This action might not be possible to undo. Are you sure you want to continue?
Comparing Commodity Trading to Casino Gambling - How To Obtain The 'House Advantage' -
I'm a 29-year old part-time commodity trader. When I'm not trading commodities, I'm helping my father on
the family dairy-farm (located in Gainesville, TX - 60 miles north of Dallas). The purpose of this letter is to
share my thoughts and experiences as it relates to trading. However, I first would like to provide you with
some background information.
I took my first real-time trade on January 2, 1992. During the past 3-years, I have made a grand total of
$145,357.93 ($37,135.10 in 1992; $43,745.35 in 1993; and $64,477.48 in 1994). These results do not
include interest earned on U.S. Government Securities. Including earned interest, my net profit for the past
3-years is $155,533.96 (account statements are available).
In my opinion, if I can make this kind of money trading commodities, anyone can. The key to being
successful is to maintain "consistency." My trading methodologies have provided me with fairly consistent
profits during the past 36-months. Don't get me wrong; I do have my share of losing months. But I always
seem to "bounce back."
My trading approach is very conservative. I only trade one contract per signal and I never pyramid my
trading positions. Also, I have a tremendous amount of respect for the markets. As you know, commodity
markets can be extremely volatile at times. Therefore, I have developed a healthy "fear" of the markets. If
you want to be a successful trader, you must be conservative and cautious.
Since I did not begin real-time trading until 1992, I did a tremendous amount of paper trading and research
from 1987 to 1991. During this time period, I watched a few of my friends do some real-time trading. Not
one of them managed to show a profit during a single 12-month period. Occasionally, they would "catch" a
couple of big moves, but they always gave it back over time.
The one "common thread" that my friends possessed, was the fact they never developed any type of trading
plan or method. Their trading was very erratic and lacked any type of systematic approach. They would all
rush out to purchase the "hottest" new system on the market. After trying it for a few weeks (or months),
they came to the conclusion that it wasn't as good as the vendor had advertised (sound familiar?).
Therefore, they quickly moved on to something else. This "cycle" continued until they all became
frustrated or lost interest.
In the meantime, I observed their trading patterns and tried to learn from their mistakes. I also continued to
do a tremendous amount of research and "test" various trading methods and ideas. I spent a great deal of
time reading books about the laws of probability and "gaming theories." One of my favorite books dealt
with the subject of casino gambling. The author book explained how the casinos were making billions of
dollars each year, while only having a 2% to 5% advantage over the players. I was absolutely amazed by
this fact. After reading the book several times, I came to the realization that this was the best way to make
money in the commodity markets on a consistent basis. All I had to do was get the "odds" in my favor by
just a small amount. After that, the rest would be easy!
My goal was to locate various trading patterns that were fairly predictable over a long period of time. To
my surprise, this task wasn't as difficult as I thought it was going to be. Using my historical database, I
made two very important discoveries:
1) During various times of the year, certain commodities will move in a very predictable pattern. Some
people will classify this phenomenon as "seasonal tendencies" while others will say that it's based upon
"natural cycles." Frankly, I don't care what you call it. All I know is that some (not all) commodities exhibit
very predictable price movements throughout certain times of the year.
2) If a commodity closes higher for the day, there is a greater chance that it will go up the next trading day
(versus going down). Vice versa; if a commodity closes lower for the day, there is a greater chance that the
commodity will go down the next trading day (versus going up).
The next logical step was to develop a systematic approach to "exploit" these predictable trading patterns. I
knew that the "odds" would be on my side for each trade that I took. To use casino terminology, I had the
During the last 6-months of 1991, I developed a system which would generate about 8 to 10 trades per
month. The trades were fairly long-term (3 to 12 weeks) and the stop-loss levels were reasonable ($1,000 to
During the past 36-months, the system has produced fairly consistent results. Don't get me wrong; I do
experience some "painful" drawdowns from time to time. But the system always seems to "bounce back"
In 1993, I began searching for a method which would allow me to capture short-term (1 to 2 days) price
swings in the various markets. Based on my past research, I knew that if the market closed higher (or
lower) for the day, then the "odds" were greater than 50% that the market would go up (or down) the next
day. My goal was to develop a trading plan which would allow me to "exploit" this phenomenon.
My first idea was very simple. I decided to "buy the market long" if it closed higher than the previous
trading day. For example, if the market closed higher on Wednesday, I would simply buy one contract on
Thursday's opening and sell on Thursday's close. On down days, I would do the exact opposite.
Based on my historical testing, this idea did not work very well. Why? Because the markets have a
tendency to "gap open" in the direction of the previous day's closing trend. For instance, let's assume that
the Coffee market has closed at 173.50 on Thursday (up 230 points from Wednesday's close). According to
my rules, I will buy one contract on Friday's opening.
The Coffee market does indeed "gap open" on Friday morning. It opens at 176.50 (up 300 points from
Thursday's close). Therefore, my order is filled at 176.50. The market closes at 174.00 and I liquidate my
position on the close.
What's the outcome? I actually lost money on the trade ($937.50) even though the market "obeyed the
rules" and closed higher for the day. However (as is usually the case), the Coffee market "gaped open" in
the same direction of the previous day's closing trend (which was up). My "system" lost money because I
did not profit from the "gap opening." I was buying after the "gap opening." By that time, most of the "easy
money" had already been made. I had to find a way to position myself in the market before the "gap
openings" took place.
The logical solution would be to enter the market on the close instead of waiting to enter on the following
day's opening. That idea seemed to work fairly well. It did make money. However, I found a better
During my research, I discovered that very often the markets would close at (or very near) their extreme
highs or lows for the day. For example, if the Cotton market was having an "up" day (i.e. higher prices), it
would (more often than not) close near its high of the day. Therefore, I wanted to find a way which would
allow me to "get on board" somewhere in the middle of the move. I determined that I could generate greater
profits if I entered the market during the middle of the move, instead of waiting until the close of trading.
I tested a couple of parameters in order to find the best place to enter and exit the market. After a few
weeks of testing, I settled on one parameter which seemed to work quite well on all of the commodities I
On March 17, I began trading the system on a real-time basis. My intentions were to trade it for a few
months on a "trial basis." My "experiment" lasted from March 17 through July 1. My real-time results
confirmed the results that I had achieved from my historical testing. The system worked great!
During 15 weeks of real-time trading (3/17 - 7/1), the system generated a net profit of $19,673.73. I traded
8 commodities (1 contract per signal). Of the 8 commodities, 6 were profitable. The drawdowns were
During the remainder of Summer and throughout Fall, I was very busy helping my father on the dairy-farm.
Therefore, I simply did not have time to trade the system on a real-time basis.
However, I did follow the system on "paper" to the best of my ability. It continued to generate substantial
profits, especially during the months of October and November, 1994. This type of system works, because
it "exploits" the short-term price swings that occur in the various markets on a regular basis. It doesn't
capture the entire move. Instead, it simply takes a "chunk" out of the middle and gets out with a nice profit.
All markets have a tendency to move in the same direction for a day or two before reversing course. This
system simply gets in during the middle of the move, and usually takes profits the following morning when
the market gaps open in the direction of the previous day's closing trend. The "secret" to this system is
being on the right side of the "gap opening." That's where the money is.
I'm thoroughly convinced that the best way to make money in the commodity markets on a consistent basis,
is to use a system that will "tilt the odds" in your favor on a daily basis. It doesn't take much of an
advantage to "beat the markets" on a regular basis. Remember the casinos; they enjoy an advantage of only
2% to 5% over the players and they're making billions of dollars on an annual basis. In my opinion, it
works the same way in the commodity markets. I have my account statements to prove it!
I'm always searching for new trading patterns that will give me an advantage over the markets. There are
many profitable patterns that do exist. For instance, I discovered a pattern last year that worked perfectly on
every trade I took in 1994. In other words, every trade made money (based on real-time trading). I tested
the "system" back to 1992. During the past 3-years it has lost money on only 3 trades. The worst drawdown
The trading methodologies used are not perfect. I "suffer" through drawdowns just like everyone else.
However, my "systems" have made money over the long-term. Hopefully, that will continue.
My systems are not for everyone. I tried to start a daily fax service in 1994. However, it didn't work
because my systems went through a drawdown during the first 2-months of 1994. Consequently, all of my
subscribers quit using the fax service during the drawdown. For the remainder of the year, I made a great
deal of money. Unfortunately, I was the only one who participated in the profits.
In my opinion, most traders (including myself) simply do not have the discipline to follow another trader's
system for any length of time; especially if the system is in the middle of a "painful" drawdown. That's why
it is vitally important to find a system that you're comfortable with.
I would like to publish real-time results in CTCN on a monthly basis, to prove to traders it's possible to
make money in the commodity markets on a consistent basis using simple trading techniques.
Editor's Note: I have contacted Dave Reiter and asked if he would like me to test his systems and
methodology on behalf of all my members. If he is willing to do that, I will report to all members on his
systems. Presuming they do in fact perform well, I am sure many members would then want to learn how
they could actually trade his systems or perhaps form some type of "joint partnership" with Mr. Reiter.
How I Successfully Day Trade the S&P500 - Anonymous Trader
In trading, I would recommend trading with the trend. I know it sounds cliché, but I have found it is the
most rewarding (I found this out - like everything else - the hard way).
Selling tops and buying bottoms is like being a salmon. You are always swimming upstream against the
trend. You may get a good trade now and then, but a market will wear you out in the process. I have always
found these trades looked great going back on a chart. In trading real-time from the hard right side of the
chart without the benefit of hindsight make these trades difficult to not only see, but see through to the
So trade the trend. Enter on pullbacks, use reversal bars that make pivot lows/highs and close back in the
direction of trend. Move stops quickly. Take reasonable profits from the markets trading that day. If market
is slow and in a trading range mode, go for less. How do you know what to go for? Your experience will
tell you. There are no hard and fast rules, sometimes I get out way too soon. Sometimes I stay in too long,
but in general I do OK and get my share.
I hate to say it, but good trading is not 100% mechanical. I wish sometimes it was, but that's what your
there for. I find that good trading will be 80% mechanical or/so and 20% will give you the flexibility. To
use your experience and feel for the market to enhance your method and make it comfortable. I'm not
saying you can't be 100%mechanical. I believe your most profitable trading will be a system that allows
you some input on entries and exits.
I use a 3 and 5-minute chart, side by side and take the first signal. I get in the direction I want to trade.
Sometimes a 3 will get me in and a 5 won't give me the reversal bar, and vice versa. This way I don't have
many moves pass me by. One of these usually will get me in.
I have been told that many people have called Dave Green wanting to share my system. So I will, but I told
Dave it's ridiculous. I know these people are thinking, If I can find out what and how this guy is trading, I'll
use it and I will start making money. I'll be rich. All I need is a good system. It sounds like this guy has
something really hot! If he will just divulge it.
Well, if you really look at what I'm doing, it's waiting for a trend to begin and getting in on pullbacks that
usually come into a 38 - 50 - 62% retracement of the last swing and reverse out of there back in the
direction of the trend. Very simple. This was probably being done before 1900 - you can do this. So why
are most people losing money daily - read on. (By the way, this simple method is the best way I've ever
seen to trade. I just put my own little wrinkle in it with common sense money-management). I'm not doing
anything new or secret.
My method is very simple and easy to trade. I hope this gives readers some ideas. However, I want to make
some caveats and warnings for all the wanna-be-traders who want to trade for a living and/or think they
can. I'm no market wizard. I still trade mostly one and two lots and I don't live in a $500,000 home or drive
a rolls royce. My trading has become very consistent and profitable and continues to get a little better every
month. My method is my tool. It's an excellent tool and works extremely well when I use it the way it
If more money is lost than normal, if stupid or random trades are taken, it's not my system or method that
has failed, it's me, myself, and I. (Yes I take stupid trades now and then) I'm human. I just try to keep them
at a minimum and allow for them. My first 8-years of trading results would probably make you throw-up.
Lord knows my wife did!
The point I'm trying to make is that learning how to trade profitably is very difficult. Once learned, it
becomes simple and fun, like I mentioned in the 12/94 CTCN article.
I feel sorry for the people who write to these newsletters or forums. Most of you are missing the boat (just
like I did my first 8-years). I see you squabbling over data vendors, system vendors, methods, hotlines, new
and old systems. People who made false statements about their product.
You are too concerned with continuous data or the other kind of data (I forgot what it's called).
Optimization, back-testing, % wins, max drawdowns, broker problems, new software programs, books,
articles, seminars. (Oh, I just remembered the other data is called perpetual, I think) etc., etc.
All this is crap. It will not make you money and is a complete waste of time. Believe me, I know. This stuff
is all secondary in nature to success. People need to work on what's inside them. Your psychological
makeup, how you interact with the market and how you deal with fear, greed, anxiety, etc.
It's you against you everyday. Not you against the market. Not you against another trader.
The market is going to do what it's going to do everyday. Whether your in or not. The only thing that
determines if you make money or not, is how you react to market action. Only you can give yourself money
or lose money trading. Not the market, not the system, not the data, not the software package you use, not
the hotline, book or seminar you purchased. Just you!
Do you would-be or aspiring traders finally get it! Most of you are looking in all the wrong places as the
song goes. A perfect example, is in last month's CTCN article, page 2 by Robert Edwards. He wants to
improve his trading and I'm sure he is trying very hard. But as I read his article, Robert has missed the boat
and will never truly succeed until he works on his psychological flaws. For example, he continues to let
fear and greed ruin his trading. He's afraid to let a profit run, for fear of giving back a small profit (greed).
These are serious problems and deep rotted in his psyche. However, he's not seriously dealing with it. How
do I know? Robert made the statement "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." Now Robert, what kind of stupid statement is that.
Editor's Note: Anonymous Trader's methodology is depicted on the chart below: Chart in Print Copy
It shows you take no responsibility for your losing, some other team or guys beat you! Robert, if you lose
next year, it will be because you traded poorly. You didn't react well to market action. Nobody or no
market is out to get you. They don't even know or care that you exist.
Your assumptions are not quite right on what it will take to turn your trading around. You say you must
change your patterns - get some guts - you believe as you stated "If you trade you will error" and "Trading
is like throwing a knife in the air and catching it in one's hand and getting bloodied pretty good." That's a
real positive view of trading, isn't it! It is no wonder your having trouble. You truly view trading as a very
negative thing. You really do! You must work on changing your views into a positive attitude. Can you be
honest to yourself to do it? You must, if you are to succeed.
I trade 2-5 times a day. If I felt as you do, I'd probably blow my brains out in a week. I look forward to each
new trade. I can't wait for the next signal. I'm confident enough to know I'll make money 6 to 7 out of 10
times. That's the attitude to have - positive with confidence.
I don't mean to pick on you, but your case is typical (I was there once). I hope you will take this in a
constructive way. It will change you. It will take sometime, but you can do it. I'm writing this letter for
therapy to keep my concept in the front of my mind, as well as helping others. I speak from real feelings
I started writing a short letter, which has turned into a lengthy dissertation. I hope I have awaken some of
you. It makes me sick to look back at my horrendous years. I went to all the seminars, bought systems,
books, tapes, software. None of them made me money, because I had some real psychological issues to
resolve that only manifested themselves in trading. If you have any personality flaws, trading will bring
Do you really want to trade for a living and enjoy the kind of lifestyle it affords? One of freedom and
money. Then you better be prepared to deal with your dark side and confront your psychological
weaknesses and be honest with yourself (painfully so) be willing to change. It is not easy - but can be done.
I have come far enough to turn my trading around - but I work on it everyday.
Do you have problems with placing stops and taking a loss? Do you get mad at the broker or the market
when you lose. The market doesn't do what you thought it would do. Do you get mad at that stupid system
you bought? The system went into its largest drawdown the day you started trading it.
The list of questions goes on and on and yes I've done all this and more.
Resolve to turn your quest for trading excellence and profits inward - yourself. Learn to expose all your
weaknesses and then work on them. Be very honest with yourself and humble. Get rid of your ego. You
want to be right on a trade attitude. Risk 2% or less of your equity on any one trade.
Do this and you'll make money with any system. You will be in control, not the markets or the Holy Grail
Gizmo's associated with it. I wish everyone the best and hope you don't have to go through what I did to
succeed. Cheer up, because it can be done and it's worth the price when you have success.
P.S. - I've said my piece - got it off my back and hopefully helped some. I'm not one for much interaction
and have made myself somewhat of a hermit with trading (It helps to not talk with traders) to be successful.
Too much B.S. gets in the way. So I will leave you all to ponder my thoughts. I don't care if people don't
believe I'm right, because I know I am. I speak with experience, conviction and compassion for those on
this journey. I will not be writing again and will now disappear into trading obscurity to enjoy trading for a
Opinion on Anonymous Trader, DayTrading, Commodex & Others - George Bashar
After bouncing around last month's issue (12/94), I would like to submit the following observations:
First, three cheers for Anonymous Trader. It is about time a successful day trader countered the critics of
day trading. As he points out, it's absurd to criticize day trading simply because one has to pay a
commission every day. If one holds a trade for two weeks, pays the commission and exits with a profit, is
he better off than a day trader who does ten trades in the same two-week period, pays ten commissions and
has a higher net profit? This would seem to be analogous to saying he would rather make $100,000 per year
instead of $200,000, because he would have to pay more taxes on $200,000.
No matter how intensively you analyze it, the bottom line is net profit. Granted, it may be more difficult for
a neophyte trader to make a profit day trading. A neophyte trader may switch to day trading for all the
wrong reasons. He's correct when he says it is just as easy, if not easier to make a profit day trading,
provided you know what you are doing.
There are many successful day traders who just go about their business making money year after year by
day trading, and not trying to sell systems or run seminars. I would imagine that successful traders like
Kent Calhoun and Larry Williams could make a good living by day trading, rather than medium and long-
term position trading as they do now. A trade is a trade, a good trader is a good trader!
I do have a slight disagreement with Anonymous Trader about what markets can be successfully day
traded. While he may have a system that works well with the S&P 500, TBonds and the currency markets
can also be profitably day traded. One simply has to have a good system or be comfortable reading the
daily pulse of each market to be successful.
Anonymous Trader seems to make a good living day trading the S&P 500. If one compares the range of the
S&P to the margin requirement, both are much larger than the range and margin requirements of TBonds or
currencies. Simply put, if a trader can successfully trade both the S&P and TBond markets, he would be
better off with the TBond market, unless he could make five times more net profit on the S&P, based on the
respective margin requirements.
I 'm not criticizing Anonymous Trader, but simply trying to make members realize that they can profitably
day trade the TBond and currency markets provided they have a sound system. But, I do highly commend
Anonymous Trader for his insightful submission, and hope, as Dave stated, that he would share his secrets
with CTCN members, if feasible.
With respect to Lee Taylor's comments on Commodex, I fully agree with him. About 2-years ago, I took
out a short trial subscription to Commodex's advisory and hotline. Phil Gotthelf and his father have been in
business for a long time and seem very knowledgeable about trading commodities. The problem I had with
their performance figures was their hotline would put out a buy or sell signal after the markets closed on
Thursdays, I believe.
To follow their recommendations, a subscriber would have to buy or sell on the next day's open, which
would not necessarily be the same fill as the Commodex fill the previous day. I felt that this was somewhat
misleading, and could greatly influence and change the performance results that Commodex advertised.
Besides this problem, I felt they provided some very good market forecasts.
To Max Robinson, how good to hear someone else admit that he is constantly looking for the Holy Grail.
This would seem to be the problem for most of us. If we are consistently making $100,000 per year trading
commodities, we will be tempted by the system seller who claims that he can make $101,000 per year.
Kudos for your honesty, Max
To Kent Calhoun, about your disagreement with John Hill, none of us can be certain of what the facts are;
only you and John Hill know. But I would commend you for taking the high road and not taking the
opportunity to attack John. Hopefully your letter last month can put the matter to rest.
Always Use Stops - Brian Long
When I share my trading experiences and knowledge, not only do I feel good about helping others, but (and
very selfishly) trade better, because it causes me to practice what I preach. So lets get to it. For those of you
who have trouble taking a loss, let me give you something to think about.
I have traded professionally (stocks & commodities) for over 10-years. I have seen many good traders blow
their financial brains out, because once they refused to take a loss. They would say they couldn't believe
how unlucky they were, which was true on that individual trade. What they failed to realize was, even
though there was a small chance of this occurring on that trade, by trading long enough this small chance
becomes a certainty.
So how do we protect ourselves. I use the analogy of Russian Roulette as this tends to have more of a
lasting impact. Picture yourself holding a Magnum 45 with one bullet in the chamber pointed directly at
your head. Now start pulling the trigger (trading). Eventually, if you play long enough with no protection,
your going to blow your financial brains out. Were you unlucky? Yes, on that one pull of the trigger (trade)
you were, but statistically because you have played so long this was to be expected.
So, how do we avoid blowing our financial brains out? USE STOPS. Next time you trade without a stop
loss in the market, picture yourself pulling that trigger with the gun at your head. Remember, you and you
alone are responsible for controlling your losses. Do it and you have a chance for success. Don't do it
and....well they're happy to pick up some of your financial brains.
Major Problems With Tick Data Co & Glad I Am Now With CSI - Randy Stuckey
There seems to be a proliferation of new price data vendors the last few years. How good are the various
sources? Here's one person's experience.
I originally subscribed to Genesis end-of-day price service. They seemed OK with a couple of odd
exceptions. Several times they just stopped sending several commodities in my nightly download. A phone
call always got the commodities re-instituted to my portfolio. Irritating, but not catastrophic.
Then came disaster. I concluded I needed tick- by-tick data. Well Tick Data Inc was having this super,
colossal, astounding sale of tick data. I took the bait. The next year was a myriad of phone calls and letters.
The data sent was so defective, their own software refused to correctly process the data. 41 phone calls,
several letters and the threat of a horse's head on their bed failed miserably. They make Scrooge look like a
rank amateur. These guys were tough-not a penny would they refund.
The good news is they did send "corrected" data. The bad news unfortunately, it too was defective.
The following is really hard to believe, but it did happen on one of my phone calls complaining about the
"corrected" data being defective. A Tickdata employee explained that I was being unfair--"There were just
too many errors in the data for us to fix all of them."
Well they won the battle--hopefully they'll lose the war or change for the better. To help the rest of you,
they sent me defective data on Euro $, Coffee, Gold, Soybeans, T Notes, T Bonds and Silver. The only
good to come from this experience, was when I regained a lot of hard drive space, as I erased the Tickdata
directories and files. I currently download end-of-day data from CSI. No problems. How refreshing.
Fibonacci/Gann/Numerology Value? - A Past(a) Life Experience - Randy Stuckey
During the last two years, I've been conducting research into many of the common technical analysis
methodologies as part of a larger system development project. One part of technical analysis that often
comes up, is the use of "astounding" numbers and number series. My internal "Radar" turns on every time I
hear clichés like "amazing", "astounding", "uncanny" "greatest discovery ever made" and so on.
My numerology study first looked into the construction of Gann Lines, but soon gave up. "They're
everywhere! " Is there anything that isn't a Gann Line? But Fibonacci. Now there's a real number series.
The sound just rolls off of your tongue. As you know, this number series is formed by summing the last 2
numbers in the series to get the next number in the sequence, numbers like 1, 2, 3, 5, 8, 13, 21, etc.
As these numbers increase in size an "amazing" thing happens. The ratio obtained by dividing a preceding
number by a succeeding number in the sequence approaches .618 (it's actually .618034 but who's counting).
More importantly, there are "astounding" examples of this .618 ratio in nature-and many would say in also
predicting stock and commodity prices. The magical ratio even has its own name, "the Golden Mean."
Further more, the .618 "Golden Mean" is peculiar ONLY to this specific time series. WOW!
Much to my dismay, when I tried numerous objective tests of this magical number series and its "Golden
Mean," it just wouldn't do any meaningful projecting. Why was it being so stubborn? Was it me? What if it
didn't like me?
There was only one way out, I had to try. Maybe I could develop my own astounding number series-one
that would behave like good little number series should. My computer whizzed. I sweated and toiled. My
teeth gnashed, and finally -Eureka! I invented the amazing Spaghetti number series. This is similar to the
Fibonacci series but "astoundingly" takes it to the next natural level. The Spaghetti series is formed by
summing the last 3 numbers together. Well no wonder Fibonacci didn't work. He wasn't using the
"uncanny" powers of the number 3. This gives a number series 1, 2, 3, 6, 11, 20, 37, 68, 125, 230, 423 and
Naturally(?), I immediately tested it on my December Coffee contract data. Clearly Coffee was muddling
along in the 80's until 4/26 ("amazingly" close to 423-a Spaghetti number). Then it started to take off.
Exactly 20 days later, it formed a clear cut price peak around 125. Whoa! 20 is a Spaghetti number. Whoa!
So is 125!. I don't think I can take any more, but get ready to be further "amazed." 37 (Oh dear, yet another
Spaghetti Number) days later it hits its all-time peak at -you guessed it, around 230 (I just don't believe it,
another Spaghetti number!).
But wait a minute. Let's not forget the Fibonacci Golden Mean ratio. I wonder? The Spaghetti series also
has a magical ratio. As the numbers become larger, just like the Golden Mean, dividing a preceding number
by a succeeding number -amazingly always gives you the same ratio-.544 (actually .543689 but who's
counting). In the future, this astounding ratio will come to be known as the Primavera ratio. This, of course,
gives us Spaghetti Primavera. And it is unique. No other number series in the universe gives you Spaghetti
Seriously, I have yet to see any objective evidence of a special number or number series with predictive
powers. On the other hand, it is easy to subjectively make a case for almost anything, as I just intentionally
did in a silly way with the above nonsense. I don't mean to offend the Gann and Fibonacci followers, but
we should all seek a different perspective from time to time. Just remember that one can always find tons of
co-incidental relationships for any number. Not amazing, uncanny, or astounding, just coincidental.
Lessons Learned in 10-Yrs of Trading - Bjorn Rump from Switzerland
I received my first CTCN, and as you encourage contributions, here is mine.
With the availability of small computers, I started to realize a dormant project to systematically analyze
markets. Fortunately in 1985, I didn't realize how long it would take to do something productive.
With an APPLE II, I naively bought the Kroll-Wilder System and CompuTrac and thought to become rich
fast. After some serious paper trading, two friends and I opened an account at Cargill and started trading
rigorously with all the discipline possible with the Kroll-Wilder System. They publicity advertised a
maximum drawdown of 5%. Well after some 32% drawdown, we stopped trading it. The commission at
that time was $74.
Easy, do-it-yourself, I thought and started to optimize systems with CompuTrac. After a while, I found
highly profitable formulas, but at the same time the "curve fitting syndrome" started to haunt me. Why? I
was able to duplicate one of the formulas given at a CompuTrac seminar, and found that what was
profitable in the past was not so in the future.
As the PARAGON system allowed to test it without being in the market, our group bought it and tested it,
luckily on paper. It was another sobering experience. The best of it was the HP-41CV calculator which
served me for many years to come to convert price quotations. In addition, I realized the value of computer
Back to CompuTrac. Studies (self-written strategies) were the next fad. The limited memory of the APPLE
36 Kbytes did not allow fancy exercises and Basic Code was hard to edit and debug and had to be
interpreted. To find out more on the reliability of trading models, I let the existing "optimized" models run
to do some paper trading, a tedious and slow way of "forward-testing".
Few people living in America realize the comfort of the European 6-hour time shift. At 8 am, you can
download the data, CSI Perpetuals in my case, let your routine run (45 min) while you eat breakfast to have
the trading instructions printed out well before the market opens at 2 pm local time. Well that means, when
you got your data and when your system is all right.
I didn't know much about risk or money management. I traded, but not good nor bad, it was not yet right.
The PC changed several things: CompuTrac completely changed format, and the trading and charting
software available at that time did not allow me to do what I intended. At the same time, I came across
George Appel's MACD system. I modified it so that it produced fabulous results on simulation. I traded it
and made about 100% profit annually during two consecutive years, just to give back the profits the
following 2-years. It was sobering. I had learned to program a quite complex trading and accounting
system, including graphics in Power Basic, but the nagging feeling that I was chasing the rainbow did not
In 1992, I attended a seminar in New Orleans on psychology, discipline and risk management that
answered many of my questions. I included rigorous risk management according to the formula of Tom
Basso in my program. Still haunted by the "optimizing syndrome", I made a quantum leap. I programmed
the system so that it would self optimize, and then trade forward according to the latest parameters. The
method could be called "forward testing" as the simulation tells you how well the system performs in the
The result was a revelation, an answer to my optimization worries: The worries were completely justified
for the strategy I used, optimization was worthless! The old system was thrown out, but not without regrets.
Based on that long experience, I found a strategy that does well. I can not yet quantify it, but it stands up in
Well where do I stand now? I know that trading systems are doomed to fail as soon as they are published,
even in very large markets there are enough piranha around to sink it. Examples, the Kroll-Wilder,
PARAGON, Great Combo, and the PPS. Publishing or selling a good system is like telling people how to
make gold, either it doesn't work, or if it works, gold soon looses its value. This may explain that a
publication like Stocks and Commodities Magazine almost never gives real-time results of the methods
presented in its articles.
However, I learned that meaningful (that is statistically relevant) "forward-testing" by simulation is able to
evaluate the merit of a trading strategy. Perhaps the most important lesson is to realize, that if countless
claims the industry advertises would be true, we would all make mountains of money.
For me a publication like CTCN is of great interest, as it warns of piranhas, teaches testing and outlines
principles. However, I would be extremely suspicious of any system explained specifically in detail; after
too many traders know how to make gold, gold looses its value.
On another subject, referring to Fred Montgomery's remarks, CTCN Oct 94, p.7. Testing the Great Combo
with perpetual CSI data yields consistently less profit then using actual data.
Questions for Anonymous Trader - Don McCullough
Got to thinking about questions I'd like to ask the Anonymous Trader, (successful S&P day trader). Here's
the list, and wonder if it's possible to get answers to these questions?
1. Did you have help from a pro?
2. Did you trade with daily bar charts at first?
3. Do you use Signal Data for your day trading?
4. How long did it take you to find out how to trade?
5. What were your biggest mistakes before becoming successful?
6. Do you enter your position a little at a time or all at once?
7. Why do you think you succeed when most people don't?
8. Do you use breakouts, or dips and bulges to enter, or both?
9. Do you trade the near, second or third contract of a particular market?
10. What got you interested in the futures markets?
11. Do you know of day traders who are better than you, and if so, have you figured out why?
12. Do you move your stop loss up quickly after taking a position?
13. Wouldn't you agree that being able to consistently act on your market knowledge is even more
important than the knowledge itself? Is this the last hurdle to market success?
This guy (and I'm sure most other members would agree) is the most interesting of all. How can you take
advantage of that and yet not take advantage of him? Larry Williams has tremendous knowledge of the
markets and has made millions. But, he has lost millions too. Anonymous Trader appears to be much more,
if not totally, consistent with his winnings. As you know, that is the goal!
Re: Max Robinson's 12/94 Article & My 30+ yrs Trading Experience & Trouble With IRS - Eugene
The letter from Max Robinson in the 12/94 issue could have been written by me. I've also been trading for
30+years and agree with virtually everything he said. In the 60's and 70's, I was a pretty steady loser.
Having a good income, I chalked it up to recreational expenses and apprenticeship experience.
By the mid-70's, I was convinced that precious metals were going to explode in price and was a buyer of
futures and options for years, all of which expired worthless. By the time gold exploded in 80-81, I was
tapped out and missed it completely. Since then, I have traded in a more subdued mode, making a few
thousand some years and losing a few thousands other years.
In 1985, I had an exceptionally good year, clearing well over $50,000. I showed it on my tax return, but
offset it by a $100,000 loss carryover from my early follies. The IRS called for an audit. I only had tax
records and brokerage statements going back to 1978. It was my misconception that tax records needed to
be kept for 5-years. I was told that capital gains/losses had to be kept forever.
For 6-months, I was in close personal contact with my own special agent. In many interviews, I was grilled
about secret overseas bank accounts, hidden assets, etc. There was a steady stream of correspondence, as
they demanded more and more information and documentation. I could only explain why I was unable to
supply most of it in my replies. I had used the same broker in all those early years. I was told that if he
could be produced to corroborate my claims, it would be most helpful. I spent over a month tracking him
down and finally found a telephone listing in Greenwich, CT, only to be told by his widow he had died the
Ultimately, the IRS allowed the deduction and I owed them nothing. I knew they were investigating me
thoroughly all that times. I now save all my records, no matter how many boxes fill up the attic.
I also have a 20-year collection of trading systems. There must be 60 or 70 of them. Some of them have
merit. If I had the patience and perseverance to stick with them a while, some could have proved quite
profitable. I still get a rush of adrenalin when I pull out an old system that I had forgotten and reexamine it.
I must explore the legality of lending or renting my collection to computer buffs for optimization.
I surrendered to computer trading about 2-years ago. I bought TradeStation and a bunch of software, but
like Mr. Robinson have found Swing Highs-Swing Lows to be the most profitable. I have a very simply
swing system that averages over $1,000 a day in my back-testing of the S&P500. I would like to refine it to
reduce the slippage more before I trade it.
I would welcome any comments on my rambling and can be reached evenings at 1-518-674-5491.
They Can Do The Talk, But They Sure Can't Do The Walk - Gary Smith
Nearly every trader that I've spoken to over the years has expressed a burning desire lo quit their day job
and become a full-time S&P day trader. They have been spurred on by a greedy and manipulative
vendoring establishment, whereby means of hindsight and retrospection, successful day trading is presented
as being an easily attainablegoal. Several prominent vendors offer mega priced seminars, one-on-one
trading tutorials, or software systems and trading manuals to aid a naive public in their quest for financial
independence as S&P day traders. Yet, other than one CME floor trader turned vendor, absolutely none of
these dream merchants has ever been able to back-up their outrageous hypothetical rhetoric by providing
multi-year real money brokerage statements.
Instead, what you will get are 1001 lame excuses on why they are unable to produce real money, real-time
documentation. What you will receive are numerous glowing endorsements from satisfied purchasers of the
These testimonials usually are totally bogus. They are either close personal friends of the promoter, or
former customers who have been offered discounts on future offerings. Again, as with the vendor himself,
these references will talk a good talk, but furnish nothing as verification to support their babble. (Editor's
Note: That is Gary's opinion. Over the past several years, I have personally spoken to a large number of
testimonial authors...and never spoke to anyone who I thought had been bribed, offered discounts, or
personal friends, etc). The only way to eliminate the crooks, con-men, and charlatans that infest this
business is by demanding that they either put up or shut-up.
I fully anticipate that some of the targets of my wrath will appeal in future issues of CTCN with very
persuasive arguments on why they won't show their statements. I've heard their whining and complaining
many times before. Comments like their attorney advises against it, or that real-time statements can either
be altered or may not reflect other active trading accounts at the same firm. What these vendors really are
doing is camouflaging the fact that they either don't trade or can't trade.
Don't misunderstand my point here. I am only suggesting that real-time statements should be presented to
ascertain the credentials of the vendor. It's foolish for anyone to believe that they will be able to emulate the
results of another winning trader. Successful trading involves much more than blindly following a system
or methodology of someone else. Instead, it consists of independently developing your own disciplined
trading approach by means of integrating your knowledge of various trading techniques into your years of
real-time trading experiences.
In other words, learn what works for you and how you are comfortable trading. Unfortunately, the average
trader seems unwilling to devote the time and effort necessary to become successful. For this reason, they
fall prey to the seduction of some fraudulent vendors promising success on a disk.
Trend Intensity Indicators - Adam White
I agree with Giampaolo Bulleri's summary of how to interpret ADX. (CTCN November 1994.) I would like
to contribute a few of my own thoughts on the general topic of trend intensity indicators.
First, I like to think of trend intensity indicators not as measuring trends but as measuring trading ranges.
The reason is since all indicators lag, by the time the indicator starts to rise the trend is well on its
way. On the diagram below, section AB of price is both the end of the trading range and the start of the
trend AC. But we don't know that until B extends towards C. Note that ADX will not rise until B, even
though an ideal "crystal ball" ADX would start to rise back at A. So from the standpoint of nomenclature, I
think it's more accurate to say that the upturn in ADX shows the end of the trading range rather than the
start of the trend. Chart in Print Copy
Secondly, it is somewhat difficult to objectively define a "climbing ADX" (or for that matter falling or flat
ADX). Our eyeballs can do it easily enough, but how do we define it logically? Is a climbing ADX when
the last reading is greater than the previous reading, or greater than the reading X bars ago? I have run tests
that suggest comparing the latest ADX reading to the reading four bars ago is better than comparing it to
the previous reading. Or, might an ADX breakout be the proper definition of a climbing ADX? Clearly, if
the present reading is the highest reading of the last N bars, ADX can be considered climbing. Again, tests
can be run to suggest situations where this interpretation is either better or worse than other interpretations.
Another observation follows from the fact that DX is essentially an unsmoothed ADX. This can be
important because ADX represents quite a lag from price action itself. Using the quicker DX might
eliminate some lag, but at the price of greater volatility and the uncertainty that it brings. This second chart
illustrates the natural "jaggedness" of a raw DX.
Here is one way that I've used DX that tries to address the difficulty of defining its direction of movement.
The last chart shows an oscillator that represents the difference between a 16-bar DX and its value 8 bars
ago. (I favor basing the "look-back" on half the DX's period. A 20-bar DX would use a 10-bar look-back,
and so on.) This calculation generates an indicator that oscillates between extreme levels and above and
below a zero line. I have set the extreme levels on this chart to plus and minus 20.
Two ways to read this trendiness oscillator. When it is above zero, we can assume the market is generally
trending, and when it is below zero we can assume the market is generally in a trading range or congestion.
And because the reading is relative to zero, some jaggedness and volatility become irrelevant. Secondly,
extreme high readings often correlate to the termination points of strong trends, and extreme low readings
sometimes pinpoint areas where trends begin.
Tidbits on Financial Astrology -Carol Murphy
On 2-20-95, we have an important signature (Saturn 45° to Uranus). This same signature occurred on 5-16
and 9-23-94. Check your daily charts for the past dates and let's see if the same cycle repeats.
For the past 6-years, I have ordered Ray Merrimau's Forecasts for the Year. He covers cycles and
signatures related to the economy, interest rates, the Dow, silver, gold, grains and weather. Cost is about
$22...well worth it. Seek It Public'n (Forecast 1995), PO Box 250012, West Bloomfield, MI 48325. 810-
6263034, fax 810-6265674.
CSI Data Rollovers to Keep Continuous How to Keep Both Historical & 18-mo CSI Data Files
Current - Tom Dyste
Using Quicktrieve Manager's data file copy command, I can copy new contract months that start on CSI
rollover days into both short-term and my long-term historical data directories. I do this first, then use my
new trading system's rollover process on files in each directory. Now, my long-term history includes
current market action at all times. As a SuperCharts user it is good to have continuous historical data right
up to the current day.
Though I consider the close-open rollover method inferior to close-close adjustment, this ease of keeping
continuous historical data completely up-to-date is a boon. Perhaps others would like to do the same thing.
Since this is not directly related to your system and could be of use to others, pass this idea along. If anyone
has tips on doing similar things using the Quicktrieve 4.06 rollover tools, or even successful experience
using QT to do rollovers, I'd like to hear.
Recommended Reading, New High-Tech Product, & Delta Neutral
Trading - Tom Boyett
In my ongoing search for trading knowledge, I have read two books that I would highly recommend. Their
relevance to any trader is without dispute. Jack D. Schwager's Market Wizards and The New Market
Wizards (published in 1989 and 1992, respectively) touch upon a variety of trading subjects in his
conversations with some of the best traders of our time.
Futures, currencies, stocks, floor traders, trading psychology, program trading, neuron-linguistic
Programming, the Turtles, fund managers, fundamentalists, quants - it's all there and much more. Most
significant to me have been the consistent tenants of what makes a successful trader as seen by those who
have been the most successful of all in the endeavor of trading. I have a new appreciation for the role that a
trader's psyche plays in his overall success to trading the markets.
The books are available in soft cover. I think the books are highly entertaining and extremely educational
for the average retail trader (and probably most professionals too).
I have also come across an interesting new product from USEMCO Technologies, the Mobile Trader. It is
basically a computer hardware/software solution. Mobile Trader's software utilizes a wireless modem with
your personal computer to get real-time quotes, execute and confirm orders, receive market commentaries,
and send faxes and E-mail. The system links the PC to a mobile wireless communications network with
over 7,500 locations covered in the US. Pricing for limited, but real-time quotes starts at $295 per month.
For additional information, call USEMCO at (212) 432-7000.
Finally, I would like to solicit feedback from those of you who have experience trading delta neutral - the
combination of futures and options to form a risk neutral position. I can be reached at (713) 496-9400
during the business day or (713) 395-4408 after that.
Opinion on John Jeffries Precision Day Trading Method - Harold Fowler
My compliments on an excellent forum for the honest exchange of ideas and information. Keep up the
good work! This letter is in response to your subscribers who desired feedback on the Precision Day
I purchased the Precision Day Trading Method in 6/93. Prior to the purchase of the system, I discussed my
personal needs at length, regarding a day trading system with the designer, John Jeffries. The most stringent
requirement being due to my inability to follow the market all day due to my job. I was assured that only
two to three phone calls per day to my broker would typically be required. Right from the outset of trading,
the system failed to make money. It was also apparent, that in some cases, as many as eight phone calls
were necessary in a day to move up (or down) a trailing stop.
After three months of using the system and losses well in excess of the cost of the program, I returned it to
Mr. Jeffries for a refund. I also included my brokerage statements and a trade-by-trade listing of all my
closed out trades. He never bothered to open my package, but instead had his programmer send me an
official track record based on exchange tick data. Close examination of the official trade-by-trade listing
was a real shocker! No deductions were made for slippage/commission. I couldn't believe my eyes!
Notwithstanding this oversight, several signals I received (all losses) were not shown on the official track
Mr. Jeffries returned the program to me and called to discuss the problem. In an attempt to reconcile the
disparity in trading signals, he indicated that I should try loading both combined-session (Gloebex + Day
Session) and Day-Session only data and trade only signals germane to both data sets (give me a break!)
I paper traded the system for another nine months and the losses continued to mount. In the 7/94 issue of
CTCN, a subscriber, M. Kuhn, indicated that he had difficulty receiving a refund from Mr. Jeffries. In the
end, however, he relented and refunded the money. You can well imagine my anger. I immediately called
Mr. Jeffries and you guessed it, he had his programmer send me another official track record covering the
entire period that I had owned the program. Adding my own deductions for slippage/commission, the
markets that proved profitable were the S&P 500 and the NYFE. The profits in these two markets were less
than half of the amount indicated by the official track record.
On a subsequent phone call, Mr. Jeffries informed me that I was the only purchaser of the system that was
dissatisfied with its performance. However, he refused to divulge the names of any of the satisfied
customers nor was he receptive to testing of the system by an independent party (Futures Truth, CTCR,
Since his omission of slippage/commission costs in the sales brochure is clearly deceptive advertising, I am
contemplating a lawsuit for mail-fraud to recoup my purchase price. I'm quite sure even the CFTC required
disclaimer would not protect against such a misrepresentation. I feel strongly that fellow subscribers would
be well advised to avoid purchase of this system. If anyone would like to contact me for a copy of the
official track record or to discuss the system, you can write to me c/o CTCN.
W.D. Gann - A Great Trader?- Don McCullough
In the book, "Trading For A Living" Dr. Alexander Elder states that he interviewed Gann's son and found
out the following about this one-time super market guru.
Gann's son told Elder his father could not make a living for the family from his trading and supported them
mainly with money derived from his books and selling instructional courses. When his father died in the
50's, his estate was worth about $100,000. Not a small sum, particularly in those days, but hardly what one
would expect of a man reputed to be one of the greatest commodity traders of all time. So who's your
guru(s)? Do you really know that they really, really know what they're talking about?
Dr. Elder's book, "Trading For A Living" is one of the best. Out of the 120 or so market books I have, this
book ranks in the top 6 and maybe at the top!
Accurate Data A Must - Don McCullough
Have you checked your data against other data sources for accuracy? I have, and found some differences.
Not a lot, but some.
Data accuracy has to be one of the major concerns of the serious trader. There is no way to get accurate
tests from inaccurate data! When you find differences, how do you know which data is correct? At this
time, I don't have a good answer to that question.
Thus far, I checked my Dial Data, data against a couple of the popular paper chart vendors. Happily, I can
say there were few differences. However, those few differences do make me wonder how accurate nearly
everyone's data is. To put it in a more vivid way, are we looking at the "same" charts the top market pros
are looking at? It's a sure bet that if the difference is substantial, our bank accounts will never equal theirs.
A Simple Way To Predict Market Turning Points (and impress your friends) - Bob Pelletier
(President of CSI)
This brief report is designed to advise those who may have an interest in systems, methods, or services
which predict market turning points far into the future. If you have been solicited by any firm that does this,
you may gain some important insight into this area by reading on. Whether you plan to purchase such a
service, system or secret is your personal choice. CSI has no preference for one commercially available
procedure over another. We simply wish to point out facts that may be helpful.
If I were to tell you to "Pick any date in the future, for any commodity, and I will show you the next turning
point that will occur relative to that date." You might think I'm crazy, or strongly doubt my claim. The truth
is, that anyone can do this within an accuracy of, say, three days about 70% of the time, or within four days
80 to 90 per cent of the time.
The secret depends upon how one defines "turning points". Suppose we define intermediate market swings
or turning points to occur about 25 times per year, or twice per month. Since there are about 250 trading
days per year, this allows for one turning point per 10 days. With a dart and a calendar into the future, the
dart will hit some seven day time interval (the day hit plus or minus three days) each time it is thrown. If
turning points occur, on the average, once every 10 days, then there is a 70% chance my dart will include a
turning point within three days.
Additionally, if I knew that last week there was a definite low, my next turning point will be a peak. I'm not
interested in 1997; I may not live that long. I can only make money if I can bet on the next immediate
turning point for various cycle lengths.
There is not enough room in this Newsletter to show how market turning points can be predicted with more
reliability, but it is possible to provide an unbiased estimate of the next peak and the next trough for each
given predominate cycle period. Using a method which treats peaks independent of troughs can produce a
non-regular period between peaks and troughs (a more realistic behavior) for future market cycles.
Before spending your hard-earned funds on any system, be careful to discover what you can do under
purely chance conditions without it.
Reply to Wade Geary - J. R. Stevenson
When you retire, your risk adversely goes way up as you must protect your retirement funds - unless you
are a very strong disciplined person, I doubt that you can make a needed supplemental income on a $25,000
A good day trading system for S&P or Bonds might take some of the over-night risk out of your mind, but I
assure you, your approach will be different when you retire. I have been retired several years (I'm 72) still
trade, but I don't have to! It makes a difference. If you wish to talk, call me at 901-751-0605.
George Bashar, 1-407-624-5057 seeks information on Bruce Gould's Money Machine, Mike Chalek's
Squeeze and Steve Cox's Natural Order. Also, Jim Muhlstein wants info on Money Machine.
Russ Norwood would like to speak with anyone who has had experience with the "Vibra System" Trading
Program from Burnett Nordine at B & B Educators in Early, IA. You can call evenings collect at 314-436-
As you may recall, if you have been a CTCN Member for a while, our number of pages has been growing
considerably. We printed 8-pages from 1983 thru May 1994. We then expanded to 10-pages and last
month's CTCN was 12-pages. This month it's a full 14-pages, to make room for all the educational articles I
want you to read.
Our printing, postage and miscellaneous costs have increased rapidly due to the larger editions. In fact, the
cost of a 14-page issue is almost 100% greater than our earlier size, without even counting the recent
postal increase. In addition, Commodity Traders Club average revenue per new member has decreased over
the same time span, due to our reduced cost special offers. However, I do not mind the increased expenses,
as you getting this money-making and money-saving unique information is far more important than
The articles from Anonymous Trader and Dave Reiter are excellent and of great benefit to Members and
should be read carefully. However, though extremely valuable, some of you may be somewhat
disappointed by Anonymous Trader's latest contribution. That's because I have received calls and mail from
a number of members who had hoped Anonymous Trader would reveal a money-making 100% mechanical
approach. Unfortunately, Anonymous Trader could not do that, as his approach is NOT 100% mechanical.
In other words, there seems to be some 'art to the science', and other important factors involved in his
success. Thanks to everyone who shared their knowledge by contributing to this issue. All members are
urged to make contributions to our next issue. That way we can all benefit.
This action might not be possible to undo. Are you sure you want to continue?