This action might not be possible to undo. Are you sure you want to continue?
About Gann and The Methodology Showdown Trading Contest and
Elder's Trading For A Living Book - Greg Meadors
Don McCullough (1/95) references Dr. Elder's statements regarding W. D. Gann, implying that Gann may
not have been a good trader based upon comments supposedly made by W. D. Gann's son, and the worth of
Gann's estate. Having corrected Dr. Elder years ago in Club 3000 News regarding these assumptions, and
the value of Gann's astro-methods, etc. I was surprised to discover that the same bunk was subsequently
included in his book, "Trading For A Living". Of course, when one has a mind-set that is closed to the
concept of astro-indicators for market timing, it is understandable they might attack those who have been
successful employing such methods.
Since W. D. Gann died with a mere $150,000+ estate (enough to buy 30 homes in his day) we are to
assume that he was not a good trader. We should ignore dozens of other testimonials, CPA reports and
published articles revealing that Gann lived the good life, had 35 employees at one time, and was a very
generous person. Surely, he enjoyed his last years, and knowing he had cancer, would not a person
knowledgeable of financial matters make necessary arrangements to avoid the tax-man upon death?
In regards to statements attributed to his son, it has been reported that his son was unable to follow in his
father's footsteps (reportedly because he did not understand how to apply astro-indicators), thus their
business relationship was terminated. Well, it does not take a psychologist to figure-out there was a
father/son-love/hate relationship, and his testimonials would be biased.
Of course, Dr. Elder's book, "Trading For A Living" does have some good psychological information as
would be expected from one trained in the field of psychology. However, as Gary Smith points out, most
vendors hype their wares, and one should always make a thorough investigation of the facts before handing
over their hard earned dollars.
For example, if your stockbroker recommends a stock, do you ask how many shares he is going to buy?
Likewise, when Dr. Elder was featured on the Prodigy Network last year, I asked the good doctor if he
would provide some proof that he was actually Trading For A Living, i.e., a copy of his IRS schedule C
showing trading profits, or a CPA acknowledgment of profits, or simply copies of monthly brokerage
statements. Surprisingly, no such proof was going to be made available, an invasion of privacy, according
to Dr. Elder. Yes, no doubt about it, Dr. Elder does trade for a living, he trades his books for dollars.
Interestingly, another Prodigy member was so impressed with Dr. Elder's book, and the Triple Screen
method, he starting posting his S&P trades on Prodigy using the Triple Screen method. The first trade was
a winner, but within a few months the losses were so embarrassing that he left Prodigy, never to be heard
Robert Miner reveals similar logic to mine, i.e., if they are so talented, have them show you how good they
are by trading in the Robbin's Trading Contest. According to Robert, he won in 1993 with 118% return. Of
course, one year does not make a long term track record. How did Robert do in 1994? Does the Robbins
Trading Company also publish the results of the losers in the major media? I doubt it. Doing so would lose
them clients and commissions. Of course, one does not need to pay $1,000, plus high commissions to show
what they can do.
Others may not have the financial means to trade the S&P futures. On January 1, 1994, Traders Catalog and
Resource Guide (1-619-930-1050), following the suggestion of Gary Smith, sponsored the 3-year
Methodology Showdown Trading Contest for all the well-known vendors/market timers to demonstrated
their abilities. Real-time trading fills are obtained by a 3rd party, namely AUDITRACK (407-393-3876), a
professional firm that operates just like a brokerage firm, except the funding is simulated.
Over 50 potential contestants were contacted for the contest. Only 21 were willing to compete in this real-
time trading contest even though the results would be published periodically in various trade publications.
Also, the results would be updated monthly in AUDITRACK's Simulated Account Review Newsletter
which is mailed to 2500 industry professionals. The contest rules were simple, trade any of the Stock
Indexes using futures or options.
So why did so many well-known "gurus" refuse to participate? Obviously, some did not like the idea their
track record could be published in major media, in case they defaulted in performance. Interestingly, after
18-months, only 6 traders are still active in the Methodology Showdown Trading Contest. The others have
resigned or have gone broke. Yes, I am leading the contest, day trading the S&P. I have a 576% return,
with a 13.9% maximum monthly drawdown, after 19-months of trading. Here are the current contest results
as of August 21, 1995: Results are in Print Copy
Trading from Home & Taking $7,000 Acct in Feb to $171,000 by Aug - A.P.H.
I believe there is value in learning about other traders' experiences, both positive and negative. Therefore, I
will relate one of mine.
I've been in the futures business since 1980 and trading for a living out of my home since 1985. I do all my
charts by hand. I plan my trades weeks, sometimes months in advance. I don't have a computer and I got rid
of my quote machine many years ago. I get my information from CNBC, station 26 out of Chicago, and the
newspaper. My main tools are Gann lines, Elliott Wave counts, pattern recognition and experience. I
personally believe that short-term trading will pay the bills, but successful position trades (several weeks
or months) can change your lifestyle.
In early 1993, I thought the metal markets were ready to make a move. I use the XAU and certain mutual
funds as indicators of possible moves in the gold and silver markets. On 2/01, I started buying July silver
futures at 3.73. I've never been very successful using options. I had about $ 10,000 in my account. My
game plan was to buy as many contracts as I had margin for and ride the market up or down. I never sent
extra money to meet margin. I just liquidated positions to get back in-line. As usual, the market went south
instead of north. The market hit bottom at 3.60 at the end of February. I was holding 5 silver contracts and
had a balance of about $ 7,000.
The market began to move up. On 4/01, I was holding 13 silver contracts and had a balance of $22,000. On
5/01, I had 22 silvers and a balance of $57,000. May 21, I was holding 35 silver contracts and a balance of
$97,000. In June a larger correction then I had anticipated began. On 6/09, I was down to $29,000 and no
positions. I still believed the market was heading higher.
On 6/15, I bought 2 Dec Gold. On 6/30, I had 15 Gold contracts, 7 silver contracts and a balance of
$46,000. On Friday 7/30, my daughter wanted to go to Six Flags Great America. I checked out the XAU it
seemed solid after an hour of trading, so we left for the day. I called in after the markets closed, my account
was up $ 30,000 for the day. I closed the month with 20 Gold contracts, 25 Silver, and 5 Pork Belly with
$11,000 open profit. My balance was now $158,000. Monday 8/02, my balance was $171,000.
I now was looking for a place to get out. I had open orders to sell Dec Silver at 5.60 and Gold at 415, the
highs turned out to be 5.53 and 414 respectively.
On 8/03, the metals began to back-up, I gave back $16,000 that day, on 8/04 another $25,000. I had grown
use to big swings in equity, but the market was getting close to my major support areas. On Wed 8/05, the
Chinese announced large sales of Gold. The market gaped down $20. I hadn't seen moves like that since
1980. The market never recovered. I liquidated in fast markets giving back another $100,000. Not one to
cry over give backs, I took my 5-year old to a local amusement park after the markets closed, I needed
some amusement. I took Thursday and Friday off and got back to it on Monday.
A week later Lind-Waldock called. They had reported some bad fills on 8/05, actually I had lost another
$6,000. I still have an account with Lind-Waldock. Knowing the company is going to be in business, is
more important than a bad fill once in a while or the commission.
I hope my fellow traders find my experience of interest and perhaps helpful in their trading.
If I Had Commodity Traders Club News Earlier It Would Have Helped
Me Limit Losses - Charles McDivine
I finally finished reading CTCN. I have been trading about one-year. During this time I made four trades. I
trade on my own and three trades were based on my broker's advice. I lost $600 on my trade in corn. Two
of my broker's trades lost $37.50 and $40.00, plus $300 commission. The 3rd trade cleared $450. The "
last" trade could have made $900, had we stayed in the market one more day.
After reading CTCN, I realized my broker was trading right in view of "no 100% hindsight" at the time of
the trade. Really, if I had CTCN before I traded on my own, I would have limited my loss to $250 instead
of $600. The way CTCN is written and those providing the material is what helps so much. I started with
$2,500 in my account and at this writing I have $1,996 and its been a year of trading. I consider myself
blessed. I have studied a course by Ken Roberts, which gave me sufficient basic knowledge, but it lacked
the "horse-sense" knowledge given in CTCN.
A tip - when I made my first trade, I knew to cut my losses, but I followed the course trading to the literal
letter and discarded my feelings. I didn't move my stop/loss, when I had several chances to do so. Also, in
my opinion, Ken Roberts teaches well what it teaches, but it's not complete enough for the new trader.
Also, his style of trading is not for the small guy. CTCN would complete his course. His big money
remains in his trading mind, not for the small trader.
Ramblings of a Demented Trader
Terry R. Davis
Psychology is the buzz word for most commodity books being sold these days and I'd like to relay where I
have gotten the most support in this field. Mark Douglas' book (Editor's Note: Book name is "The
Disciplined Trader," available from Lind-Waldock Traders Catalog and others) is the best book available
currently dealing with psychology in the markets. That said, I think his book is very, very marginal at best.
Rank amateurs will get some benefit if they pay attention to what he says... and then actually act on it. He
mentions stops in passing (as if they were something foreign to him) one time in the book. Stops are the
easiest way to take much of the psychology out of the markets. I read in many of the letters that are
published in CTCN, if traders had only used stops they would have been so much better off. Some
I read these letters and think to myself - what idiots! Let it never be said I was known for my tact! My
recommendation for psychological strengthening is the Sedona Institute in Phoenix. They have a video or
audio program that deals with the part psychology plays in life - not just trading. There are three things that
control every single thing we do in life. They are: 1. approval (your own or someone else's) 2. wanting
control and 3. security. There aren't any others we ever have to deal with. The Sedona method helps you
understand how these relate to your life... and/or commodity trading. They have a 30-day money-back
guarantee on everything they sell. I don't see how you can go wrong. Contact them via CTCN.
About Market Structure & Simple Consistent Trading
& Five Vertical Bars - B. E. Kramer
I joined CTCN last month. After reading the present issue and then all the back issues, I felt I had to send in
First congrats to Dave Green. I think you have a great publication. A forum that allows views to be
expressed like this aren't found very often.
I was very impressed with some of the contributions that have been written thru the years. In particular, I
enjoyed what Anonymous Trader had to say. It's very interesting. I've never had the opportunity to study
with John Stenberg or had the opportunity to talk to anyone else that has, but like Anonymous Trader, I've
been using Keltner Bands, Stochastics, RSI and retracements for years. Do I owe John any royalties?
Someone else I enjoy reading is Don McCullough. There have been many others. The main point is their
honesty and experience shines through.
I've been a student of the markets for about 15-years, an active trader for 10-years and a full-time trader for
the last 5 of them. I've been teaching people how to trade for the last 3-years, mostly friends that want to try
trading. I specialize in daytrading the S&P 500, but I also short-term trade other markets.
I don't teach a particular system, because I don't believe there is any one approach to trading that suits all
people. Rather, I show a methodology that allows the individual to develop a trading plan that they feel
comfortable with and therefore will trade. All my students have come to me by word of mouth, as I don't
advertise. I only help those that come to me.
Regarding the comments by George Basher in 7/95 issue, "I do this to help traders succeed where most fail
and I don't have to worry about having too many traders in at the price I want." I haven't trained many
people and I don't show a system, but a methodology that's based on structure of the market. There are
many ways to enter and control a trade and since my method is not optimized for a particular time frame
and/or market, the likelihood of a multitude of buy/sell stops sitting at the exact place I want in is very
unlikely. The possibility of this happening is lessened even further when one considers that an entry is
different for the trader working with 1-minute vs. 60-minute chart, a 3-minute vs. 5-minute or a 15-minute
vs. a half day chart. Throw on top of this that some use the techniques to trade Grains while others trade
Currencies and so on.
The best way to trade is to find something simple, that works most everywhere and then become very
consistent in your approach. I understand George's point, but he must try to understand there are people out
here that are only trying to help. I think Anonymous Trader is one.
The first time someone looks at a bar chart, of any time frame, they probably see a lot of confusion. This is
because they are viewing an unstructured environment. Without structure you basically have chaos. The
Elliott Wave is not a system per se, and is too subjective for me to trade with, but it has one outstanding
quality for anyone who uses it, it provides a definite structure.
To trade successfully, you need to know where you are in the trend of the time frame you are following.
There are many ways to define this trend - Elliott Wave, Anonymous Trader uses a 2-back pivot method, x
number of closes being taken out, DMI/ADX, moving averages, etc. The method I use is the 5VBTP. This
method was introduced to me by Kent Calhoun about 2-years ago and I've used it ever since. I like this
methodology. It concentrates on the Price Action and not an indicator or set of indicators that are only
reacting to what the price is doing.
As I said earlier, I do use a few indicators in my trading, but these are more as a filter and confirmation tool
than a means of generating a signal. For instance, a high percentage of the time, I'll already be in a position
before getting a signal from any indicator. Once the indicator signals, it does two things for me. 1. It
confirms the trade I'm already in. 2. Everyone that is trading the oscillator and not the price action will just
be getting into the trade and driving the price further in my direction. This allows me to take profits on half
of my positions quicker and control the remaining positions with the structure of the market. From what
I've read, I think this type of trading is very similar to what Anonymous Trader has been talking about.
Pure money management stops don't work consistently. The market could care less what your pain
threshold is. But trading the structure works a high percentage of time. The size of the stop has no bearing
on probability of the trade being successful or not. If the stop is too big for you to trade comfortably, let the
trade go without you or look for another triggering mechanism to get you involved in the trade with a lower
risk, but again, use the structure.
I guess I've gotten away from what I wanted to talk about, which was the 5VBTP. The main advantages of
this methodology are as follows:
1. You know 90% of the time the side of the market you should be trading, regardless of the time frame you
2. You know 100% of the time, to the tick where you are wrong. It's tough to cut your losses short if you
aren't sure structurally where you are wrong.
3. You have a clear profit objective that is reached 78% of the time.
4. By trading the structure and not the money, you keep yourself alive for the big moves, letting your
I have attended quite a few seminars, read lots of books and have consulted with some well-known
authorities about trading. I have never done any of these things where I haven't learned something. Thru the
years, I have taken tidbits from here and there, and gradually personalized them to develop a trading plan
that works for me. Trading is very individualistic and to succeed you can't use what made money for
someone else. Learn from them, make it your own.
I think I've become a little long winded, but these few of the things I wanted to share with the readers. If
there is further interest, I'd be very happy to write more about Kent Calhoun's strategies and 5VBTP as well
as share other ideas I use for money management, stop placement, psychology, etc. There is quite a bit
more that goes into trading for a profit and a living, than simply learning a system, seeing the signals and
calling your broker. If it was that easy, there would be more successful traders than there are. Good luck
and stay focused.
Back To Basics - Bob McGovern
Is Technology/Computers/Information SuperHighway Too Advanced
Searching the Internet for the Emperor's Clothes - "You mean you haven't advance-ordered your copy of
Windows '95?" My friend was astonished. How in heaven's name could I not get on board this flight to the
future for only $90? The latest of Mr. Gates' products would thereby make my life "so much more facile",
said the friend, and incidentally, make Mr. Gates and Microsoft another $90 richer on top of the two billion
dollars from all the other "state-of-the-art" aficionados (any mention that I will require another 8 megabytes
of Random Access Memory and a Pentium chip to upgrade my perfectly wonderful-as-it-is IBM 486 to
avoid a major slowdown of the unit would be gauche, to say the least).
I actually do pretty well with a 28,800 baud download of real-time data from my commodity futures data
vendor. The software for charting I use is 9-years old; the Stochastics, RSI, moving averages, and all the
other technical stuff still rolls in at 66 megahertz. I even have a buffer now that bounces the bad ticks
before they get on the screen.
In fact, my old IBM 286 (I guess it's an antique by all standards. No one admits they ever owned one to
start) with only 20 megs of memory and 640k RAM still kicks out all the necessary word-processing stuff I
need, along with my NASD and NFA "Focus" reports, and all my bookkeeping records quite well.
I must confess I'm on the Internet, and use E-Mail. However, I take an oath never to use Voice Mail. I spent
32 minutes punching keys on the phone and listening to canned voices and Musak just getting through to a
vendor software "technician" yesterday who knew far less about his product than I did. I learned a trick
from a friend about Voice Mail today. Don't press any buttons; just stay on the line, and they will think you
have a rotary phone and answer within a minute.
All this stuff about the Internet, World Wide Web, Gopher, etc., etc. poses one question. Who has the time?
Just to get on the local line for America Online is like pulling teeth; then once one is on, he gets a message
saying, "Wait while adding graphics".
I had a guy call me the other day, pushing his services, which were to place my company name and a
"product information" page on the Web for only $2,000. The first thing I thought of after the money shock
was, "How and why would anyone even look for me on the Web?" Some people still haven't figured how to
get past the rudimentary rules of the Internet to find the Web.
What happened to the idea of someone calling me for a sample of my work? It takes about 1-minute, and
costs a few cents for the call.
I feel the Information Superhighway is one of the greatest sales pitches of the past two centuries. It will
keep a lot of people employed, especially the guys who write, "Internet for Dummies", and jillions of
"consultants" who use up company employees' time and the company coffers ad infinitum. Technology
may again have jumped too far ahead of the average person, and any efficiency gained may be offset by the
dollar cost and loss of time learning new systems to produce the same word-processing and record-keeping
results previously attained by people who cannot read or write past an 8th grade level.
I don't want you to think I'm headed for the backwaters of cyberspace, or that I have a negative attitude
about all this, although it may sound that way. What I want to suggest is the thought that all of us, as
commodity futures traders, must watch this move to the center of the trees, thereby losing our view of the
forest. I see this happening more frequently with some of my clients. Technicians may become so
engrossed with the 70 or so indicators on a commodity that they will never recognize nor have the time to
"pull the trigger."
Computers are great! I can't do without them. But I'll say once again, "Let me have my straight-edge and a
#2 Eagle pencil; a determination of how much risk I want to take, and an estimate of my target price, and
all the rest will fall in place." Until next time, "Lord willing and the Creek don't rise."
Editor's Note: The following P&L Report was extracted from Bob McGovern's Seasonal Spreads
Newsletter (1-714-363-6667). This report shows how Bob has "bounced back" from a drawdown his model
account incurred several months ago, when the account dipped under its initial equity. This shows how we
can all comeback from adversity, as Bob did thanks to persistence and sticking to a sound trading plan.
Note: Bob did not request we print this P&L Report. It's printed as an example of a recovery.
Initial Equity, Jan. 1, 1995 $10,000
Closed Out Trades through August 11, 1995 $5,731
Open Positions, as of August 11, 1995 $160
Ending Equity, August 11, 1995 $15,891
(All trades are before commissions)
Market Psychology, is Vitally Important
for Success - Trevor Byatt - Part One
1. Understanding and acting in accordance with market psychology is vitally important. It is no good being
a good technician if you are a bad tactician.
2. Market psychology is very different from the psychology necessary for normal business and/or academic
success. Many highly successful businessmen and academics have been abysmal failures as market
3. Develop your own system, test it, then stick with it. Other people's systems may work well for them, but
probably will not be compatible with your psychological make-up.
4. Accept total responsibility for the results of your trading results. Even if you authorized someone else to
trade on your behalf, it was you who made this decision - nobody forced you. Remember losers always
look for somebody else to blame. Winners look to themselves particularly if they have to take a loss on
some trades - as is inevitable for all traders and all systems.
5. Don't take the advice of others. They could be thinking in a totally different time frame from you.
6. Always place a pre-calculated stop whenever you open a trade and decide how you are going to move
this stop for all possible movements of price during the trade. Stick to your plan during the trade.
7. Do not keep ringing your broker during trading sessions to enquire about market prices. (The exception
of course, is the day trader who would be crazy not to have his own quote system.) Your stop will protect
the decision you should already have made. Ringing your broker will adversely influence your decision and
may well cause you to act irrationally and hence almost inevitably wrongly.
8. Never worry that you could have done better had you second-guessed your system. Concern yourself
only that you followed your system and predetermined stops. No system is perfect. The best systems can
only give you an edge - never 100% of profitable trades.
9. Do not trade for excitement. Avoid elation over fast profits and depression over losses. If you have a
good system it does not matter whether any particular trade makes a profit or a loss. Remember, all systems
will generate losses. Only chide yourself if you broke the rules of your system (this applies to profitable as
well as losing trades).
10. Always trade with a view to protecting capital and limiting the value (not the number) of losses and
never with a view to making large profits. Net profits will automatically follow if you execute a good
11. Never worry about the ratio of the number of profitable to losing trades. A good system may well
generate a relatively large number of small losses (and small profits) and relatively few large profits.
Sticking rigidly to a good system will however produce a good net profit over time.
12. Cut your losses quickly and let your profits run (with a predetermined stop). You should have read this
advice so many times that it almost sounds trite - it is not - it is the best summary of all these rules that you
Editor's Note: Part Two is scheduled for our next issue.
Some Good/Valid Reasons Why Vendors Sell Systems
First let me congratulate you for the ongoing success of CTCN. I wanted to respond briefly albeit
anonymously, to George Bashar's comments/question in the July 1995 issue.
George Bashar wants to know if someone has a good system, why would they share it with someone else?
Here's my take on this. The first reason is obvious. In fact, George answered it himself in the last paragraph
when he said that Joe Krutsinger, whose main forte is developing and testing systems, does not put out a
system until he develops a better system to replace it.
There you have it. The system vendor may now have a better trading system which he/she is using in
his/her own personal trading while selling the older (but still profitable) system to the public.
The second reason can also be deduced from George's description of Mr. Krutsinger -- "his main forte is
developing and testing systems." While a system vendor may like developing systems, he/she may not
necessarily like trading them. Everyone does not possess the discipline or the psychological makeup for
trading. The logical solution is then to sell them. Even Jack Schwager of Market Wizards fame, says in his
book that he likes doing research and creating new trading systems, but does like the actual process of
The third, and perhaps the most important reason is leverage and transference of market risk. Let's say you
have $10,000 of trading capital and a great system that makes 60% per year. Starting with $10,000 you can
make $6,000 profits in one year, if everything goes according to plan. Not bad, but don't forget the amount
of work it'll take, with all the ups and downs and trading for a full 365 days.
Now lets say you use the same $10,000 as marketing capital to sell your system. You send out 1200 direct
mail letters to a targeted mailing list of people who have bought trading systems in the past. Even with
1/2% response, you get 60 order. Now if you charge $500 for your system, you generated $30,000 revenue
or $20,000 profit, not in one year, but in a couple of months. Plus all the market risk has been transferred to
Furthermore, if the system vendor wants, he/she can trade the system and sell it at the same time. In liquid
markets, it will make no difference whether 1 or 1000 people are trading it. Another factor to take into
account is that if 1000 people buy a system, less than 10% will actually stick with it for any length of time.
Half will never trade it, it'll just sit on their bookshelf gathering dust. The other forty percent will abandon
it after 2 or 3 losing trades. So ninety percent of these system buyers will dabble with the system, then
tinker around trying to improve it. Finally, blame the vendor for not living up to their claims, when the
system has a couple of consecutive losses. It will never occur to them that if they have trouble making
money with any system. The problem may lie inside them, rather than with the system.
Selling trading systems is like any other business. People in other businesses sell products or services for
profit. If it is possible to make a larger profit with less risk by selling a trading system rather than by using
it, doesn't it make more sense to sell it instead?
Why Not To Select A Broker Who's A Well Known Discount Firm - Simon Campbell
Observations on Terry Davis' note in July CTCN: Terry Davis writes about his experience with fill quality
at the brokerage firm Lind-Waldock. I think he is operating under an erroneous assumption. Namely, a
brokerage firm's use of its own salaried employees is preferable to using "outside" floor brokers.
This is dead wrong! It is always preferable to use a brokerage firm that does business with independent pit
brokers. The fact that Lind-Waldock uses its "own people" in the pits is the very reason why I would never
open an account with them.
Think about it logically for a minute .... a salaried employee is merely doing a "job" albeit a stressful one.
At best, he'll do an adequate job (why should he kill himself to get you an extra tick?) An independent pit
broker on the other hand, has a personal and vested interest in giving out good fills. His livelihood depends
on having a large deck of customer orders to fill - if he does a lousy job, the brokerage firm can simply pull
the deck away from him and give it to another independent pit broker.
Just as with anything in life, there are good independent pit brokers and there are bad independent pit
brokers. If you suspect that your firm is using one of the "bad" brokers, put pressure on them to sack the
broker (pull his deck away) and use a better one. If they are unwilling to do this, and the fills don't improve
... vote with your feet and move your account. If it's a salaried employee that is giving out the bad fills ...
it'll be much more aggravation trying to get anything done about it.
When it comes to choosing a broker, I have two golden rules: 1. The firm must only use (quality)
independent pit brokers, never its own salaried employees; 2. The firm must not be one of the well-
known/heavily advertised discount firms that cater primarily to small individual retail customers. Find a
firm that caters to mainly larger clients (this is not so well-known to the small trader) that may do a bit of
retail business "on the side." The difference in fill quality will amaze you. In trading, you have more
likelihood of succeeding if you separate yourself from the masses. The same philosophy will serve you
well, when finding a brokerage firm!
Money Mgmt Method Based on Las Vegas Horse/Sports Betting - Tom D'Angelo
The purpose of these articles is to describe a comprehensive methodology enabling the trader to construct a
practical and disciplined money management plan, specifically tailored to his style of trading.
I learned these concepts from very successful horse and sports betting speculators in Las Vegas. I used my
15-years of experience as an accountant and trader to adapt these techniques for use by futures traders.
Eventually, I developed The Manager, which was reviewed in Futures Magazine, 3/95. It is money
management software to perform the required calculations and generate the necessary reports.
To achieve long-term success in speculation, trading must be organized and managed in the same manner
as a successful business operation. This requires segregating trading results into Profit Centers ( P/C's).
Operating and managing a successful business is nearly impossible without P/C's. P/C's reveal the strengths
and weaknesses of the business. Without P/C's, the manager can not manage.
Examples of P/C's are the Chevy, Cadillac, Oldsmobile, Pontiac divisions of G.M. The bakery, meat,
vegetable divisions of a supermarket, etc.
Each P/C becomes a business which must justify its existence by producing a profit. The following is a list
of suggested P/C's for commodity traders: Chart in Print Copy
When a trade is closed, the following information is entered into the appropriate Profit Centers:
Date of trade - Name of trade - W=Winning trade L=Losing trade - $ Profit or loss - Number traded -
A trade may be entered into more than one P/C. For example, a long S&P trade signaled by a GET wave 3
could be entered into the following P/C's: ALL, SP, SPL, GET, GETLONG, WAVE3, WAVE3L, LONG,
Each P/C is bankrolled with an initial capital which becomes the funds with which the manager must run
operations. In effect, each P/C becomes a business which must be managed and which must justify its
existence by turning a profit.
After about 20 trades have been entered into a P/C, valuable information can be learned by analyzing the
trades. This information enables the trader to master the 3 disciplines necessary to achieve long term
success in speculation:
1. Trading Methodology 2. Psychological Control 3. Money Management
In my next article, I will describe the 6 components of a successful money management methodology. I
will describe the key money management statistics which must be constantly monitored and analyzed,
including the Trade Tracker statistic which I developed myself. This simple calculation gives an excellent
indication if you are letting profits ride and cutting losses short. Finally, I will tie all the ends together and
provide a Trading Plan which I personally use in my own trading.
Each Profit Center has its own Trading Plan. This Plan is a summary of all key money management
statistics in that particular Profit Center, similar to Management Reports business managers absolutely
require to successfully manage their divisions.
The Trading Plan reveals more about your performance as a trader than any other tool. You will be
confronted with your successes as well as your failures. You will instantly identify and capitalize on trading
strengths and make efforts to minimize weaknesses. You will be managing, not reacting. You will become
more informed, disciplined and confident.
The procedures I will describe in these articles are used not only by traders, but also by very successful
speculators in the sports, horse and blackjack arenas who risk very substantial sums on a daily basis.
Hopefully, these articles will teach you how to structure a practical and sophisticated money management
methodology tailored to meet your specialized trading style.
Learning Where to Expect the Unexpected L. B. Favot - Canada
Better than a year ago, I threw a satellite dish on my house and started tinkering with real-time data and
charting software. Since this was new territory for me, I figured I'd follow my usual routine. Check my
daily charts for signals, then watch and see if the live action unfolded along my expectations. My software
has price alarms, so I entered breakouts from recent highs/lows in whichever direction I figured that
particular market then tended toward.
So what happened? More often than not, the alarms were hit and prices reversed direction quite sharply.
Had I placed orders where I placed alarms, I could've bought the day's high or sold the day's low on several
occasions and quickly lost a fortune.
This was great! Not that I could lose million$ this way, but rather the insight I gained watching how/when
certain markets made new highs or lows; will this market Trend, or Trade, (bracket) sideways for awhile?
Now I know better!
Trading could be a spectator sport - Seeing Emmitt Smith bounce off opposing linebackers is like watching
a trade market, while seeing him dash unrestricted towards the end zone isn't much different than watching
a trend unfold. If you see how/when/where he gets the football, you might be able to anticipate the yardage
he should gain - or lose - on the play.
P&L Report on Profitable Donchian Type Breakout Method Above/Below
X-Days High/Low - David Bryant
Further comments on Donchian Systems (Clyde Lee, 7/95). I have done a lot of work on Donchian systems
using daily data from 4/83 through 3/93. The basic approach is that if today's high exceeds the highest high
of the past x days, you buy on tomorrow's open. Likewise, if today's low is less than the lowest low of the
past x days, you sell on tomorrow's open. Pure reversal system -- no stops, no exits, no delays, and the
same value for x for both buys and sells, and the same value for x for all commodities.
X is robust over a fairly wide range of values. The attached table represents the one-contract results I
achieved using a value of 40 for x.
The "Totals" in the table assume, of course, that the maximum drawdown of the portfolio as a whole is the
sum of the individual maximum drawdowns. In practice, this is unduly conservative. My software doesn't
do portfolios, but from other work I've seen, one might reasonably expect a diversified portfolio to have a
maximum drawdown of 30-40% of the sum of the individual drawdowns. (Does anyone have a better
number on this?)
Using 40% of $252,950 ($101,180) as the portfolio maximum drawdown, the total profit, excluding the
distorting effects of the large S&P and coffee contracts, was $497,600, which is 354% of the estimated
maximum portfolio drawdown ($101,180) plus the margin ($39,405). This is about 35% per annum,
Every tweak I tried (stops, exits, delays, etc.) resulted in a degraded performance. Better historical numbers
can be generated by optimizing x for each commodity, although I doubt this has much predictive value. A
somewhat similar approach, but imaginatively different (and slightly superior) is taken by Keith Fitschen in
his Aberration system, which he sells for $395. Keith is a nice guy from Bearvercreek, Ohio, and I thought
his system was a good buy.
Editor's Note: According to Keith Fitschen's ad which was in this (print) issue, the above price mentioned
by David Bryant appears incorrect, or perhaps he has raised his price.
It seems to me that the question we should be asking ourselves is not whether we can torture the historical
data further to produce even better ad hoc results, but whether these markets over the next decade will
behave the way they have in the past, i.e., will their "trendiness" be sufficient to make Donchian-type
systems profitable? Or will the markets correct these profitable inefficiencies, as markets have an annoying
habit of doing? Chart in Print Copy
Advice On Keeping Real-Time Data Feed Cost Low - Simon Campbell
Simon Campbell responses to Thomas Schopen's request for information on how S&P daytraders follow
the markets (CTCN 7/95), I submit the following:
Datafeed: Perfectly adequate: DBC's Signal: Cost $355/month (month-to-month basis) for real-time quotes
(via cable) on the CME and CBOT. No initial setup costs. Cost is less if you only go with the CME. Note:
request the "International" cable box receiver, because it transmits at 19200 baud as opposed to 9600 baud
for the "domestic" box ...which can lag the market by up to 2-minutes (a lifetime delay in the S&P's).
Unless you specifically ask for the "International" box, they will ship you the domestic box. No price
Best Datafeed: FutureSource data for TradeStation: more expensive, plus 1-year commitment needed.
Software: Omega Research's TradeStation: Cost $1,895 (the best!) Lesser cost option: "MetaStock Real-
Hardware: Perfectly adequate: 486DX-66mhz, 500mb hard drive, 16mb RAM (Contact Dell Computer for
a good price) Top-of-the-line: Latest Pentium-133mhz, 1.6gb hard drive, 32mb RAM, etc.
More Comments on "You Can't Lose Trading Commodities" - Terry Davis
I became interested in Wiest's work about 12-years ago and initially dismissed it as foolish. About 5-years
ago I became re-interested and even started trading it for my own account as well as writing an article (with
Wiest's permission) in "Traders World" describing the basic premise(s). At one time, I had a string of 22
straight wins before going into a marked drawdown in equity. I don't know about your internal constitution,
but waking up in the middle of the night and thinking about all of those open losses finally caused me to
give it up. I traded his methodologies for about 2-years before I finally had enough. The methodology is
sound, but it requires more mental stability than I have to follow it.
While I think the concept is sound, I would like to take exception to his newsletter that he publishes.
During the time that I took "the Scale Trader" he constantly re-did scales while ignoring the ones that were
already open with giant losses. Apparently these past scales just disappeared. What finally caused me to
contact him and tell him to quit sending me the letter was his constant whining about someone else being
responsible for the losses. Whether it was big government - the Arabs - or gray aliens - it was always some
outside force that was responsible for the growing (and sometimes) monumental drawdowns that the
"guarantee account" was suffering. On accounts that I manage that are down in equity, it is only one
person's fault - mine. Trying to pass blame on to someone else is non-productive. Scale trading stands on its
own as an effective methodology, irrespective of the person running it. If you think you have market
psychology under control, I suggest you try scale trading.
Trading Results of My Swing Catcher Trading System
I loaded a data update disk into my computer and ran the P&L statements on the portfolio I had been paper
trading since last August . Here are the results for 9/16/94 through 7/14/95:
DM $ 6,237
These trades are based on the harmonic files. Additionally, the drawdowns were very low, and the number
of consecutive wins in each commodity was very impressive. Since I was using a set of static parameters,
may I assume the Swing Catcher actually produced greater profits than those shown?
For want of an extra $15,000 in my trading account, I lost out on huge profits.
Maybe next year will finally bring things around, so I can finally start making the big $$$ with Swing
Catcher. Dave, you have a great program.
I'll be in touch next spring, unless good fortune comes sooner than expected.
A Case for "Bread and Butter" Strategies - Robert Lahodny
Many contributing writers agree that every trader must develop his own trading identity. This genesis takes
time, trade concept or system experimentation, and usually painful experiences. Key in this process is
establishing the time frame and methodology you intend to focus on.
I feel all-too-often this trading identity concept translates into "traders" purchasing a system, following it
with or without discipline, and ultimately defining themselves in trading via their system. I'm of the "old
school," which believes you learn to walk before you run in market education. You must study the
dynamics of markets through continuous exposure and hard work, of course starting with the basics.
Trading commercial systems can certainly be a very effective tool in the learning process, but doesn't
complete that process in and of itself. The markets are fluid and dynamic, often changing character, and
acting "abnormal". As such, I submit that trading is a constant learning process, and a key component of
success lies in being able to accommodate changing conditions in your methodology.
However, by whatever means or time frame you participate in the markets, I feel you are at an advantage,
both mentally (by positive feedback) and financially, if you have an extremely simple pattern or method
that consistently gives you small profits (scalps). Such a trade formula can serve as a "bread and butter"
function for you, deferring the costs of doing business and keeping you psychologically upbeat. This
system is an addition to your regular trading program, only meant to supplement your efforts. Happily, on
occasion a scalp trade turns into a substantial winner. The main purpose of this article is to offer a couple
scalp ideas that have served me well, and may be a consideration for CTCN readers.
First, let me explain the theory behind the scalp patterns I am about to share with you. In essence, our aim
is to take advantage of a market situation where the consensus perception of immediate value has changed.
Accordingly, price action naturally expresses itself in reversal dynamics. The key is in the pattern set-up,
filters incorporated and immediate recognition/action.
The first pattern was introduced by Larry Williams many years ago, and I have reconciled how I use it
(filters) according to my perception of the price action of the markets. For a buy scenario, it sets up by the
market opening (a predetermined minimum amount) below the previous day's low ---- a gap lower open. If
the market then moves up to the previous day's low, a buy signal is generated. The successful use of this
simple pattern/ phenomena is dependent on your execution filters, stop-loss points, and trade expectation
(the point at which you take profits). These are variables that require adjustment according to the nuances
of the particular market you are trading. Let's walk through some possibilities together, considering daily
bars (this pattern may be used intraday).
The grain's action during seasonal speculation offers a viable trading arena for this pattern. This is due in
part to the phenomena of bull or bear loyalties often turning on a dime based on a cloud fly-by or some
such "catastrophic" event. A simple set of parameters for this scalp pattern may be as follows: (again, for a
FILTERS - 1. Take signals only in the direction of the prevailing trend 2. Previous bar must have a lower
high and lower low than the day before 3. Gap open must be at least 1-½ cents below the low of the
STOP-LOSS - Current day's low or 2 cents, whichever is greater
EXPECTATION - Exit trade by third day's close, or on any close that is not higher than the day before, or
in upper half of the current day's range
Charts are in Print Copy
Both of these patterns offer a viable means to take a little off the table on a pretty regular basis, with the
noted caveat of always qualifying these patterns with filters and trade parameters. Again, this has important
positive feedback consequence. I have found success with these patterns in several markets and in different
time-frames. I suggest readers study their markets in their preferred time-frames and see if these patterns
offer consistent scalps in their favor. For me, putting these set-ups and patterns in one or two markets is a
consistently profitable contribution to my other trading strategies. I do encourage traders to study, test and
adjust these suggested parameters to best benefit them in their trading plan.
Finally, I suggest readers devour market work by Larry Williams and Joe Ross. These guys are very long
on market experiences and insights. I believe everyone can find useable material in their works. Thanks to
Dave Green, he is helping all of us grow with CTCN.
Personality Is One of the Keys to Success - Successful Anonymous Trader
Several traits are necessary for success. Patience and discipline. You must also have the persistence of a
bulldog. Do not quit or get discouraged easily. You must also be an optimistic person and must become
flexible to change and go with the market flow.
The biggest challenge to your success is not in recognizing what to do, but actually doing it and doing it
properly and consistently.
Another area that will give you trouble is boredom. You must not just jump in the market because you have
not done anything for a couple of hours and feel like you need to make some money. This can really play
havoc with your success. Your are there to make money by taking quality trades not quantity.
Editor's Note: As you know, S.A.T. is (believed to be) one of the most successful traders out there. I have
received numerous requests from members asking for additional details on his trading methods. In addition,
many of you have asked for Anonymous Trader's address or phone number. I have been unable to supply
that per Anonymous Trader's insistence on privacy. He wrote these great articles, as he wanted to help you.
However, he wished to remain anonymous so he could concentrate on his trading without interruptions, and
also preserve his privacy.
Due to so many requests from our members as he wrote all these fantastic articles over the last 8-months, I
have been trying to persuade Anonymous Trader to go into much more detail and teach his methodology to
CTCN members. Subsequently, we are asking for an expression of interest from members as to whether
you would like the opportunity to learn a lot more on a personal level. We have no definite plans, but
Anonymous Trader and I have discussed the possibility of doing an educational seminar for CTCN
members only, to fulfill the apparent large demand for more details on this methodology.
Therefore, I ask that you please complete and return the "expression of interest" response coupon, which
appears on the enclosed separate flyer. We may be offering a seminar to you, providing we receive
sufficient advance interest in it. So please express your interest in the idea by mailing/faxing back the form.
Moving Beyond the Limits of Omega's SuperCharts Editor - Tom Dyste
The March article by Shawn Halfpenny (P11-12) on bamboozling the SuperCharts quick editor was a
fantastic contribution! I invested in a call to Nova Scotia to say thanks, but got his tape machine. I failed to
crack this puzzle by other means, but his solution is clean and workable. A similar approach to his method
on systems can be used to expand User Functions too. Many of the programming limitations noted in the
special report on SuperCharts can be overcome using Mr. Halfpenny's technique. However, there are size
restrictions that limit overall system complexity. A system can compile fine out of the editor, but too large
to actually run on your data.
Here are some further pointers for those who desire to move beyond the designed limits of the quick editor:
The numeric variables Value through Value99 are available for assignment and reference, and need not
(cannot?) be declared.
The logical variables Conditionl through Condition99 are available too.
When your Indicator blows you completely out of SuperCharts to the Program Manager screen with no
error message or explanation, check that your indicator is not attempting to display a value outside the User
Defined limits on the Analysis/indicator dialog box. Set Scaling to Screen for debugging. Also when
systems crash similarly, in my experience it is usually an illegal value being calculated since the logic has
passed scrutiny by the editor's compiler. Inadvertent divide by zero is a dandy for this. Put comment braces
around bunches of code and keep reducing the amount in braces until you "uncomment" the offending
code, then fix it.
If you get a message that your system won't run (but compiles fine) because ".EXE File Too Big", check
first to be sure that the quick editor hasn't copied code to a supposedly unused placelike "Short Exit" and
duplicated your code there. My editor does this from time to time.
Two items I'd like to request help for:
a. What programming techniques help get the most logic into a system before the dreaded "EXE too large"
starts appearing. What things like use of variables, functions, looping, types of branching used. etc.,
generate the tightest .EXE files? What else affects this error?
b. My SuperCharts 2.0 has an OR *.WRI file in \sc2\prog that says DLLs can be used to extend
EasyLanguage. Omega is talking about DLL's with TradeStation 3.5, but what about this capability for
SuperCharts 2.0? Check out the files named OR XXX.* in \sc2\prog. Has anyone tried to use this, and if so
Finally, anyone considering purchase of Omega products needs to consider the recurring comments on
frustrations of their Tech support & documentation.
There's A Difference Between Limit-Days & Locked Limit-Days - Dale Johnson
I think some people may confuse "limit" days with "locked-limit days". My understanding is that a "limit"
day is a day in which the price of the specific commodity fluctuates, trades take place during the day and
the commodity ends the day up/down limit. A "locked limit" day is a day where the commodity opens
up/down limit, the price does not fluctuate during the day (i.e., - stays locked-limit) and no trades can take
In either case, a day trader (should) have no real advantage over a position trader using daily data as
position traders (should) always have stops in place to protect the trades during the day and (should)
review the data every night and adjust the stops as necessary.
All traders should keep in mind that even during "lock-limit" days with no trading taking place in a specific
commodity delivery month, it is usually possible to go to another month and do a spread or to use options
to temporarily stabilize a bad position until you can figure the best way out.
The only advantage a day trader would have, would be that trades would not be held overnight and
therefore, the day trader would not be subjected to gap openings. As gap openings may be either for or
against a position held overnight, this perceived advantage may not be that great.
My personal opinion is that most technical analysis methods will usually work as well on daily data as
intraday data. You don't get as much "action" trading daily data. But at year's end, I think results would be
similar if a person used the same methods regardless whether daily or intraday data were used. A great deal
just depends on the person and whether they are more comfortable trading daily or intraday.
My trading has improved quite a bit since I got rid of my "live intraday data feed."
How To Read Trading Books At No Cost To You - Rich Kuyper
In response to recent letters on the subject of trading books, their expense and varying degrees of
usefulness, it occurred to me that my own discoveries might prove useful to readers. Our library in Boulder,
CO, (and I believe, almost all public libraries) is a member of the interlibrary loan system. I discovered this
last year, and have submitted dozens of requests for books I had seen in the various trader catalogs, but
which my own library did not own.
The results? About 95% of the time, my library is able to borrow the book I want from another library in
the U.S. and then lend it to me. It usually takes no more than a couple of weeks and the service is usually
free! Sometimes, if the book cannot be located in our western region, I have to agree to pay the postage (a
few dollars) in order to have it shipped from a library in Boston or wherever. Generally, I get to keep the
book for a month.
Very current books (this year's copyright) can be difficult to get, as libraries are reluctant to lend books to
other libraries if their own readers are waiting in line to read them. Books from 1994 and back should not
be a problem.
Another great service, for those who have computers with modems, is computerized card catalogs. I live in
the mountains and it is a real treat to be able to dial my local CARL (Computer Assisted Regional
Libraries) number on my modem and browse, on my own computer, not only my own library's entire card
catalog, but the entire (this is not a typo!) card catalog of the Los Angeles Public Library system, the
Houston system or, well, you get the idea. I settle in with a glass of my favorite liquid refreshment, type in
a Word search for commodities or futures, and browse the titles of the entire trading collection of whatever
public or university library system I happen to be interested in. When I find something that looks
interesting, I write down the particulars and submit a request to my librarian to borrow it from the library
in question. It sure beats standing at the terminal in the library and it's a local call! Check with your friendly
librarian to see if these services are available in your area.
Finally, no author or publisher of genuinely useful trading books should fear the dissemination of the above
information. I have an extensive library of my own books, some of which I have purchased after first
determining their worth to me via the above methods. In any case, libraries, like free enterprise, are a
wonderful American tradition. Use them!
Advice From A Trader With 30-Years Experience - Max Robinson
Thanks for your newsletter, it has been very helpful.
I have tried for 30-years to trade. I have read many books and bought several systems and lost at least
$300,000 cash! Do you realize what that amount of money would have been worth, if I had been lazy and
just bought savings bonds with it?
I have felt bad, depressed and worthless because of all of these losses, because otherwise I am a very frugal
My problem! I would not use stops. I could not admit to myself that I would be wrong at least 5 times out
of 10. I wanted to, and thought it was possible to make pure cash with no expenses. The secret of my
enterprise is keeping the losses small, so that you can come back and try again! And guess what! You can
only take $3,000 a year of your trading losses off of your income tax! Do you want to pay a similar price to
learn how to trade?
Yes, I am still trying. I do not want your sympathy, but I would like to warn the beginners that trading for a
living may be impossible for some people. Trading is the toughest game there is. After all, the smartest
people in the world are your competitors, and one of them must loose before you can win.
Only one person in 20 can make money at any business. Be sure to read the July 1995 CTCN article by
Anonymous Trader, where he outlines the 38 steps to becoming a successful trader. Note, he spent many
years becoming successful.
The market is like a conveyor belt, that has $1,000 bells on it, and it is passing right in front of you, but you
don't dare try to pick one of them off!
Profitable commodity trading is similar to deciding that you will assemble your own TV set, by using
component parts that you can buy from the surplus store. Only commodity trading is more elusive, because
there is no written or absolutely correct way to trade it and win every time. Profitable trading requires lots
of time and discipline.
Successful trading is not achieved by vowing that you will never make a loosing trade. In fact, this could be
your reason for failure. In order to succeed, you must be flexible enough to accept a small loss when it
occurs and stay with a profitable trade. Sorry, but a positive attitude will not replace knowing what is really
going on. Lind-Waldock Traders Catalog has a book called "The Trading Rule That Can Make You Rich",
Item No. T1328, price $23.96. This book could be a very good investment.
Info on Bruce Gould System is Hard To Get But Here's Some Info - Leonard Sinodis
I have enjoyed reading CTCN over the last several months. You do a good job. One thing I had hoped to
see was some feedback on Bruce Gould's Money Machine. I'm trying to make a decision on whether or not
to purchase. Please answer via CTCN.
Editor's Note: For a number of months several other members have also asked about Bruce, and we have
had difficulty getting much info. Therefore I wrote to Stanley Rhea, who is a mutual client. Stan's
testimonial to Bruce Gould's Money Machine is used in Bruce's advertising mailings. Stan called my office
and left the following message. Unfortunately, his reply was too short: "I use it, I like it, It works" ... this is
all I will say, and won't go into any details."
William Schoonmaker would appreciate any comments, either pro or con, from members familiar with
Advanced GET 5. 5 or 6. 0 software. Ditto Joe Rondinone's Fibbostock 2.20 software. Also, with regard to
the former, I would like to know where to write for information.
On another subject, if any of your European members care to comment on their experiences with end-of-
day or real-time data, comparative prices, reliability, etc. I would very much like to hear from them. Please
reply via CTCN, so that other members might benefit.
Answer to RWC's request from Jim Burke - I read the request from RWC on "Idea for Exchanging Books"
for the use of "Spike-35 System" by Mr. Hadam, which I would gladly send him. If you would be so kind
as to give him my number.
A.P.H. wants info on AdvanceGet. A friend of mind called me the other day raving about a system called
AdvanceGet. Is anyone familiar with it?
I ask that you please do all members a favor by making a contribution to the next issue of CTCN. Don't
worry about your submission not being interesting or useful to Members . . . rarely is that true. Usually,
most all contributions/ submissions/articles are quite interesting and valuable to other traders, but the author
usually does not realize the actual value of his knowledge or experiences. Submissions can be any length,
long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing
your information and knowledge with other traders. Please make a contribution about your experiences,
both good & bad with systems, services, advisors, data vendors, and other trading related product. P.S. -
Remember, as a special reward for making just one contribution/submission per year, you'll qualify for a
50% price reduction off our regular membership cost on your next renewal.
We received an extremely comprehensive and interesting submission from Terry Davis titled "Elliott Wave
And You". Terry sent that along with his shorter article titled "Ramblings of A Demented Trader, which
appears in this issue".
Unfortunately, "Elliott Wave And You" is 14-pages long, including seven pages of charts! It's far too long
to publish in this issue. Therefore, we have made it into a Special Report, which is available to members.
There's a similar difficulty with Kent Calhoun who has written several long contributions to CTCN which
were too long to publish. Kent wrote one very lengthy article on his difficulties with regulatory authorities
and other subjects. He also wrote an 'article' titled "Homo- Sapiens vs. Monkeys", which we were unable to
publish in this issue. Therefore, we have decided to make a Kent Calhoun Special Report containing those
articles by Kent, and some other information about Kent. P.S. Enclosed with this issue is a flyer advertising
an upcoming Dow Jones Telerate Seminar. On the reverse side is a listing of Special Reports available for a
$5 S&H charge per report.
Many CTCN members have asked over the past few years why most trading systems which are top-ranked
by Futures Truth Ltd seem to suddenly stop working once they buy it! The latest Futures Truth data will be
used to explain this odd phenomenon.
For example, the Futures Truth tables on their 7th ranked system (1-2-3 System by John Schmidt) had the
following performance: Bonds -7%, Euro +24%, Swiss Fr -56%, Coffee + 436%, Sugar -141%. (Avg Gain
The 10th ranked system (Grand Cayman System by Taurus Corp.) performed as follows: Sugar +56%,
Cotton +173%, Cattle -216%, Bonds +201%, Euro -48&, BPound -36%, JYen +76%. (Avg. Gain +80%).-
In your editor's opinion, one of the major reasons the performance varies so much is due to the market itself
(not really the system) not performing well. In other words, the market patterns, trendiness, volatility or
signature was in-synch with the system's algorithm at time of testing by Futures Truth. It very easily could
be in synch due to luck or chance, not necessarily because of curve-fitting!
However, after a while (about the time you start trading it) the market itself no longer conforms to the
systems algorithm (perhaps strictly due to luck or lack thereof) and its performance degrades quickly. The
changing market signature does not have to be major. In fact, with many system's even a slight change in its
signature can seriously effect a systems performance. Sometimes the change is so minor it's not even
noticeable on a chart. However, performance may decline greatly from very positive to very negative.
It's not likely you will see much visual difference between the charts of a positive and negative performer,
with the exception being the positive P&L chart may appear to have better trending time periods. Most
systems will in fact perform much better in a good trending market, which is a major factor as the market
may have been trending well during the FT testing period, but not at the time you start trading it.
The luck of portfolio selection vs. the systems algorithm may be the primary reason why the above two
systems had such major variable performance. There's a good chance, luck may be the major factor, in the
surprisingly variable performance from market to market. This is true with many other systems.
This also accounts for the fact I talk to some traders who report they are very happy with a system, but
sometimes (perhaps the same day) someone else calls saying how poor the same system is! Keep this (luck)
in mind the next time you wonder why you are losing money, but the FT Reports show the system was
highly profitable! Note: A solution to this problem is usage of a method which ranks all markets traded by
the system, according to their profit potential. By the way, trend analysis and ranking is used by
Commodity Traders Club software. In fact, its been an important part of our system since 1990.
This issue is a combined Aug/Sept issue. Thanks to all who made contributions to this edition of
Commodity Traders Club News.
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