes it difficult to accept anything that differs from the prediction. Thus, it becomes very difficult for one to trade that which he publicly predicts.
As a market analyst, I know this problem personally. When I try to trade a publicly made prediction, the results are less than favorable. However, whenever a trade is done in private, then the results are wonderful.
It almost starts to feel like making a public prediction destroys the opportunity altogether, as if some mysterious individuals are waiting for the prediction, and then making it a bit more bumpy than expected just for you. That mysterious individual is really our egos.
It's important we remove the need to be right all the time. Take the trade with an open mind, that if it moves in our favor, we will take steps to stay in but safeguard the trade. If it crosses into an area that we pre-defined as the most loss we are willing to take for that trade that we do so and consider that a winning move. Because in the long run, if we cut our losses short, and let our profits run, either way, we've won.
Re: E-Mini S&P-500 Commission Rates By Matt
(Last Name Withheld by Request due to NFA Compliance
I am a commodity futures broker and I have some input that your users may find helpful. The popularity of the e-mini SP contract is growing exponentially, yet many firms are charging commission rates that are making trading the contract profitably very difficult.
I'm not sure whom you spoke to at ZAP, but most firms are being charged lower rates for the e-minis and therefore should be able to charge a lower fee in line with the service provided
More on this from Matt Perhaps, it may be a special case to ZAP Futures, but in general fees being charged by the (Chicago Mercantile) Exchange are lower for E-Minis. Plus, the fact that there are no Floor Brokers to pay. The CME is not doing anything to stop the growth of the E-Mini. Yes, there are huge politics involved.
Floor Traders and Floor Brokers can see the end of their floor careers flashing in front of them. But, the CME realizes that they must go the electronic route or be left behind like a dinosaur by futures exchanges like SIMEX, LIFFE and MATIF. There is a sort of vicious circle being created by this process.
Obviously there's much greater bang for the buck in trading a big S&P commission-wise over the e-mini, but e-mini's have advantages many believe outweigh the commission negative.
Unfortunately, retail customers are not going to be able to trade the e-mini for $3-4 any time soon because of the high costs beyond just dealing with a broker a firm has. The object for people like me is to take a difficult situation and try to make it reasonable. I have several customers who have abandoned the big S&P in favor of trading multiple e-mini contracts and the advantages of the electronic market.
If you ever run across anything kind of strange like what you heard from ZAP Futures, drop me a line, and I'll see if I can add my two cents. By the way, I really like what you're doing with this list. Too often traders feel left in the dark by themselves. Let me know if there's any other ways I can contribute.
More on this from Matt. . . Currently about 75% of my business is online e-mini S&P 500 business. What I have been able to do is charge a commission equal to one tick (i.e. $12.50 per round turn), which is all-inclusive.
This price includes an On-line Internet trading environment and a "broker backup" should any problems with the program arise and other services. I would like to discuss my services with CTCN further if you or your readers think you would be interested. I don't know what your policy is as far as advertising.
Editor's Note: Several other members who are also commodity brokers have said the S&P-E-Mini-500 broker's cost is lower for the broker. However, others, including the President of ZAP has told us the opposite, saying mini-sp costs are about the same (or even higher) than Trading Pit based Open-Outcry contracts.
I have no idea why we have received such contrary feedback on this issue, as it seems this issue should be clear-cut, one way or the other. One observation we have not discussed is the obvious fact brokers now may have very little 800 Toll-Free Telephone Line expense with e-mini traders as e-mini orders are placed electronically via the Internet. Only under rare circumstances does the futures trader need to call his broker and his trade desk regarding e-mini orders and fills.
Also, the trader does not need to call his broker regarding open trade positions during trading hours, end-of-day positions or his account equity. These trading reports are either available online or e-mailed to him automatically (at virtually no cost to his broker) during the trading day and after the day-session close. Plus, the broker may e-mail or post online to his clients notices regarding many other misc subjects.
This also greatly eliminates the need for traders to call the brokers 800 number and also reduces the cost of postal mailings to clients.This almost total elimination of e-mini trade toll-free number calls and other significant cost savings (like postal mailings) must sharply reduce the brokers operating costs, as toll-free numbers and mailings are a major business expense with most commodity brokerage firms.
In addition, the fact the orders are placed electronically means the broker likely needs considerably less staffing as far as his order taker trade-desk clerks are concerned. Also, a major operating expense reduction Therefore, it seems to me even if it's so the transaction out-of-pocket costs to the broker are approximately the same on e-minis, as ZAP and some others have said. Then the commission rate should still be much lower for e-minis.
The broker will probably argue about the large up-front cost of developing the Internet-Based online-trading software. This is no doubt correct and a significant initial expense to the broker. Especially for LFG and ZAP where great effort has gone into their excellent Internet Based trading software. I'm sure lots of money went into its development, especially at LFG, LLC., who I am told was the main developer of this fine software program for trading online. However, once developed and operational the cost of maintaining it would seemingly be relatively minor compared to its initial cost and the great savings involved with smaller trading desk staffs, lower toll-free telephone bills, etc. Plus, with Internet-Based trading, the brokers save lots of money dealing with Foreign Clients as they can now trade over the Internet with no overseas calls placing orders and checking their status.
Most brokers we know routinely offer to pay for these overseas collect calls or else have special foreign toll-free lines, a once major expense which can be now avoided! One last editor comment to the commodity brokers who say electronically traded e-mini commissions should be the same as open-outcry trading pit markets.
As Matt has pointed out, how can this be when the brokerage firm does not have a Floor Broker fee to pay with Internet traded contracts? We understand the Floor Broker in the trading pit charges at least $2 or $3 per contract. This significant cost is avoided with electronic trading! Is it possible we are somehow overlooking something here, perhaps some major costs, which somehow are even greater than the obvious immense savings to the retail broker as previously discussed?
Member Opinion on DBC Signal & Mr. Steve Merkley
Just wanted to let you know you may not be recommending the most honest guy here. I use BMI (satellite), I dealt with Steve. He (allegedly) out & out lied to me when I was making the deal. When we were negotiating, he brought their price in line with a competitor by dropping the freight charge. When I get the bill (prepaid by credit card) the freight charge is on it ($200.00). I call -- he'll take care of it. I've called and called -- nothing has been done. That was 2-years ago. You may want to do some future checking before you recommend this man. Hopefully it won't affect your credibility.
Editor's Note: Steve handles our account at e-Signal and also helps clients we refer to Signal, so I called Steve about your complaint. Steve said you were absolutely correct in the fact he said he would waive the $200 S&H Cost and you were actually charged for it.
He said after he told you this (which in retrospect he probably should not have committed to) he was surprisingly over-ruled by his superiors at Signal - BMI and there was nothing he could do to change their mind. Steve said he feels very bad about this and fully apologizes to you Vaughn! He also said he would try to re-open your case and make an attempt to get you the refund but could not promise success.
As a side note, Steve also said he would re-open CTCN's case and try to get his employer Signal to fork-over the thousands of dollars they owe CTCN in the form of marketing fees we did on their behalf over an approximate 3-year time period involving their Bonneville data service. Who by the way, we no longer use ourselves and do not recommend Bonneville. Instead, we are using the DBC E-Signal real-time data feed via the Internet and might add are real happy with it thus far. It seems much better than PC Quote or past online data services we have used.
Envelopes & Channels
Reprinted with permission of Technical Traders Bulletin
Trading with an envelope formed by bands around a moving average (or around some similar indicator) is a well-known and effective method of smoothing out short-term whipsaws common to most trend-following systems. There are almost as many methods to use envelopes, as there are technical traders. Most present-day software packages provide the ability to display various forms of envelopes surrounding a moving average.
There have been many tests conducted which show that channels are one of the most effective trading tools available. Perhaps the most well known of these was a channel breakout study done by Frank Hochheimer of Merrill Lynch about 10-years ago. In addition to Hochheimer, there are many other respected traders who have observed the merits of channel trading. For example, although best known for his work with moving averages, Richard Donchian is also known for his channel trading using his four-week rule.
We think channels and envelopes can be used in a variety of interesting ways to serve as the foundation of a profitable trading system. We will divide our discussion into two sections. The first will deal with bands that form an envelope around a moving average. The second section will deal with channel breakout systems.
Section One - Trading With Envelopes
Envelopes can be as simple or as sophisticated as you want to make them. The simplest is a single moving average with a band on either side calculated as a percentage of the moving average. The area within the two bands theoretically acts as a buffer zone that will tend to contain prices, especially if the underlying market is in a trading range. The beginnings of a trend will normally be indicated by a break outside of the bands. Trend corrections or the end of the trend will see prices move back inside the bands toward the moving average.
Another simple type of envelope is one that uses an absolute point value on either side of a moving average. For example, a 10-day moving average in U.S. T-Bonds might be surrounded by bands that represent 1-16/32nds points or $1,500. Normally this is the risk the trader or money manager wishes to take in a trade in any given market, rather than a specific point at which to enter a trade. See Chart A on Page 28 - In Print Copy Only
The variations of the two types of envelopes described above are almost infinite. For example, the moving average can be exponentially or otherwise smoothed. Or, the percentage of prices that will be contained by the bands can be varied for the long side versus the short side, thus biasing the study in favor of increased volatility in the direction of a trend.
Another possibility is using a moving average of recent highs and lows to define an envelope. The bands are intended to contain and define the random price action of a trading range. Any breakout beyond either of the bands should signal the beginning of a trend, as prices are no longer wandering within the envelope.
A fairly recent and worthy addition to the ranks of channel studies are Alpha-Beta bands and Bollinger Bands (named after John Bollinger, technical analyst for the Financial News Network - FNN). Alpha-Beta bands and Bollinger Bands are statistically defined bands around a short-term moving average.
The computer software first calculates a simple moving average and then calculates a moving standard deviation in parallel with it using the same data series. Bollinger uses band two standard deviations on either side of the moving average.
He explains how two standard deviations will theoretically contain the vast majority of subsequent data. He also points out how the bands rapidly expand and contract with market volatility, making them very sensitive to recent market action.
Instead of being two standard deviations away from the moving average, the Alpha-Beta bands can be set at any increment of standard deviations from the moving average. The usual setting for the Alpha-Beta bands is only one standard deviation on either side of the moving average.
The basic concept behind the statistically derived envelope widths is that the volatility of the market being studied is what determines the placement of bands. Using these self-adjusting bands means that volatile markets will automatically have wide envelopes and less volatile markets will have narrower envelopes.
General Envelope Trading Rules
There are almost as many possible-trading rules for envelopes as there are rules for constructing them. The rules are, or should be, based on the idea the envelope contains a significant amount of the price movement of a market and that a move to or beyond one of the bands is aberrant price behavior and should be acted upon.
Traditional trading rules for envelopes are:
1. Enter market when a band is penetrated. This means that a
trend may be beginning.
2. Exit and reverse the position when the opposite band is penetrated. (Use Closes)
See Chart B on Page 28 - In Print Copy Only
1. Enter market when a band is penetrated. This means that a
trend may be beginning.
2. Exit the market when the same band is penetrated in the opposite direction, or when the moving average between the bands is reached.
See Chart C on Page 28 - In Print Copy Only
Both of these sets of rules ensure that a major trend will not be missed. The first set of rules is basic and results in a pure reversal system. We have an inherent skepticism about reversal systems and prefer the second set of trading rules. In the second set, the bands are also used for entry but the moving average is used for exit.
If prices are within the bands after a trade is closed out, the market is in a neutral zone and there will be no new trades until there is a new breakout. Another reason we prefer the second set of rules is because the theoretical risk on any one trade is reduced to the distance between the band and the moving average instead of the total distance from band to band.
"Optimum" Percentage for the Bands
The "correct" values for the moving average and the surrounding envelope are elusive. The most extensive testing we've seen covers the period from 1960 to 1978. It appears in an article by Irwin and Uhrig in the December 1983 issue of Review of Research in Futures Markets.
The authors used a breakout of the bands for entries and exited when the moving average in the middle of the envelope was crossed. (They used the second set of rules mentioned above.) They then optimized for the best combinations (our usual caveats about optimizing apply). Here are the numbers they found to be most profitable:
|Commodity||Moving Average||% Band|
Trading Within the Envelope
A technique we rarely see discussed involves using bands as overbought/oversold indicators so that the trading takes place within the bands instead of outside. We and other traders have used this to great success when a market is in a trading range. The trading rules are relatively obvious and simple. Buy when the price hits the lower band. If the trade goes against you, exit on a close below the lower band. Take profit and reverse the position at the upper band, applying the same rules in reverse.
See Chart D on Page 28 - In Print Copy Only
How do you know when the market is in a trading range and when it's trending? An objective method is to use an 18-day ADX. If the ADX is rising, and/or if it's over 25, the market is trending and you're better off using the trend-following envelope method. If the ADX is falling and is below 25, trading within the envelope can be very rewarding.
Section 2 - Trading Channel Breakouts
In addition to envelopes that are defined by distance from a moving average, there are also channels that are defined by high and low points over time. The simplest of these channel methods is a pure reversal system, which is always in the market.
An upper band is formed by the high of the past 10-days, for example. A lower band is formed by the low of the same number of days, with the two bands forming a channel.
The channel will change in width as old highs or lows are dropped and as new highs or lows are made. The system is long when the upper band is penetrated, and stays long until the lower band is penetrated, at which time the long is closed out and a short position is assumed. See Chart D on Page 28 - In Print Copy Only
Donchian originally popularized this trading system in the 1960's as the Weekly Rule. He used a four-week time frame, buying when prices exceeded the four-week high, and selling when prices dropped below the four-week low
Bruce Babcock published the results of his own test of the four-week channel in his Dow Jones-Irwin Guide to Trading Systems. Babcock found Donchian's method to be reasonably profitable over time, although the drawdowns were pretty breathtaking.
As you might imagine, the risk at any given time can be sizable depending on the size of the four-week range. In addition to the risk on each position, the total portfolio risk would also be very large because the system does not employ risk control stops.
It's worth pointing out, Bruce Babcock's testing results included over $43,000 in losses on the S&P 500. This isn't unusual; we and many other traders have found that the S&P behaves differently than other futures markets.
The Tempus Formula, a very popular and expensive system marketed in the 80's, was basically the same as Donchian's method except that the time frames were optimized for each commodity. After many years of profitable trading, the drawdowns in 1988 were so severe that many users of the formula were forced to stop trading it. In fairness to system, 1988 was a disaster for many trend following methods.
Selecting the Time Values
What is the optimum number of days to use in constructing a channel breakout system? Hochheimer's Merrill Lynch study we referred to at the beginning of this article produced the following optimized number of days for a channel breakout system.
As you might expect with an optimized study, these channels proved extremely profitable over the 6-year period of the test (1970-1976). However, even with the benefit of optimization, only 42% of the trades proved to be profitable. It should also be noted that the drawdowns were very substantial and the 4-day channel in silver produced 1,866 trades (more than one trade per business day).
It is easily possible to create a channel breakout system with values optimized for each market, but in our experience these systems break down fairly quickly. As (The Late) Bruce Babcock has shown in his test of Donchian's method, a single number can work and be profitable for a diversified portfolio. In fact, as we pointed out, if the S&P were not part of the portfolio, the system's profits were excellent.
William Gallacher, in his wonderfully written book Winner Takes All: A Privateer's Guide to Commodity Trading, back tested a 10-day breakout system on ten different commodities over a period of 130-weeks.
Trading results showed this simple 10-day channel produced profits at a respectable rate of 24% annually. (By the way, we don't know if Gallacher's book is still in print, but if you ever see it? buy it. It's one of our all-time favorites!)
Commodity Trading, back-tested a 10-day breakout system on ten different commodities over a period of 130-weeks. The results showed this simple 10-day channel produced profits at a respectable rate of 24% annually. (By the way, we don't know if Gallacher's book is still in print, but if you ever see it -- buy it. It's one of our all-time favorites!)
Our research and experience with channel breakouts, which is fairly extensive, shows 18-days to be a good number, which works well in many commodities over long periods of time.
We're of the opinion almost anything in the range of 10 to 30-days will be profitable over time. The drawdowns will be of different sizes and occur at different times as numbers change.
Reducing the Risk with a Neutral Zone
A creative way to lessen the drawdowns inherent in channel-breakout trading systems without giving up any profit potential was developed by a money-manager of an acquaintance in Southern California. His system uses different time periods for entries and exits. The exit bands for his method are one-half the time period of the entry bands. For example, if the signal to buy soybeans is a penetration of the high of the last 20-days, the inner channel and exit point would be the low of the last 10-days.
This addition to the Donchian system has the advantage of drastically reducing overall portfolio risk. It also takes away the pure reversal nature of the system by creating a neutral zone in which there is no trading. This should have the effect of reducing whipsaws in choppy markets as well as preserving more of the profits because of quicker exits.
OPTIONS & SPREADS: What Are the Sheared Sheep Hiding? - Greg Donio
Two Irish ditch-diggers worked in the street in front of a house of prostitution. They saw an orthodox rabbi enter the place. The first ditch-digger remarked, "Tis a sad state of affairs when a man of the cloth goes in there."
A bit later, they saw a local Presbyterian minister enter. The second Irishman declared, "No wonder young people are so confused nowadays -- what with the clergy setting such a bad example!" After a while, a Catholic priest went into the brothel. "Ah, that's so sad," lamented the first Son of Erin. "One of those poor lassies must be dying."
Your English teacher explained that a writer or speaker "implies" and a reader or listener "infers." Probably omitted from the lesson was the word "extrapolate," defined by Merriam-Webster as "inferring the unknown from the known" or "projecting or extending data known or experienced into an area not known or experienced."
From smoke, you infer fire. Pollsters ask 5,000 people how they will vote, then project or extend the percentages onto millions of voters. Among the listed synonyms appears "conjecture" on which the dictionary hangs both approving and disapproving definitions: "supposition; inference from defective or presumptive evidence."
So what is the significance for speculative traders? Plenty and then some. Too many traders see vast fortunes in places that will not produce any just as the Irish ditch-diggers saw a deathbed ritual with holy oil in a house not noted for such activity. The negative definition of "conjecture" should have added "inference by people believing what they want to believe." All the dreamed-of treasures followed by cleaned-out bank accounts in the real world attest to this.
Extrapolating can be done wisely. In a passenger train rode a company vice president and a corporate accountant, seated side by side. It passed a farmer's meadow in which livestock grazed. "The sheep have been sheared," observed the vice president. The accountant responded, "On this side, at least." The accountant would conjecture nothing, would not presume to read a closed ledger. The corporate vice president was more a man of vision, which requires envisioning what "ain't in plain sight at the moment." If the side an animal you can see is covered with wool, you reasonably surmise that the far side is not covered with chop suey or ticker-tape. You notice the tip of an iceberg and infer the remaining seven-eighths.
You see a man staggering drunk at two o'clock PM and suppose or presume he will be in no condition to handle dangerous machinery at three. You spot molten nuggets of gold and extrapolate more under the soil. But the hazards! A rabid anti-communist sees a sheared sheep and envisions Marxist propaganda tattooed on other side. A fervent fundamentalist infers tattooed satanic symbols and writings. Folks "fill in blanks" a la how they think.
Worse than that, huge numbers of traders conjecture on the far side a treasure map or a pattern chart for next month's wheat futures or a yen fluctuation affecting foreign currency options. If not on the lambskin or beyond the door of a brothel, then over a beer or between golf links or in a Web chat room. Between 80 and 90% of all futures traders lose money and over 90% of all out-of-the-money options expire worthless.
What does that say about all those inferential compasses and believe-what-you-want-to-believe maps? Multitudes of latter-day Forty-Niners stare at many different compass points. The manufacture and sale of limousines and Learjets remain about the same. The financial graveyards continually expand their borders. Suppositional fortunes, real wipe-outs, and still more people suppose or surmise.
Merriam-Webster's definition of a surmise: "a thought or idea based on scanty evidence." It is not confined to Irish ditch-diggers. It hangs like a ghost around brokers' phone numbers and Internet trading accounts.
A man in Illinois told me in a letter, "Your articles got me interested in horizontal calendar spreads with options, but I must admit your ancillary comments grated on me. You wrote that if doubling one's money again and again was as easy as a lot of traders think, Yankee Stadium would be crowded to the rafters with millionaires."
"If those are not your exact words," he continued, "it was something like that, that every doorman and bellhop would be filthy rich. You make speculation sound like such a bog down in a swamp. If I thought it was that bad, I never would have left certificates of deposit. I agree with you about the roulette-player with the pad and pencil. He never stops and wonders how come all those guys with pads and pencils at the roulette wheels in the past are not riding limousines."
"Like you, I've read books on investments and books on Wall Street printed in 1800s, you at the New York University library and me at the University of Chicago library. I read all about the fly-by-night curbstone swindler and all about the sleazy stock-jobbers with their cubbyhole offices. Please, Mr. Donio, give some credit to the fact that this is a scientific age. Risk trading is safe and there are scientific ways of finding the combination."
"I admit I crashed on take-off a couple of times, but you cannot expect the safe to pop open on every try, whether it is the commodities or the calls or the puts. Also, please let me know if there is any flexibility with your number rules on the option spreads. A spread of less than a point and a half, a near-in-time out-of-the-money option selling for more than 3-points -- these restrictions really narrow the field and shut out an awful lot of possibilities. Your keys on horizontal calendar spreads put too much of a limit on where to dig."
My reply: Scientific age or not, speculative trading remains a zero sum game. Some poor soul must lose a dollar for every person who gains a dollar. A teardrop for every smile and vice versa. Perhaps the conjectural or "based on scanty evidence" vault combination can be found tattooed on the far side of the sheared sheep.
During the 1700s and 1800s, speculators usually ended up with gloomy faces and plenty of worthless paper to stuff in their tinderboxes. How much has changed thanks to this "scientific age?" Gloom, plenty of worthless paper but no more tinderboxes.
Later in this writing I shall address the restrictions or inflexibilities of my option spread "keys" or guidelines. The letter writer said he shared my interest in investment history but did not mention whether he matched my curiosity about current speculative snares, pitfalls and questionable practices. Such a curiosity is essential for traders. Even if your jungle diamond mine makes profits, you need a mental list of region's venomous snakes and serums.
Another Ponzi scheme in the newspaper is like reporting that the sun rose. Yet all financial venturers stand vulnerable because when a scamster palms off investment dollars as profit dollars, the money looks the same and needs no disguise.
The big print in the financial section of the New York Post for Oct. 22, 1999: "Ponzi Play Sacks Pros." The piece says "professional athletes have lost untold sums of cash to a huge Ponzi scheme run out of a South Florida mansion, according to a recently unsealed criminal complaint."
Elsewhere in the financial news, "IBM Warning Gives the Dow Big Blues." On Philip Morris: "Big Mo Sinks to 4-Year Low." Both are components of the Dow Jones Industrial Average; not penny stocks from a boiler room or unpromising promissory notes from a mansion but the bluest of blue chips. Blue-frocked bishops would never enter such a house! Shares from the over-the-counter dives and the bulletin-board back streets might demean themselves but not . . .
As hazards proliferate, so do the hard-sell and the soft-sell and the you-may-not-know-it's-a-sales-pitch. The front page of the New York Times for August 23, 1999 announced, "Stock Huckster Thrive on the Web." A company claimed to have discovered an AIDS cure. "And with that news, transmitted at lightning speed over the Internet, Uniprime's shares more than doubled. On-line chat rooms buzzed with investors' happy patter about the company's prospects, making Uniprime one of the Internet's most talked about stocks."
The front page piece continued, "The AIDS cure turned out to be a stock fraud cooked up by a self-described doctor . . .
"Like snake-oil salesmen who traveled the frontier peddling cure-alls more than a century ago, modern hucksters have taken to the Internet with gusto."
While technology advanced over time, the constants have been the scamster and the dupe, the hard-sell and the financial collapse. Promoters sold shaky shares at London taverns when people communicated by bells. The curb trickster of the 1800s used Western Union to promise paper securities and the Pennsylvania Railroad to skip town. Alexander Graham Bell's invention brought boiler rooms. Now with the Web, the financial snake-oil huckster no longer needs horse & buggy when giving you the pitch.
Please give some credit to the fact this is a scientific age! You need not bear the discomfort of wearing a powdered wig while conjecturing fast future wealth. You will not be interrupted by the noise of a Stanley Steamer when you buy paper of the kind that caused 90% of last month's buyers to lose money. High-pressure salesmanship on the street has been replaced by higher pressure-on the Internet. But myriad would-be millionaires locking horns in a zero sum game -- this has not changed.
A commercial on the financial cable channel says, "Invest in Spiders!" meaning S&P 500 composite shares. "Own the Whole, S&P!" With all the "instant treasure" come-ons, surely the trader needs a robust sense of skepticism. He gets too many urgings to bet from people who do not bet themselves. Yet that doubter's warning light may operate more dimly in the speculative sphere than elsewhere.
Mr. Skeptic sees a book entitled Winning at Dice and he infers or surmises a writer who took shafting after shafting at the gaming tables, then wrote this to make money. Like a physical fitness book by Fatso Fogarty, ha ha! But is he so non-gullible in his own field?
Somebody is buying all those Gain $1,000 in 3-Hours books and seminars from people who got cut to pieces trying it and then made money selling "the secrets." With futures "tis an old story," Horatio, and a new one with daytrading.
In a TV commercial, a man shooting billiards boasts, "A slight fluctuation in the yen turned my $5,000 into $15,000." Small print at the base of the screen says "results hypothetical" and "risk involved." Startlingly, this appears on a general audience channel, not a financial one geared mostly to risk-venture veterans. So the pitch targeted "suitable clients" -- only people who could turn a TV dial and slap down money. No ghosts or mummies.
Then the mail arrives and a certain phrase is destined to repeat. The brochure says Reality Based Trading Company -- continuing the Bruce Babcock Legacy. It offers for sale several trading systems and books.
The stand-out trading system contains a grid of financial figures headed "Compare These Eye-Popping Results With Any Other" and smaller type underneath saying "Hypothetical tests. . ." The sample portfolio producing just over 50% profit for the year was the weakest of the six portfolios listed.
At the bottom of the page appears the statement required by the Commodity Futures Trading Commission: "Hypothetical or Simulated Performance Results . . . The Trades Have Not Actually Been Executed . . ." What is to keep those Reality Based fellows from dipping into their personal bank accounts and generating some "Eye-Popping" real profits from their "Best System in The Universe?"
I shall be the first to applaud them when they do. Then they can say, 'to hell with you, Trading Commission! Real performances, not simulated." Until then, imaginary profits can only be laughable. It would be funny if someone announced, "I just won the Millionaire Lottery, based on hypothetical results."
Afterward on the financial channels, other spots push "great opportunities" in futures and options. Such TV blurbs come from brokers, promoters, and employees whose own financial inflows are usually of commissions, salaries, bank interest. I have nothing at all against insured deposits except when they serve as Hudson River ferryboats and Lake Erie charters ridden by people who send others to financial "great opportunities" up the savage Amazon.
I want the two Irish ditch-diggers to say about me, "He puts his money where his ink is." I am an active trader in stock options and have been for years. May no hoarse utterance call me a military theorist who stays off the battlefield or a seller of bullet-proof vests who never faces gunfire. As to my specialty, could I explain it well if asked in an Irish pub?
Could I spell out horizontal calendar spreads between dart throws and sips of cream ale? Well, a spread is essentially a buy and a sell -- stress the "and" -- with what you sold paying for part of what you bought, so you pay less for the buy -- stress the "less."
Vital point: Buying something gives the right to create something else that you sell -- stress the "create" and the "something else." It is like buying a $5,000 racehorse just before she gives birth to a foal that you sell for $3,000.
So how much did you actually invest? $2,000. How does this give you a head start on the other horse-buyers? Somebody paid $3,000 for what you sold and somebody else paid $5,000 for something similar to what you bought but without foal, i.e. without spreading.
You invested only $2,000 and, by both buying and selling, you used mostly other people's money to do the buying. This gives you a much better chance than they have of reselling at a profit.
As a spread strategist, you go through life buying cars and then selling what is in the trunk, which if you choose wisely, pays for most of the car. The trunk opens beforehand and you have eyes, so choosing well is not difficult. Will you be able to resell the racehorse or the car at a profit some time in the future? No one can say. But your "miserly" stake stacks the mathematical deck toward the plus.
If the concluding figure reads $2,600, is that good or bad? Lousy, nearly a 50% loss, to someone who paid $5,000. But a pan of shiny nuggets, a 30% gain, if you ventured $2,000. Doubtlessly, the non-spreading hazarder of $5,000 hoped to double or triple his money, and quicker than the life-expectancy of a six-pack in a duck blind. Like the bookmaker, the spread strategist tends to be the 25% or 35% who waits a few weeks and who profits off other people's grabby conjecturing about 10-pound nuggets over that hill.
As for my own specialty and individual way of expediting it, I would need surroundings quieter than tavern hubbub to explain these. Yet horizontal calendar spreads and my particular "keys" are less complicated than the one-hand accounting ledger under the counter, though deeper than formulae for mixing drinks.
I always lose a few potential spreaders when I talk or write of 30-plus percent profits instead of dollars multiplying by exponential squares and cubes. I lose even more when I mention, "learning a business."
Every wiped-out horseplayer wishes he could "make out like a bookie." So what stops him? For one thing, he wants to run his couple of hundred into a couple of thousand before sundown.
He would scoff at, say, a 10% gain in a day, even though it annualizes to 3,650%, which would certainly bulge the eyes of real businessmen or investors. Also, the bookmaker thinks in terms of weekly revenues and monthly profits -- a businessperson's mind-set while the rockets-&-flares-in-the-nervous-system gambler wants Fort Knox to pour into his lap.
With speculative trading as with gambling, the "quick million" grabbers of yesterday show up as the sad faces in the saloon today. Yet how man groaners on barstools are willing to learn a business?
Aim for realistic, business-size profits? Just plain think like a businessman? No, they still expect to find the vault combination or the location of the Holy Grail tattooed on the out-of-sight side of the shorn sheep. So the zero sum game deals out more zeros.
Call horizontal calendar spreads a "paper" mutton & wool business. This form of optioneering does involve "buying the sheep" but it sells much future mutton and wool that never materialize. It peddles much disappointment tattooed on the skins of the critters, wrong safe combinations and gold mine maps going nowhere. Yet it can make money and it reduces the hazard from a crap-shoot risk faced by most option-traders to a business risk. It does this by using mostly other people's cash.
Let us assume you know what stock options are, and the details of puts and calls, strike-prices and expiration dates, in-the-money and out-of-the-money. It stands essential for a successful trader to be well-read on the subject, so the books of George Angell and Courtney Smith deserve much recommending. Spreading means buying one batch of options and selling another batch, usually on the same day. Two batches have the same underlying stock and are either both puts or both calls.
Horizontal calendar spreads are horizontal because the bought and the sold have the same strike-prices, i.e. are level with each other on that figure, and calendar because they have different expiration dates. Buying gives you the right to "create and sell," the "sold" being nearer in time expiration-wise than the "bought" usually just one month apart.
In a recent example from my trades, Applied Material common stock was trending downward to just below the 70 mark. The only options that a horizontal spreader even considers are out-of-the-money, meaning calls with strike-prices above the share price and puts with strike-prices below. I prefer to place a call spread above a rising stock that has a conservative price/earnings ratio or a put spread below declining shares that have an inflated P/E.
The price/earnings ratio is one of the easiest figures to find, listed on the daily financial page, to the right of each stock's symbol, dividend and annual yield. By my reckoning or approximation, "inflated" and "conservative" are on the high and low sides of 30 respectively. Applied Material had a P/E of worse than 100 and had been trending downward over a period of several weeks. With the share price just below 70, out-of-the-money puts carried strike prices of 65 or lower.
The strike-price should be close enough to the share price to give the options "meat" or value but not so close that a slight fluctuation in the stock would place the options "in the money." I have found approximately a five-point difference to be pretty right. The time was mid-August. Among the Applied Material puts with strike-prices of 65, the ones with September and October expiration dates fitted what the Illinois letter-writer called my "keys." More on this momentarily.
I bought 10 puts with a strike-price of 65 and an expiration date the third Friday in October, for a purchase price of 4-3/8-points, meaning $437.50 for one or $4,375 for 10. On the same day, I sold 10 with a strike-price of 65 and an expiration date the third Friday in September, bringing me 3-points, $300 each or $3,000 for 10. That was instantly credited toward the cost of purchasing the Octobers, so that I had to pay only the difference of 1-3/8-points -- or $1,375 of my own capital plus brokerage commissions.
This spread of buy October 65 / sell September 65 was horizontal because of the same strike-price and calendar because of the different expiration months. The phrases "miserly investment" and "other people's money" figure crucially. Notice that whoever bought the 10 Septembers I sold paid $3,000 and whoever bought 10 Octobers identical to the ones I bought but without spreading paid $4,375. My investment: $1,375 plus commissions.
The latter figure resulted from my buying the car for $4,375, so to speak, and selling what was in the trunk for $3,000. The spread strategist pays markedly less because other people's money does most of it. Thus he must be stingy with his own capital. Thus he must choose his cars carefully and open all the trunks while selecting.
The precise "keys" of my option methodology referred to by the Illinois letter-writer are as follows: The gap or "spread" must be less than a point and a half. Therefore, when I bought the Octobers for 4-3/8 and sold the Septembers for 3, the difference came to 1-3/8, which fell within the "less than" brackets. Second numerical key: The near-in-time or "sold" options must sell for 3-points or more. The Septembers trading at 3 just about qualified.
When I looked at out-of-the-money puts & calls on the options page of the Wall Street Journal, the 3-point Septembers and the less than 1-1/2-points between them and the Octobers caught my eye like gold dust in the mud would a prospector's. Reply to the man in Illinois: The day I relax or "get flexible" with these keys on a one-month-apart spread will be the day your grandmother sews Frankenstein together. They are my thick, high boots in the snake-bite country or the 90-percent-get-bitten country of option speculation.
Trader's Diary for 8-31-1999: Approximately two weeks after I opened the position with a spread of 1-3/8-points, the October 65s have slipped to 3-3/8, a minus of almost 25% for anyone who bought at 4-3/8, and the September 65 have fallen to 1-1/4, a loss of more than half for whoever bought the ones I sold at 3. End of diary entry.
A teardrop for the holder of October puts and two teardrops for the holder of Septembers, but for the spread strategist? Notice the gap or difference between them has widened to just over 2 from 1-3/8, an increase of more than 60%! The value of the Octobers I own: $3,375. The value of the Septembers, which are my debt, or IOU: $1,250. Thus spreader's territory maps out as difference, and its widenings are his nuggets and ore.
All out-of-the-money options lose value with passing of time, but near-in-times get "melted" more and faster than the far-in-times, even with an expiration date difference of just a month.
This makes for widening canyons between the "boughts" and the "solds" -- the two ends of the calendar spread. This does not guarantee a win but it often casts the "buy April, sell March" methodologist as the cheerful bookmaker between the two grieving gamblers as he whistles a song entitled "Other People's Money."
Occasionally I am asked "How do you know when to pull out?" or when to close a spread position. This stands as a crucial question, because at this point the spreader has a special vulnerability.
At beginning and early stages of the spread, the trader enjoys the cushioning or armoring of other people's cash -- more than two-thirds other people's, the way I do it. But at the later, more mature stage of the position, most of other folks' capital has burned or melted away.
When the trader sees the gap widen at the mature stage of the spread, he beholds paper profit but he also observes the armoring getting precariously thin. The near-in-time "sold" options still represent horse-gambler's-option-buyer's cash in the spreader's-bookmaker's till but they have shrunk. Meaning smaller IOU's on the spreader's debt or obligation end but also less shielding.
In the Applied Material example cited earlier, the near-in-time "sold" puts melted from 3-points to 1-1/4 while the gap or spreader's investment grew from 1-3/8 to 2-1/8. The spread strategist's end of it has fattened appreciably but the other-people's-money end has lost nearly two-thirds of its thickness as a protective barrier. This places the spread trader more ahead but more exposed.
New York University professor of finance George Barone lectured about short-selling with stocks and the unlimited loss potential thereof. His advice: "Panic early!" Pull out the instant things start to move the wrong way. This also serves as excellent advice for a spread strategist with a paper profit.
When the near-in-time options descend to one point or slightly higher, that is one good time to grab the lever of the parachute ejector. If it falls to less than a point and you have not already ejected, grab fast.
Another strong "pull out" indicator is the position of the underlying stock. Shortly after the 8/31, Trader's Diary entry quoted earlier, Applied Material shares edged upward away from the 65 strike-prices and broke the 70 line. Alarm box. The near-in-time puts shrunk from just over a point to 11/16 of a point. Another alarm box. So when you have a paper profit, parachute signals do not lack and you need only one.
Act fast! Panic early! This requires deciding beforehand what the signals are and then responding promptly when they occur. These classify with "mental stop-losses" and "mental stops to protect profits" and many people laugh at the very mention of them. Why the laughter? As with New Year's resolutions and decisions to stop drinking, many people make the decision and then do not act on it when the time comes.
With mental stops and signals, often two inner forces work against each other: The decision to "pull out if" versus the hope of a turn-around. Many a stock investor or short-seller sets a mental stop-loss, then when the shares cross the line, he hesitates over it and then abandons it because a voice inside says, "Things may turn around any time now, and move in the right direction!" Yeh. Spread traders with a paper profit should cultivate immunity to such voices. Respond quickly to warning lights and bail-out bells. Panic early!
On the subject of forces working internally against each other, what seemed a cultural bias in the Wall Street Journal now appears to be the split test of split personalities. The Leisure & Arts page of the October 27, 1999 issue carried a piece entitled "Lisa Saffer: A Soprano on the Rise" which said of her, "Decked out in the baroque finery of Handel's opera 'Ariodante,' the soprano looked every inch a Gainsborough duchess miraculously come to life, with a delicacy of posture and movement to match."
Alas, after the Leisure & Arts page there exists an invisible dividing wall of immense thickness. What follows it, the Editorial Page, the Op-Ed Page, every Friday "Tastes" Page, seem to function on a whole different planet. They continually serve as soap boxes for Right Wing reactionaries, which is to say, "good old days" folks whose "cherished past" may go as far back as Walt Disney after his hair started graying.
In Wall Street Journal for 10-11-99, Judge Robert H. Bork wrote in a critique of George W. Bush, "Much of popular entertainment ranges from the vulgar to the obscene. Affirmative action and multiculturalism are splitting us into a nation of antagonistic groups."
What if a Greek-American expresses pride in his ethnic heritage? What if he decides to "work at it" ethnicity-wise by seeing a certain classical drama? The Greek chorus laments that Oedipus "entered the door he had once exited, and sowed his seeds in the same ground that had sent him wailing forth."
In countless publishings from "one-nation conservatives" or the "one-culture Right Wing," ethnic pride and heritage have been denounced as "the menace of multiculturalism" which supposedly threatens to "fragment the nation" into a "scattering of ethnic tribes."
The conservative's idealized "one people" with "one set of values" includes legalized censorship aspiring to "old-fashioned decency" not so old. Pat Boone movies are plainly more recent than patricide and incest in Greek drama or adultery and stabbing in Italian opera. From the vulgar to the obscene? If Welk is your yardstick.
What about the cultural contributions of the various ethnic groups? Florence came to be known as the second Athens and Dresden has been called the German Florence. What can this mean to people who want to go back to Lassie movies and Harvest Moon songs? Anyone who has read Robert Bork's book Slouching Toward Gomorrah knows his envisioned "golden yesteryear" was closer to Norman Rockwell prints, film censors and "Singing in the Rain" than to Gainsborough paintings or coloratura sopranos.
Judge Bork is just one Journal voice fitting this description. Others include Oklahoma Governor Frank Keating, Princeton Prof. John DiIulio, and film critic/author Michael Medved.
There seems to be an unwritten rule at the Wall Street Journal you cannot write on cultural matters for any page beyond the Leisure & Arts, one if your knowledge goes farther back in time than Irving Berlin or Flicka the Wonder Horse.
Do "the culture" and "the media" cause youth crimes or bad sex? Those who say yes appear all across the Editorial Page, the Op-Ed Page, and the Friday Tastes Page. Soap boxes on the Right. Those who know that drama by Euripides did not provoke human sacrifice, that Ingres' painting of beauties in the Turkish bath did not kindle sex crimes, that operas about Faust did not cause infant murders or hangings of young unwed mothers -- they are ghettoized in Leisure & Arts and do not seem to get a word published on those other pages.
What has this to do with you, dear reader? If the Street's publishing's prove anything, then the financial and investment community needs far more people with culture worthy of the name and tradition worthy of the name. Granted, times have changed. This is no longer the era when the Wall Street carriage-trade tycoon wore a top hat, lit his cigar from a gaslight, and frequented the opera house, the art museum, and the archaeology exhibit.
Yet now and in the new millennium, Verdi's music is still polished gold alchemized into sound. New Kirov ballerinas dance naiad-like to Prokofieff exquisitely, as did their great grandmothers. In the Millet painting (see Leisure & Arts), the goose girl still has her milk-&-roses glow between her white flock and sky-blue pond. The archaeological artifacts from the tomb of Ramses II echo splendor after over 3,000-years.
The lack of a horse-drawn hansom cab notwithstanding, you can be a voice for culture and tradition of the gem-true kinds, whether in your private thoughts and activities or in a letter to an editor or a congressman. Please let the detailings in your psyche and your writing include traceries of Pompeiian marble or the baroque jeweled sword or something better than the Borkina cracker barrel that currently throws its crumbs on Op-Ed Pages.
Why Is It Trading System Vendors Don't Publish Track Records?
Jorgen Hoyer from Switzerland
Thank you for your reply, and congratulations on your 14 of 14 winning trades!
I assume you had 250 base-points average and 50-bps commission e-mini) so you were ahead 2800-points after the run. Is this right ?
I contacted Ed Moore by phone and found out I can apparently not get any independent confirmation that his trading signals were effectively done as it says on his charts And sufficiently early to get a decent fill.
Would you allow me to contact by email some of the people who gave their opinion on his method? (i.e., give me their email addresses)
They might have seen for themselves especially the skeptical ones that: "with the right man at the helm it does produce the claimed results" I think what we would all love to see is that a vendor allows a simple way to check his results in real time for a while before buying. And the tools for achieving that are all there ! Every trade-signal as soon as it exists is posted to a website with a time-stamp, or to an e-mail-list.
That way anyone interested can check out for himself if he could be profitable using the method at least if he were able to master it well.
Editor's Note & Comments: We did not keep a record of the names of clients who gave feedback on Ed Moore and his trading methods. However, we could put your request in our upcoming newsletter and in a communications list e-mail we will be sending soon.
One reason vendors do not want to publish a real-time trading track-record is with a non-mechanical method everyone's results will likely differ, sometimes to a large degree.
It's also quite possible the trading method vendor's record is much better or much worse than normal and what his clients are achieving. If they publish an actual track record they will get criticized either way, damned if you do and damned if you don't.
Like my recent string of 14 out of 14 winning real-time trades. Or other time periods with more losers than winners. However, clients may achieve the opposite during the same time period, perhaps less success or possibly more success at certain times.
The vendors own trading record will either look better than he really is (and some traders will allege some type of misrepresentation) or look worse than it really is (resulting in poor trading method sales and negatives). With either case the vendor can't win.
Also, with my amazing string of recent winners, I made less than you would expect as my average winning trade was not as high as it should have been. Plus, the very high e-mini-SP commissions (comparatively speaking) I was paying was far too high. In addition, market order slippage both in and out of trades was another important factor in my bottom line.
Thank you for a fast reply, Dave. Yes please include my request in your e-mail and if possible in your upcoming newsletter.
Concerning vendors not wanting to publish a track-record, I understand your (explanation) for a trading record in its 'ancient' form. However for the (track-record posting) scheme I suggested where the vendor's trades are posted on the Web as soon as he enters his order, I would completely disagree with your remarks.
In that case clients could not argue with his success, and it should be possible to explain in case of a non-mechanical system that it would only apply to someone who can use the method to its full capacity.
Forward-testing is the only really valid one was, I think, stated in your newsletter. What a pity for us would-be buyers of trading systems and trading methods no vendor seems to be doing it (at least I did not find one).
My tentative conclusion then has to be not even the best of them can in fact daytrade consistently profitably over the years!
P.S. If I can be of any assistance in applying the computer-tools to achieving such a "forward-web-test" I'd be happy to do so.
Editor's Note: Thanks Jorgen, CTCN accepts your kind offer. Please make the computer tools you refer to available for our use.
My Real Success Course Has Certainly More
Than Paid For Itself - Ken K.
(CTCN's) Real Success Methodology has worked very well and certainly more than paid for itself. The methodology does require judgment when reading the charts, however the principles appear to be very sound.
The profits are low when using the e-Mini but (the e-mini SP) is a trading product that will provide an opportunity to refine the decision making process.
Will look forward to participating in the (CTCN Personal Trader) Training Program. Thanks again for your assistance.
Noted your earlier comments regarding (technical) problems with the TradersWebcam and you may be ready for (Personal Webcam based) training starting soon.
Let me know when and I will try to clear my schedule for the program. If not, possible I could start with you on the next series of training days.
I have been impressed with your (Real Success) Methodology. It has certainly more than paid for itself.
More from Ken Appreciated your comments regarding the e-mini. I have tried to trade the e-mini without success primarily due to the higher commissions (as a percent of the move or $$ value of the contract). I've not had the success in terms of the number of winners you mention. Over 30-days trading the e-mini, I finished basically even after commissions, and determined over a long period of time, it would be a loser in terms of my time, equipment and data feed costs, and particularly if a slump with multiple losing trades.
I have been trading the regular contract, which is working reasonably well, however you have more slippage, for reasons you mentioned. I have been profitable to date on a monthly basis after commissions and expenses, however I should do better. I have been getting 3 trades good and then a loser, sometimes two before I get another profitable trade.
Your percent of winners is significantly better than I have been able to accomplish. My profits target - points usually range from about .70 to 2.90 per trade when the market is moving. The losers tend to .50 to 2.00-points max with an average of 100 to 125-points. Keep in my mind some of the range is a result of slippage, and not getting the trade executed quickly.
I try to monitor the reasons why the losers, which tend to be basically due to not clearly defining the trend and correctly entering a trade -after a trend pullback, too anxious to execute, not allowing enough patience for the trade to clearly set up. I tend to pick up the winners early, and then take 1 or maybe 2 losers, and then work my way back to a profit for the day.
My wife says, after taking 1 or 2 winners without a loser, go play golf and follow the market the next day. The losers tend to happen when the market is not moving much, non-predictable sideways patterns, and the range of movement is 3.00-points or less.
I am using ZAP who provide excellent fills on the e-mini SP, as you mentioned, and the fills on the regular contract are better than my previous brokers. The turn around appears to be fairly prompt. I am attempting to improve my consistency of wins. Suggestions are welcome.
Will wait to hear to from you. Thanks. Dave, you may use my comments as a testimonial. If you do, sign it Ken K.
I'm one of the original purchasers, of the (Real Success daytrading) methodology, tapes, etc., which has worked well.
Greg Donio Is A Joy and A Complete Original - Nicholas Brockbank
I've read most of the on-line back issues of your newsletter and I have to say I enjoyed Greg Donio's articles immensely.
Member Requests & Comments
A trader's club member is looking for feedback on Gary Wagner of International Pacific Trading Company and their Candlestick Forecaster, Samurai Edition.
A member is asking for feedback from users of the Aberration System and Kent Fitschen.
Participants are also asking for user feedback on PC Quote and E-Signal real-time Internet based data feeds.
We are also seeking feedback from attendees of recent British American Trading Seminars and Larry Williams Seminars. Also, TCI Trading Seminar attendee feedback.
Info Request: I am an aspiring (foreign based) trader in the Middle-East and am looking out for suitable training ground to groom myself as a Derivates Trader. Could someone send me some information about any possible Derivatives Learning Courses I could undertake to fulfill my dreams? Thank you, Kumat.
I am interested in finding our info or feedback regarding a couple of trading methodologies that I believe are related. The first is "Natural Order" by Steve Cox. The next is "Natures Force" by Steve Rifkin. Both are in the $5,000 range. If anyone has any info, please contact me at email@example.com
New Club Member Joe Luisi also requests this same information via CTCN for publication in our next issue so we all may benefit.
We have a member request for contributions on Options Trading (either stock options or futures options) for our next issue.
Thanks to the Club Members who gave some feedback on article length. However, we are still asking for more feedback on if we should limit the length of some articles, i.e., Greg Donio's long contributions?
Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News. Without you it would not be possible. P.S. - Remember, as a special reward for making just one contribution/submission per year, you'll receive an automatic 50% price reduction on your renewal. Submissions can be any length, long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing your information and knowledge with other traders. Please make a contribution about your experiences, both good & bad with systems, services, advisors, data vendors, and other trading related product.
The reproduction, copying or publication of any part of this work beyond that permitted by Section 107 or 108 of the United States Copyright Act, and also World-Wide International Treaty Provisions, is unlawful. ALL RIGHTS RESERVED. Written permission from the Publisher/Editor is required for reproduction in any form (with proper credit to CTCN, including our address and phone number being required), and may be withdrawn at any time. Commodity Traders Club News (CTCN) is a 'Clearing House' or 'Information Exchange' for members only. We do not verify, (and we have not) verified the accuracy of the mathematics or numbers published herein, or accuracy of comments and remarks made by the authors. All information and remarks in the contributions are the opinions of the author or contributor, not the Editor or CTCN. You should be aware that P&L reports and advertisements are frequently based on hypothetical (not real-time/actual) trades. Article headlines or Sub-Headlines sometimes may be changed or written solely by the Editor, using verbiage the Editor believes highlights important points being made by the contributor. CTCN Membership, which includes our bi-monthly CTCN newsletter is "Your Guide To Profitable Trading and How To Save Money Along The Way." It's regularly priced at $100 (US) for 1-year. . . and includes free postage within USA & Canada (add $20 for Overseas Air Mail). Publisher: Webtrading.com, D.B.A. Our E-mail address is: firstname.lastname@example.org Our Website address is www.webtrading.com Editor is Dave Green. The opinions and recommendations are those of our writers and not those of Webtrading.com, CTCN, or its editor. (Note: There is high risk of loss in futures trading and past results may be difficult to achieve in the future and also may be based on hypothetical trading, with benefit of hindsight, and not actual trades) Note: We operate open member forums and consequently reserve the right to publish e-mail and other communications received. Therefore, please indicate "confidential" or "not-for-publication" on any e-mail or other correspondence sent us which you want kept private. Please contact us if we publish your comments and you object. Thank you.