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Commodity Traders Club News

Commodity Traders Club News

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Walk Forward Tested System Is Better than the Best
Optimized One - Larry Williams

It looks like the history of technical analysis has been largely influenced by optimization. That is, we
studied the past, found something that looked significant, then optimized rules and procedures to trade the
observation in the future.

Sometimes that has worked. Often it has not. That's our dilemma. What are we to do? In the past, we
answered these questions by doing more optimization, more curve fitting. Indeed, we treated historical data
like prisoners of war. Our thesis was, if you beat them often enough they would reveal anything. Which is
true, but you want them to reveal everything, not anything.

This brings me to one point. I think we will all make much more headway with system development by
spending less time on optimization and more time on walking systems and procedures forward.

If on a walk forward test, the system holds up, we probably have something. And for sure, what we have
will be better than the very best optimized system when it comes to real time trading. Hence, let's see what
we can learn from each other about conducting walk forward tests. Any ideas will be appreciated by all, I
am certain.

How I Consistently Make Money Day Trading...a Very
Positive & Contrary Response to Last Month's Negative Article
about Day Trading - Anonymous Trader

I am writing in response to the article "A Hard Look at Day Trading" (11-94 CTCN). I'm a professional
trader for seven plus years and a day trader to be exact. I get so disgusted with the experts on trading
methods, systems, etc. If I had listened to all these opinions about how difficult day trading is and how it is
almost impossible to make money, I probably would have believed it and quit many years ago.

I make excellent money day trading most every day. I find it exciting, enjoyable, challenging and very
profitable. There are many advantages to day trading: 1. No overnight exposure on a regular basis -
occasionally I'll hold a profitable day trade overnightto get an extra pop at the beginning of the next day's
session, where as a position trader will hold losers overnight regularly. 2. My risk is very small per trade. 3.
I can multiply my money many times over during a day or week than the position trader.

One thing I must say though, is that day trading (like the article said) must be done in a liquid and volatile
market. Which in my mind only makes day trading feasible in the S&P500 and possibly the currencies. I
only trade the S&P500. There is more than enough money to be made in this market every day than a
human can want. Why look at anything else? You get a tremendous bang for your dollar and risk reward.
Face it, S&P500's daily ranges average regularly $1,500 - $2,500+ per day. The average five minute bars
(which I trade) have a range of $200 - $300. That's almost as much as most markets' daily bars.

If a trader is disciplined, trades with the trend, uses stops and lets profits run, he can make excellent money
day trading the S&P. I only risk $250 per trade and regularly take profits of $500 - $750 - $1,000 per trade,
sometimes larger. But on general, I'm not greedy and when I have a good profit, I look to take it. I love it,
and I get to do this 2-5 times a day. Sure, I have losses, but they are few and small. As far as all this
mathematical babble and analysis on more transaction costs and slippage - who cares? A trade is, a trade, is
a trade! If a trader makes 10 trades a year and I make 10 trades a week, there is no difference in slippage or
costs. All that counts is if you made money.

If that guy made $2,500 off his 10 trades per year and I made $2,500 or lets say $1,000 - $1,500 off my 10
trades a week. I'll take my 10 trades a week, because I'll multiply my money many times over during the
year. Cost per trades are all the same. If you're a profitable trader, it pays for you to trade more, not less.

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I'm not knocking long-term trading. Good traders make money at both long-term and short-term. You must
trade what psychologically fits your style. The very short-term works for me. It is very profitable, enjoyable
and cost efficient. Also, I pay $16 round turn, just to let you know I'm not much different cost wise than
anyone else.

People say they don't know many day traders who make money consistently. Well let me tell you, it has
nothing to do with day trading. I hardly know anyone who makes money trading. Long, intermediate or
short-term, most people I know are too messed up in their heads to trade profitably.

I believe there is just as much, if not much more money in day trading than anything else. If the trader has
learned his craft well and developed a successful and simple methodology and (most traders never get this
far) get their psychological or mental attitude changed to the right mode for successful trading - this is the
true key to winning.

Let me preface all this by saying, I believe the S&P500 is probably the only market worth day trading on a
daily basis. Bonds don't have enough range and with currencies (most of which make the majority of their
moves overnight). Now and then you'll get a $1,200+ intraday day in the currencies, which is a very dead
day in the S&P's. So intermediate to long-term trading would be better in most all other markets.

In closing, day trading can be extremely profitable, and long-term. You just have to learn how to trade. As I
wrote this on 12/2/94, I made $1,800 per contract on three trades in the S&P for about 5 hours work. How
many long-term traders made that much in one day on a one lot - very few on very few days, I'd venture to
say. I do this at least once a week in the S&P.

As far as burnout, I don't have that problem. I look forward to getting up and being at my monitor
throughout the day. I love trading. However, one must be balanced. I take breaks and days off to relax and
vacation.

I'd rather be at my monitor every day in the comfort of my home from 8:30am to 2:30pm, with my family,
doing something I enjoy, rather then going to an office and putting up with that nonsense. What's so hard
about day trading and watching the monitor - beats working. I think day trading provides a great lifestyle.

When You Get a Hit, Keep Running Until You Are Tagged (Stopped) Out - More on How 90%
Winning Trades Are Possible Selling Commodity Options - Robert Edwards

Well, it is early Wednesday, 12/21/94 and I have already liquidated my S&P500 "Christmas trade" which I
bought on the close of Monday, 12/19, and it is not even Christmas. Yes, I made just enough to pay my
commission with a little extra to go out to dinner, leaving the big dollars sitting on the table. After buying, I
placed a $2,500 stop. I was never losing even $1,000, yet I'm already gone. Another potential home run
wasted. Why didn't I make the market take me out of trade? I cut my losses short, but seem to consistently
cut my gains even shorter. I watch the daily gyrations of the market and can get better fills than guys with
their Hotlines and market calls. But when the market makes a small profit I take it, usually in the $100 to
$300 range. I tell myself I'll get back in, but rarely do. Then a few days later the market really moves and
I'm not in. I recently bought the lows in orange juice, but rarely made more than a dollar or two o n the
trades and sometimes took unnecessary losses.

I somehow manage to always get out just before the market booms. I'm a very short-term trader, it's just the
type of player I am. In my mutual fund account, I'm up about 16% for the year, remaining almost totally in
cash, except a few trades lasting a couple days here and there. The same would be true, I guess if I were
playing baseball. Using the baseball analogy, several times this past year I was at the exact right place in
the lineup to come up to the plate with the bases loaded and the starting pitcher was running out of gas
(momentum fading). I picked the right pitch and turned the ball back the other direction, hitting it so hard
and fast it was heading for the bleachers for sure. (I had picked either a top or bottom of a market and had a
quick profit and all I had to do was sit back and place a stop where I got in).

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The market would never have stopped me out, just as there is no way an outfielder can catch a ball hit high
into the bleachers. Yet, while everyone else was rounding the bases, I decided I better play it safe and stay
on first base or worse, I didn't even make it to first because I ran into the dugout and was called out leaving
the base path.

This happened to me recently when I bought December Cotton at 70 cents but got out at 72 cents while the
market soared up another $12 or more. This happened several times in coffee. I bought in the 70's for a 2-3
cent profit, when I would never have gotten stopped out and could have road the contracts to the moon.

Research shows that most trades (85% to 95%) are either small winners or small losers, and these tend to
cancel out each other. In fact, with commissions, these trades usually result in a net loss. However, the few
successful people who make it to "pro" status, put themselves there and stay there by hitting a few home
runs each year.

My memory of past losses--times I struck out at the plate, the proverbial "Casey at the bat" scenario,
continues to paralyze me. I'm talking about baseball because commodity trading is the "big leagues." I've
traded since 1980 and I've learned to pick my pitches as good as anyone. I have a phenomenal batting
average, running between 65% to 80% winning trades. Yet like most average traders, I will make a profit
for the year before commissions, but will show a small loss after commissions.

I must change my patterns. If I don't change, I know I will never be anything but a journeyman, going back
and forth between the majors and minors. Just switching teams regularly every time I decide to try a new
program or advisor. I will end up on a minor league bus someday heading for a town with a name no one
would recognize, with hardly enough change in my pocket to buy a hotdog!

My new year's resolution is to get some "guts." I may strike out even more next year, but that is fine--most
home run hitters do strike out a lot. But they are among the highest paid players because the home runs
make up for it. The same is true in commodities.

A "supertrader" is consistently successful because he or she hits a few big winners to make up for the many
mistakes. The few big trades that occur in a year are responsible for the profits of the pros. It is what makes
a "supertrader" claim that title and maintain it over time.

If I can just learn this one point, I know I can become a "supertrader" too! I must quit taking myself out of
the market and force the market to take me out. When I hit those big hits, I will keep running the bases until
I am tagged (stopped) out!

To diverge a second from baseball, I read that every time one takes on a position, it's like throwing an
opened pocket knife in the air and catching it with one's bare hand. Eventually, one gets bloodied pretty
good. With every throw, the chances of getting cut are increased. You don't want to make any more throws
than you have to, and likewise in commodities you want to limit your trades and respective commissions.

The more you trade, the more chances there are of making a mistake. If you trade, you will error. And yes,
every trader gets bloodied. The laws of physics work the same, whether it's a "supertrader" throwing the
knife or just me.

Although everyone gets bloodied, the super traders have made enough money to buy themselves some
padding, so the blade never actually pierces their hand. They rarely feel the pain of the loss. They have the
confidence to keep throwing the knife, when I will have already given up. I may lose next year. If I do, it
must be, it will be, because a better team beat me. It will not be because I beat myself.

Recently Dave Green called me for the first time in several months, on my birthday 11/30/94. During that
call, I explained to him that I had recently been quite successful selling out of the money calls and puts in
the Cattle market. Although I was intermediate term bullish on the market, Cattle was in a short-term
correction going down. It just happened to bottom the day Dave called. I had sold calls in the February all

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the way down to the low that was hit that day, while selling additional April Cattle puts at higher and
higher premium values. Because February Cattle was falling faster than the April, the profits I was making
on the 12 short February calls was equaled to the short-term losses I was experiencing in the 20 short April
puts, although none of the April puts were ever in the money (I sold April 64, 66, and 68 strike puts and
April Cattle bottomed at 68.20).

With cattle bottoming on 11/30, I took profits on all calls the following morning and bought 2 April Cattle
futures contracts and went long a January Feeder Cattle. Now, all I had to do was hold the short April puts
and hope the market held the low. The market more than held up, it rallied strongly in my favor and on
12/5/94 I was now at near break-even on my April puts, so I dumped them all and also took profits on the 2
long April futures, and Jan. Feeder Cattle.

Even though it looked like a good move for one day, based on the drop that occurred on 12/6, the market
has since rallied greatly and I never got back in. It took several days to put that position on and I could not
get myself to ever get back to selling puts to put it all back on.

The $9,000 total dollars of put premium I received when I sold the April puts, has dropped to less than half
of the original amount, to about $4,000. If I had waited to liquidate the position today, I would have a
$5,000 profit in only 3 weeks. With the rally present in Cattle, it is likely April Cattle will close above
68.00 and all puts will go off worthless. It appears likely I could have kept all $9,000.

I told Dave Green that day on the phone, 11/30/94, when cattle happened to be at the bottom, that selling
the 64 April Put for over 60 cents ($240) was the best trade on the options board. Editor's Note: That is
correct, Bob did say that on Nov 30!) Today, three weeks later, the 64 April Cattle Put is trading at 20 cents
($80). It looks like the option will expire worthless. Another home run wasted.

I wrote an article in the Nov 93 CTCN explaining that 90% of options buyers lose, and 90% of options
sellers win. I don't think there is any better trading strategy in commodities than selling out-of-the-money
puts and calls. But I am still working out the bugs.

Don't Judge Trading Info By Its Size But By Its
Content & Value - Bill Adams

As a new subscriber to CTCN I received two inconsequential Special Reports. These little two page
throwaways are "inconsequential" in size only - content is what counts and there is real merit to both the
Swing High/Swing Low concept and the Drawdown Minimizer Logic.

As I studied the Drawdown Minimizer Logic, which basically determines the maximum adverse excursion
(intra-trade drawdown) experience for all profitable trades in the study universe, to help determine a logical
money-management stop loss placement, I had a thought.

Instead of placing your stop based upon a maximum adverse "dollar" excursion, why not use a more logical
maximum adverse "percentage of recent volatility" excursion? If the latest 10-day average true range is a
small number, a $500.00 M.A.E. might be meaningful, while such a small amount would be of no real
significance in the recent coffee markets.

Obviously, this could be confirmed by some of you talented programmers out there. What do you (and your
computers) say?

After My First Year I Have Made Money & Some Comments on A.Elder/
J.Murphy/Investograph/L.Williams/ Commodex/Synergy - Lee Taylor

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I have just completed my first full year trading commodities. I consider it a success, since I have more
money than I started with. However, my equity curve leaves a lot to be desired. This is because I tried
several advisors and systems.

It seems to be human nature to search for the Holy Grail or a commodity guru to tell you all the right
moves to make. In reality, you are in a battle with your own personality flaws, which if not kept in constant
check will doom your trading regardless what system or advisor you are following. Here are a few of the
books and advisors I have encountered:

1. Trading for a Living by Alexander Elder - The best book on trading, if I had to pick one. The author is a
psychiatrist in addition to a trader. The book delves into the mental barriers that cause trading failure. The
basic technical analysis is covered, as are some trading systems. I use a variation of his triple screen and
have found Elder Ray to be effective.

2. Technical Analysis of the Futures Markets by John Murphy - A lot of excellent information on analysis.
I consider Dr. Elder's book more balanced, but Murphy's perspective is also valuable.

3. Investograph Plus Software and a New Look at Technical Analysis by Robert McCullough - The book is
more effective if you own the software, which I do recommend. A lot of the information I have not seen in
any other book. I most enjoyed trend channels, oscillator patterns and look-ahead envelopes. Investograph
Plus Software has an oscillator called formula X that is detrended. It is the best I have ever used; most
closely resembling slow stochastics, but doesn't get pinned into OB/OS range. I definitely suggest checking
out the demo.

4. Larry Williams Commodity Timing - The monthly newsletter is extremely informative and the
subscription price is reasonable. Larry is a nice person and excellent trader, but trading his nightly updates
are like trading black box signals (unless you pay $1,500 for a video of his seminar, which I didn't do). I
spoke with Larry and told him I had read his book "How I made $1,000,000" and made some good trades
using his %R oscillator and moving average. He chuckled and said that stuff is too old. Larry did call some
profitable trades, so I took one shorting sugar. That's when I realized he doesn't tell you what you're risking
until the next night's update. Needless to say, the market came down just enough to stop me in and head
straight up.

The stop loss point was almost 10% of my account! What's worse, Larry kept moving the stop farther
away! I now recognize the range volatility concept of his trading, but you can imagine how I felt when I
was in the trade. I was too busy looking for a guru, to see if I was comfortable trading the system. Know
the system you're trading; know the risk before you execute the trade (you could lose more than you risk,
but that is beyond your control).

5. Commodex - This advisory illustrates how technical the markets have become. Once upon a time it
called 100 wins in a row. Nowadays you are whipsawed to death. The cost is prohibitive and the bottom
line is that Commodex does not teach you how to trade. The records of Commodex are deceiving because
it assumes exit with no slippage and ignores gaps, limit moves, etc. The stop loss is close only, which I
consider suicidal.

6. Tom Bierovics Synergy Fax - Tom uses a combination of moving average, oscillators, Japanese
candlesticks and chart patterns. The bottom line is that everything is spelled out to help you learn to trade
better. Another interesting feature is the goal of every trade. Tom exits at 2 times the risk, which works out
better than it first sounds. This exiting method works incredibly better if you trade optimal F (2% of your
account risked on every trade). Tom has answered my every question and has taught me more about trading
than any other person or book.

To the novice, I would recommend "Trading for a Living," Investograph Plus Software and a few months
of "Synergy Fax." I also suggest that when you paper-trade a new idea or system real-time, you print the
charts and give them to an associate with a full explanation of entering, exiting and risk.

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After Big Profits My Broker Then Denied Me My Fill - R.C. Meaders

I was working full-time as a corporation executive and trading, hopefully to make money, but somewhat
for entertainment.

I purchased 38 contracts of cotton. In the next four days, cotton made a vertical rise. On the fourth day, I
flew 2000 miles for a business meeting. Before the market opened, I phoned the broker to tell him I could
not properly handle my responsibilities in the business meeting with Cotton in my head? I told the broker to
get me out by three orders.

At a break in my meeting I called the broker. He said that one-third had been sold on the opening, one-third
three minutes later and the final contracts six minutes after the market opened. For the next 2-½ hours
cotton never sold as low as the highest price I received.

The market was closed about an hour early, because it was inundated with sell orders. At the normal two or
three days later, I received the standard profit and loss statement by mail. A couple of days after the cotton
transaction, I sold lots of corn. Sufficient to require a major portion of the cotton profit for corn margin.

Three weeks later, I received a letter from the executive VP of the brokerage firm stating the cotton
transaction had not been executed for my account. What did that mean? I had lost a lot of profit; the broker
had carried short sales in corn for three weeks without proper margin; the broker had waited for the mail to
reach me to make the claim that no sale of cotton had been made. Another result was an elevation of my
temperature!

I was very busy in my job, so I really could not spend a lot of time on the matter. As a matter of fact, during
the next 2-½ months, I flew three round trips from Toronto to Switzerland. We reached an agreement at
less profit. Strangely enough, I did not continue an account with that broker. Warning to the novice. Only
believe half what you hear, and one fourth the systems you buy!

Trading Advice From A Trader Of 30+yrs - Is the Secret To Success Every Week & Only After A
Big Move Takes Place On Long Term Charts? - Max Robinson

Hey, I like your newsletter. You are doing a great service to a lot of people. You responded very quickly to
my order and subscription to CTCN. The material that I received had some really valuable information in
it. The two special reports had information that is very hard to find anywhere else.

I have traded and studied commodities for over 30-years. My real problem is that I am looking for the Holy
Grail. I cannot stand to be wrong 5 out of 10 times. Also, I am looking for something easy!

If someone wishes to trade on a long-term basis, I do not believe there is any better way than the Swing
High and Swing Low Trading Technique.

I have bought many systems over my 30-years, most of them were all hype. I bought the system that named
Club 3000. However, every system had at least one point in it that was valuable and when you put them all
together, you may begin to see some light. In other words, if one wishes to succeed, he has to keep trying.
But watch out, because the price for success may be more than you want to pay.

By the way, I have found no broker over the years that could help me make money. I have found only one
money manager who could make money.

I have two friends who are farmers. They don't study charts and make fun of me. One of them tells me you
can't tell a thing about the market. There is no way of telling what it will do. One farmer makes money
nearly every year hedging hogs, and the other sells 500,000 bushels of raised corn at a price that is very
near the top of the market every year, so it must not be the system, but the man.

192

These two farmers' success comes from not trying to trade every week. They only get interested in trading
after the market has spent its time going up, and is near the high end of the long-term charts.

Try rereading some of the information that you bought 5-years ago, you'll be surprised at what you did not
see the first time you read the system.

Two of the best cheap systems that I have read are Spike-35 and the Colver Trading Method.

Spike-35 is the only truly mechanical system I have ever seen that might work. It has a very exact way of
defining the trend. This is the only information I have ever seen that defines trend. These systems are
available from Windsor Books.

Here is a truly mechanical method of entering and exiting the market I have developed. Gann stated,
"expect a trend change or an acceleration on the 7th, 14th, 21st or 28th of each month." I believe the 14th
and 28th are the most important. However, the 7th and 21st are interesting.

Simply watch the market establish a range on the 14th or 28th. Then buy a close that closes above that
range. Use a stop that is the first daily close under that range. The market seldom reverses more than once.

Do the opposite to sell. If the 14th or 28th occurs on Saturday or Sunday, use the previous Friday's range.
Point: the 14th or 28th is probably the best time to apply your best trading system.

By the way, if the market is near the top of the chart page and has spent three to four weeks in congestion -
sell it.

Point: Most people who have enough money to trade the markets, are not in need of money to buy food. So
the important thing about trading is not how much money you will make, but how much money you do not
loose. A big loss could even hurt your food supply.

Really, commodity trading for most people is just a toy to play with. The only difference between men and
boys is the price of their toys. This toy can get very expensive and devastating, if proper money
management is not followed. The best way to loose big money is to risk big money, while trying to make a
killing.

V-H Indicator Can Help Identify Trend Near Its End & A Trading Range Near Completion - Adam
White

I would like to share with my fellow CTCN readers three insights about the VHF (Vertical-Horizontal
Filter) indicator that I devised a few years ago.

VHF is a "trend intensity" indicator, similar to ADX in aim but simpler in design, It is now included as a
packaged indicator in MetaStock 4.0, but as review, here are the four steps in its calculation:

1. Select a period, i.e., the number of bars used to calculate the indicator.

2. Calculate the range of the period: the highest close minus the lowest close.

3. Calculate what I call "progress": the sum of the absolute value of the consecutive close to close changes
of the bars that make up the period.

4. Divide value #2 by the value #3.

This calculation returns a value between zero and one; in practice the VHF usually stays between .2 and .6.
Like ADX, the VHF climbs during trends and falls during trading ranges. By implication, relatively high

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readings can suggest a trend is nearing its end, while low readings can suggest a trading range is nearing
completion.

Here are my three latest insights about the VHF:

1. MetaStock defaults at a 28-bar period, but I now prefer a shorter period, for example a 18-bar maximum.

2. Above I mentioned that VHF resembles ADX; actually, it more closely resembles DX because it is so
sensitive and does not generate a very smooth line. Smoothing the raw VHF with a moving average gives a
perhaps more meaningful indicator that more closely resembles ADX.

The smoothing moving average need not be the same length as the VHF indicator itself. For example, a six-
bar moving average supplies enough smoothing without suffering too much "lag." ADX is simply a
smoothed DX, but the smoothing factor always uses the same period as the indicator period. In this regard
VHF offers more flexibility than ADX.

3. Finally, the absolute value of the difference between the period's first and last closes can be substituted
for the period's range in the first step of the calculation. Obviously, this value tends to be higher during
trends than during trading ranges.

The values of these three insights are of course relative to the trader's style and technical needs. That is why
I always look for flexibility (without sacrificing simplicity) when designing new indicators.

Both Positive & Negative Points Regarding Essex Trading Co Futures Pro Software - H. K. -
Houston

This is in reply to Steve Burningham's request last month for info on Futures Pro: As an owner of the
system here are my views. "Futures Pro" is a breakout system program by the Essex Trading Company and
combines their former programs - "Eurotrader, Tradex 21 and Ace System"; Long, medium and short-term
respectively.

What you are basically buying is a core system. You then have to add the markets you are interested in, i.e.,
Currencies, Grains, etc., long, medium or short-term are all extra. Usually about $200, sometimes on sale
for $100, or some package deals. In other words, for $200 you get all the currencies for long-term only, or
medium-term only, or short-term only, or $600 for all terms. I would strongly recommend, if interested, to
call and ask for their special deals - (800) 726-2140 - since my information may be dated.

The positive points about the system are: 1. The company has been in business for long time. 2. The people
are efficient, courteous and will answer your questions in a professional manner. 3. The software works
under "Windows" and is a joy to manipulate, with orders as you would read them directly to your broker. 4.
The manual is executed in a professional manner and the best in line with "Omega" manuals,

The negative points about the system are: 1. The data bank is their own system including rollovers, which
are automatic. As a result, in my case I cannot use my 35 commodity CSI/Trendx data bank to feed Futures
Pro. Of course, you may get data from CSI and other vendors. Also, you can update it manually, which is a
real joy. 2. My biggest concern is the parameters with built-in filters. The company provides updated disks
every three or more months for an extra charge. The parameters seem to be tested on 10-years or so of data.
Over the long haul, I am sure it is a money maker. The drawdowns meanwhile are tremendous and suitable
for huge bankrolls, which leaves me out. For this reason, I have stopped using it except for confirmation. In
all fairness, I have not tried to calculate parameters myself for shorter periods of testing time. The company
believes in 5-years minimum testing time.

That should about cover it. Again, these are my opinions only, and I hope that you get more input on this
matter from other users.

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How I Have Tried To Keep Futures Truth In Business & Out Of Trouble & How They Have
Wronged Me - Kent Calhoun

Everyone knows the pathway to hell is paved with good intentions. This applies to my letter to try and keep
Futures Truth in business. Mr. Hill has "forbidden" me to contact him or his office over the letter published
in CTCN (Nov. 1994).

I discussed the facts of my letter with John Hill over a year ago. He ignored them. I faxed him a copy of the
letter to be published in CTCN, so he could respond at the same time it was published. Mr. Hill assumed
this was to be a personal attack on him, it was never intended to be so.

The following is part of a letter I sent to John Hill.

Per your wishes this will be my last communication with your office. My recent contribution to the
(CTCN) newsletter was intended for you to seriously consider an issue I raised over 12 months ago. The
issue is your questionable business practice, which John Fisher stated you had stopped, the acceptance of
vendors' trading systems and profiting from them without their permission.

You have left Hill Financial, Futures Truth, and John Hill legally vulnerable for litigious action that some
vendor is now trying to capitalize on. You are responsible for this situation, since you choose to conduct
business in a questionable at best, and possibly at worse an illegal manner.

The legal questions I raised were excellent points you should consider. If you want to stay in business with
Futures Truth, perhaps you should review the manner you conduct business.

You may have forgotten a few facts, like the way Futures Truth once reviewed my systems. You gave me
your word, I would be able to review your trading results of my 5 VBTP before you published them. Based
on your word, I invited you and John Fisher to my seminars.

At my seminar, I gave you the fact the Dow would drop 100 points in one day in 8/91, and a Monday day
trade that made $550. I bought you three meals, allowed you to address my attendees and accorded you
every possible respect. In your absent-mindedness or arrogance, you never thanked me.

Later that year, I faxed you daily my actual trade results the exact week the Dow again fell 120 points in
one day. (I never did that before or since then.)

When I received your results of my system, I immediately recognized you had not calculated any price
objectives or knew the difference between the standard or conservative 5 VBTP strategies. It was too late
you said. The Futures Truth issues "were already in the mail." So much for your word. I forgave you.

You convinced me to send you $2,000 for programming to improve the 5 VBTP and I did so. After
spending over $10,000 with you and turning the 5 VBTP into a system that made over $1 million on an
equity drawdown under $40,000 (your numbers not mine) you wrote to magazines trying to get them to
delete (the name of) Futures Truth from my ads. I forgave you again for trying to suppress your own
"Futures Truth," related to the 5 VBTP advertising.

I paid you to run the results on Ultimate II to help me in a lawsuit (I won.) Yet when you created the
Universal Trading System someone took the Ultimate II volatility protective stop and changed it by one
tick for your stop. I forgave you.

In 1983 you sold me a copy of "Serial Analysis," for $35. I had already bought it from another vendor for
$25. As a contrast, I gave you Ultimate II for S&P's for free. I had made $5,000 the month before. It made
over $25,000, including a $13,300 day trade in October 1989, during the next six months.

195

Your diatribe ranting against all system vendors' results in Club 3000 also backfired against you, since it
offended all who read it, including Peter Aan (who responded to Hill's allegations.)

I opened up an account with your trading company and was overcharged the commission fee you stated we
had a deal on. It was never rebated to me. I forgave you again, John. I forgive you again, John, for not
knowing the true intent of my letter was to keep you in business, because your business benefits my
business. I forgive you for not realizing the only difference from a vendor's viewpoint between you and
another system vendor (you are reportedly trying to save the world against) is that he sells the rules and you
do not. You both profit from vendors' systems without asking permission, without paying for the work.

By the way, you never called, wrote or thanked me for helping you beat your lawsuit. You have typically
used every trick in the book, to nickel and dime me, to undermine my credibility, and berate me for years
John. I forgive you.

You were once kind to me and invited me to a seminar when no one knew my name. You gave me good
advice about many things, including life. When I moved to Chicago, My floor trader friends ordered your
books daily. I paid homage to you in my first article praising your trading expertise and books.

I choose to remember the John Hill who risked $500 on a trade that made $8,400 the first week I had ever
heard his name. Not the petty, vindictive and foolish man who sent me an angry FAX. I wish you nothing,
but good fortune and health throughout the rest of your life.

When you someday realize you were wrong, call me and apologize. It takes a man to admit he has made a
mistake and you have John.

I have only two regrets concerning John Hill. First, you did not recognize the true intent of my letter was to
seal any legal loopholes you leave exposed whereby some vendor might sue you.

And the second regret is that you will never know how much I truly respect you as a teacher, trader and
human being. As a human being who raised three children to become successful adults, and raised himself
from nothing. The John Hill I choose to remember is like the father I never had, I will never forget your
kindness, and always hold you in the highest regard. God Bless you and your family and have a prosperous
New Year.

Opinion On Rickerson's Market Optimizer - C. Collee From The Netherlands

This is for Kenneth Phillips who is interested in comments on Jeff Rickerson's, the Advanced Market
Optimizer II System.

The track record that goes with this program is too good to be true and that is the point, it is not true. It is a
program that gives buy signals after each swing high and swing low. There are some vague rules to
interpret the buy and sell signals. I had to ask twice to get the track record (it was handwritten and hard to
read).

After several times asking for the exact rules for entry and exit, I did not get the rules. Also the brochure
stated the track record was easy to check with the software. I could not and Mr. Rickerson has not
explained it (after several requests). So, I would strongly advise not to buy this program.

Should FT Have Canceled CTCN's Ad Because They Didn't Like Criticism of FT's Policies Being
Published? - Dr. Ken Wozny

It is ridiculous for Futures Truth to both cancel the ad in their publication and their editorial
recommendation of CTCN, because they did not like Kent Calhoun's article being published in last month's
issue. It would have been censorship for CTCN to not publish it.

196

I Bought Omega SuperCharts To Program My Own Methods - George Cooper

On December 4, I purchased the Omega Super Charts program. I purchased this program for just one
reason, Omega's assurance that by using their new program, I will be able to write and program my own
analysis methods into a computer.

I am assured this one feature of their program will enable me to develop and use my own analysis
indicators. Over the years, I have developed and successfully used my own "home grown" analysis
methods (manually) to spot reversals. I am anxious to see these methods work by computer!

Members Have Knowledge - Mike Coleman

I want you to know how much I value your publication. I look forward to reading it when it arrives each
month. It is refreshing to know there are people out there like you, who care about and are looking to
protect the public from all of the pitfalls of commodity trading. It seems that you have a very
knowledgeable membership and I believe you put out a top-rated publication. Keep up the good work.

More on SuperTraders Books - H. Lowell Huber

It looks like the books of Spirals will now premier in 1995. For those of you who already ordered one like
me, you will receive it, but it will be in mid-1995.

For those of you who ordered the book of Trend Changes, this book will now appear as two books - the
Book of Numbers and the Book of Ratios. The Book of Numbers is at the printers now and will be shipped
at anytime. The second book will follow somewhat later, because they have to get Frank Taucher's
SuperTraders Almanac out now too.

As for comments on cattle trading - maybe now that congressional motivations have changed, we may all
have the opportunity to learn the Hillary System of cattle trading. If not, I would think she is missing a
tremendous opportunity to market a "very successful mystery system" used in making her own calls,
especially now that she left the realms of cattle futures trading.

Are There Reliable Trading Systems So I Can Make A Steady Income? - Wade Geary

I recently started receiving the newsletter and back-issues and have scanned through most of the back-
issues. Your newsletter is excellent and I found it all very interesting. Your willingness to offer advice over
the telephone is particularly commendable.

I have many questions that you might be able to help me with, considering all the years of experience you
have had trading, and the fact that you are on a first name basis with many of the great traders, such as
Larry Williams.

1. In your opinion, is it possible to trade commodities with a small account, such as $25,000 and
predictably make enough money to rely on as a yearly income? The reason I'm asking, is I'm contemplating
taking an early retirement in Sept. 95 and will need a supplemental income to survive.

2. Are there trading systems that are reliable enough to consistently make money over the long run, if
followed with a disciplined approach? How can a neophyte trader such as myself evaluate the many
systems on the market?

3. Will any system accurately catch the "big" yearly moves in futures?

197

I have been trading about 1-½ years now, primarily following Ken Roberts and the Larry Williams
Hotlines. I really can't say that I'm ahead of the game using either one of these Hotlines. The Ken Roberts'
stops in my opinion are unrealistic and have wiped out most of my profits.

In the Larry Williams program last fall, I received a margin call because of the sudden drop in European
currencies. I was in 3 currencies at the same time and in one day I was down about $4,000. In retrospect, I
don't believe I should have been in 3 currencies at the same time with my small account.

I find the futures field fascinating and love to trade. I read every book on technical analysis that I can get
my hands on. I would greatly appreciate any advice that you (or CTCN Members) could offer me in this
area.

Hard Facts on Day Trading - TTB - Part 2

Maximizing Profits - Day traders, as we discussed, are constantly faced with the problem of capturing as
much profit as possible from a relatively small range of prices. This situation naturally leads traders into the
strategy of buying dips and selling rallies rather than attempting to follow trends.

Most trend-following strategies tend to be much too slow for day trading. Counter-trend strategies seem to
be the logical choice because they offer the potential of extracting the greatest profit from a small range of
prices. However, counter-trend strategies as a general rule tend to be less reliable than trend-following
strategies. Correctly and quickly spotting turning points in prices is much more difficult than simply trading
in the direction of a trend.

We have observed that the best day traders manage to incorporate elements of both methods. Successful
day traders try to buy dips within an up trend and sell rallies within a downtrend. The day trader who
consistently makes money must be good at defining trends and good at finding short-term turning points.
Most traders lose money because they are not very good at either task.

We will look at examples of possible day trading strategy. We have tried to explain the potential pitfalls of
day trading, the realities that cause most day traders to fail, and {next month} something of the
methodology of those that we are aware of that have to some extent succeeded.

Similar to other phenomena in the world of trading, day trading, which seems at first glance to be one of
the easiest, most productive methods of trading, turns out to be not so easy and not so productive. We know
that despite our warnings most of you will try day trading for a while to see if you can beat the odds. We
hope our basic advice and observations will help you succeed.

Tidbits on Financial Astrology - Carol Murphy

Free advice and help with Financial Astrology is available to CTCN members.

Too Many Data Formats & Problems Michel Gourbault
from Canada - Part 3

5. Michel creates a new continuous contract directly from the CSI-supplied files that worked fine. He does
this using a utility from EQI that can convert from ASCII, Lotus 1 2 3. CSI and a few other formats. He
converts it to the MetaStock (MS) format. Tries the new contract. No luck: The same darn blocking
message appears.

198

6. Now he reasons there is "no bloody way" the program designer-supplied CSI file, which worked in the
CSI format, could be of "insufficient length" or could "contain zeros" in sensitive areas of the data. There's
got to be something else.

7. He disconnects his FM receiver, and even his internal modem/fax card telephone line connections. Just
in case - against all logic - they could interfere somehow with this particular program. Tries the MS
contracts again. Nothing doing. Same message.

8. Noticed earlier that his drive b:, from which he loads most of his programs has been sticking lately. So
he takes the CPU to the shop to replace the drive b: system, taking this opportunity to also turn his 386
system into a 486 with Math coprocessor. Tries out the new monster. Removes the bugger of a program
and reinstalls it completely, including original CSI portfolio. Tries out the MS contracts once more, and
again gets the sentinel message that refuses to let him pass.

9. Then, one Sunday when he has a little more leisure time, Michel tries the same MS files - different
contracts - and... incredible as it may seem, without having done anything different than before, the sentinel
lets him pass! The program runs fine on that one file he tried. Exactly as on the CSI contracts. Hurrah, he
shouts! (Little did he know the sentinel-message just had a little snooze at that time.) One hour or so later,
he tries out the same file again - and here goes that blocking message again. And again, and again, on
every other MS contract he tries to get through.

10. No, I won't tell you the end of the story. By order of my sponsor and, in any case, because my sense of
ethics requires that I protect the identity of the guilty parties.

Member Requests

John Jenkins and two other members want information on Precision Day Trading System.

Dr. Sid Schuman 1-305-566-2495 wants to trade currencies and wants to know which is the best system to
buy. Your help is appreciated.

New member Mike Diaz would like to be in contact with other traders in the Siloam Springs, located in
extreme NW Arkansas (501-524-8437).

Neil Sterritt would like opinions on Bruce Gould's Money Machine.

In your "Member Requests Nov. 94" Ken Periso asks "How to create continuous contracts and where to get
software? I, Christian Holzner offer a program which, among other things, can do that for CSI files.

Also, I would like to get in contact with other CTCN members in Austria, Germany and Switzerland. They
can call/fax me at +43 662 820757 (after from mid-Jan. 95 +43 6245 78568).

Editor Comments

This is our Special End-of-Year Expanded Issue, which covers 12 full pages. There have been lots of great
articles and we all look forward to more of the same during 1995.

Some exiting new things are planned during the new year, including an optional Computer Users Group.
This optional group will concentrate exclusively on the use of computers in trading. It will not detract in
any way from your Commodity Traders Club News, which will continue with the same content matter,
including occasional articles on computer related matters.

Some other important news: By the time you read this, Commodity Traders Club will be incorporated as a
nonprofit educational organization. That will result in you qualifying to receive several important and

199

valuable new benefits during 1995. Benefits we are considering include, random drawings for free
computer software, educational publications, educational seminar invitations, etc. These extra benefits will
be funded with any extra income we have as a result of our membership fees and advertising revenues. In
other words, all profits will be passed on to you, the members, thanks to our nonprofit organization status.

About Larry Williams' contribution in support of Walk Forward Testing. Whatever Larry says has great
validity, as it's coming from probably the most famous and most knowledgeable trader of modern times.

It's certainly correct that if done properly, walk forward testing has great value. For those of you not aware
of walk forward testing, it's first setting your system parameters and then testing the results in the future
using those pre-set parameters without benefit of additional or new optimization. Some people refer to that
as "hypothetical real-time trading."

However, walk forward testing can in fact be a trap if done incorrectly. That's because there's a problem in
deciding what pre-set algorithm or parameters to use prior to the so-called walk forward test. If we arrive at
those parameters by an optimization process, then we may be guilty of optimizing the walk forward test
without even realizing we have done that. Another pitfall, is the great tendency to optimize the walk
forward testing time period itself.

Possibly the only way to do it correctly, is to first arrive at a set of parameters and algorithm based on logic,
experience, or sound trading principals that won't be subject to change. Then do a walk forward with no
attempt to improve results via optimization.

In reference to the Futures Truth controversy. As alluded to by Dr. Ken Wozny, and as you may have
noticed if you subscribe to FT, the Dec/Jan 1995 Master Performance Tables, CTCN has been deleted from
the Futures Truth's publication!

For the last 4-months, CTCN had a small paid display ad running in the FT publication. In addition, John
Hill recommended both CTCN and a similar competing newsletter to his readers.

Unfortunately, John Hill, the owner of Futures Truth, was very upset over CTCN's decision to publish Kent
Calhoun's article in the November 1994 issue. John believed we should act as a censor and not publish the
article because he considered it negative against him and Futures Truth.

Your editor did not take sides or indicate he supported Kent's allegations. In fact, he openly praised John
Hill and George Pruitt for their honesty and integrity in last month's Editor Comments section. However,
that did not satisfy John as witnessed by his surprising decision (done without any notice) to yank our paid
ad and no longer endorse CTCN from an editorial standpoint.

John Hill's action is most regrettable. He seems to be implying by his actions that he can criticize vendors
and their trading systems as much as he wants by publishing their negatives, but he cannot stand any
criticisms himself.

This unfortunate dispute does not detract from FT's valuable work in testing systems. FT serves a purpose
and is an asset to the futures industry. Their system testing and maintaining track records is a difficult and
at times a thankless job.

However, the truth is that FT should not be so sensitive in that they can dish-out negative (and positive)
statistics on vendors' systems for many years, but can't take a very rare negative opinion of some of their
operations being published about them!

I am not judging the issues Kent has raised, but at the same time I tend to agree with him on some issues
involving legalities and moral issues.

200

You should also know that John Hill has told me FT has now ceased doing some of the things Kent refers
to or is critical of, including selling their own systems and accepting copyrighted and non-disclosure
systems from system owners.

It is interesting to note that I have been informed by several sources that a competing newsletter refused to
publish Kent's article. As an interesting aside, and a subject to be discussed in an upcoming issue, you
should know the so-called competing letter has in the past refused to publish a number of articles and
contributions about or authored by various vendors, both negative and positive articles.

What do the CTCN Members think about this situation? Please reply via CTCN, so your opinions can be
heard in our next issue.

Getting back to positives rather than negatives. My nomination for the most positive and promising article
during 1994 is the article by Anonymous Trader, which appears on page 1-2 of this issue.

His article counteracts much of the negatives we hear on how difficult it is to trade commodities
successfully, in particular with regard to day trading. Though day trading is admittedly difficult, it can also
be highly profitable if done correctly, and good discipline and money management is used.

Perhaps Anonymous Trader will agree to share some of his trading secrets with members. I will write and
ask if he would be so kind to do that in the near future. Of course, he may not want to share his techniques
because of fear that if his methods were publicly known, they would not be effective anymore. However, I
personally doubt that would in fact occur. The markets are too big and traders' discipline and money
management is usually too small and weak for a successful methodology to be widely duplicated by others.

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