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Could "Doc from Kirkland, WA" Be Another "S.A.T." ... Who Lost For Years But Is Now Profitable,
Daytrading the S&P, Perhaps He Is Even Using Similar Methodology!
I suppose it's about time I contribute to your publication (after all, got to get that discount).
I am a full-time S&P daytrader, trading from my home office (i.e., my cave), using TradeStation and Signal
Cable feed. They both work peachy, thank you.
Fortunately, I have been able to devise a trading plan which suits my style and provides an adequate
income for me and my family. This was a long time coming. I have been trading futures for over 10-years,
up until the last three, not too successfully.
I fell into the same traps the everyone has, i.e., relying on experts, systems, being psychologically not ready
to trade on a consistent basis. The part about being psychologically not ready to trade consistently is the
Without this ability, I found myself jumping from one system to another, taking some trades and not others,
and never allowing the methodology to work. The mind-set necessary (for me) to trade successfully came
from accepting the following beliefs:
1. Money can be made in the market (this while seeming elementary is most important - if you don't in your
heart of hearts believe this -- you will be doomed)
2. My method makes money in the market over time. (You get this belief by extensive testing and working
your method real-time in the market - by the way, if your method doesn't work you can be disciplined as a
market wizard but you'll lose).
3. Each trade is but one of the next 1,000. It doesn't matter if it wins or loses. (This belief makes it easier to
take that next trade, even if you've just had your head handed to you).
4. My method is well thought out in terms of money management. (My risk is small in comparison to my
account size -- also well researched in terms of historical drawdowns).
Did S.A.T. Have & If He Did, How Did He Overcome The Problem of
"Pulling the Trigger"- Don McCullough
I'm still battling the common "pulling the trigger" problem. Rather strange in that I have had more actual
guns and pulled more triggers than 10 typical people. Of course pulling the trigger in the market is
considerably different than pulling the trigger of a gun. When your money is on the line, hesitation, second-
guessing your signal, and then not trading occur just about like a law of nature.
Can see where (contrary to what most books say) having your back to the wall and having to trade might be
just what some traders need to get them to execute in a serious and nearly I00% consistent manner. I've
read where several pros said they started trading with money they could not really afford to lose, or they
were forced to trade in a very serious manner in order to pay the rent.
Sometimes "having to" can make all the difference in the world. When young people are forced to become
self-responsible and truly adult, they usually do. When an alcoholic is forced to quit his addiction and stop
killing himself and those around him -- he often does. Without "having to" kids can stay kids and alcoholics
will usually stay addicted.
I wonder if S.A.T. would be willing to tell us how he overcame his problems with proper execution of
trades? He has already told us proper execution is the hardest thing for the trader to learn. I wonder if he,
initially, had to trade every signal in order to conquer his unwillingness to execute.
Editor's Note: You should know "S.A.T.". had no such "unwillingness to execute." In fact, by plan, he has
said never trades every signal. Bypassing a large percentage of so-called "opportunities" or signals makes
this method work so well and is one of the secrets to the methodology.
Is trading every signal the only way to break the inconsistent trading habit? Mark Douglas recommends this
as does trader Tony Saliba.
There's Breathless Excitement
About S.A.T. Method - A. F. from Australia
There seems in some letters the breathless excitement, almost akin to Gold Rush Fever once readers hear
about the highly successful daytrader ("S.A.T.")
Editor's Note: As a result of our recent partnership break-up and due to legal reasons we are not using the
"highly successful daytraders" own non-de-plume or selling his methods. As you know he has never once
used his real name (and neither did we) but only used a non-de-plume. We have substituted our own non-
de-plume name for him ("S.A.T.) in all past and futures articles and references in place of the non-de-
plume name he wrote his articles under. This has no effect on the fact all his articles are copyrighted by
Commodity Traders Club News by virtue of their submission to CTCN and world-wide publication and
Many readers seems to think all you need to do is lineup at the shooting gallery (computer screen) and hit a
few trades. The thinking seems to be that there are several trades waiting to be done each day and if you're
not popping the trades off you need to fund another system.
My experience has been over 7-years that on many days while there are trades, few of them are sensible
low risk ones. In fact, after 3-5 days go by in a row without a solid/valid trade signal. So if you are there for
the fun, thrill or gamble - fire away. However, after a number of years I found it very wearing being forever
ready, but few low risk signals.
Now a lot of readers are going to correctly say I wasn't suited to daytrading, but it is so addictive and it
gave me something to do and hope for, that I kept fronting up to the screen each day, for too long. I would
watch the screen even when I knew it was unlikely there would be a decent trade e.g., a big gap up
followed by small sideways moves.
Daytrading is also one of the most anti-social activities to do and in many cases causes family divisions, if
not divorces. Telephone calls, I hated as they distracted me from the market and of course going out to
lunch was totally out.
Editor's Note: One of the beautiful things about our Real Success methodology is the fact you do not take
every signal. In fact, only a small percentage of the signals are taken. Also, you may go to lunch every day .
. . for 2-hrs . . . in fact, that's part of the methodology. Overall the S.A.T. method is much lower stress (and
lower-risk) than most other daytrading approaches.
Twenty-Five Facts, Topics & Aspects To "Successful Trading" by Tom D'Angelo
These Are Some Topics I Covered in a Seminar on Money Management I Recently Gave in San Diego
1. 95 % of all Futures, Stock and Options traders are long term losers
2. The 5% that win will earn the money the 95% lose since futures trading is a zero sum game
3. You must master three disciplines to achieve long-term successful speculation: a. Trading methodology
(long or short-term, technical versus fundamental analysis, type of trading system, etc); b. Psychological
discipline (controlling emotions of fear, greed and anxiety); c. Money management (risk reword decision
analysis for each trading opportunity - when, where, why and how to bet on a particular event)
All three disciplines are necessary, but not sufficient individually - only all three combined are necessary
and sufficient to achieve success.
You must develop a trading personality which integrates all three disciplines to achieve long-term success
in speculation. If you do not, you will fail.
4. 95% of futures traders concentrate on trading methodology and ignore disciplines two and three. If you
only focus on trading methodology, you will eventually fail in speculation. The only question is when you
will fail, not if.
5. Psychological problems are caused mainly by uncertainty . . . which creates fear, greed and anxiety.
6. Uncertainty can be significantly reduced if the trader has information and knowledge which creates
certainty rather than uncertainty. Certainty reduces fear of the unknown, greed, anxiety, and creates
confidence and success.
7. 95% of traders are totally disorganized as to analyzing their trading results . . . and have no concept of
how to organize their profitable and unprofitable trades.
Practical organization of trading results is a primary prerequisite in mastering the money management
8. Brokers' statements provide absolutely no value or practical use in mastering the three disciplines.
9. To master the money management discipline, the trader requires information which is: a. timely; b.
accurate and; c. practical. All three tests are necessary and sufficient. Each individual test is necessary but
10. Futures trading is just like running a business. If you do not approach trading in the manner of a
successful business, (such as IBM, Sony or Apple Computers) you will. Probably fail in the long run.
11. All three disciplines are inter-linked. If you make progress in one of the three areas, the other two areas
will automatically improve.
12. 95% of all traders play as customers in a casino and not as the casino.
13. You must play as the casino and not as a customer to achieve long-term successful speculation.
14. The customer in the casino will always lose and the casino will always win in the long run.
15. Long-term success can only be achieved by playing a game with a positive expectation - (or playing a
negative expectation game which you expect to become positive - a more risky technique)
16. The best approach is to play a game where you have a positive expectation and make small bets
(playing as the casino). The 5% of traders who succeed fall into this category.
The worst case is to play a negative expectation game and make large bets . . . Most of the 95% traders who
fail are in this category.
17. Before you make your first trade, you must establish your risk profile approach towards trading
(conservative, moderate, aggressive). You must know who you are. This risk profile will determine your
approach to the risk./reward decision making process.
18. Before you make your first trade, you must establish monthly, quarterly and annual goals for each profit
center. These goals should be both operating and financial goals.
19. Nearly every trader who is successful was a consistent and/or heavy loser when he/she first began
trading (paying their dues), losing significant amounts of capital in the process. This is a situation which
stems from the fact that traders focus on the trading methodology and ignore the other two disciplines.
Losing significant amounts of capital can be avoided if the trader is making a sincere effort to integrate the
3 disciplines into his/her personality.
20. 95% of traders do not know where they have been, where they are or where they are going in their
trading. They operate like a plane in a fog trying to fly with no instruments. They are disorganized,
uncertain, anxious, fearful and eventually are forced out of the speculation game. If you emulate this 95%
group of individuals, you will wind up equally frustrated and you will eventually fail.
21. The more you trade (daytrading), the more sophisticated your money-management discipline has to be.
22. The less you trade (long-term positions based on fundamental analysis), the less sophisticated your
money-management discipline can be.
23. You should classify any contemplated trade into one of the following five categories before putting on a
a. Entrance into congestion
b. A trade within a congestion
c. A breakout from a congestion area
d. A trend run
e. Trend reversal
24. The trader will have difficulty in formulating a successful and intelligent risk/reward (entry/exit) plan
unless the trade is properly categorized before the trade is taken. The risk/reward parameters are different
for each of the five types of trades.
25. Having timely, practical and correct information of trading results instantly available enables the trader
to make rapid, unemotional and informed trading decisions.
Trading will then be less victimized by emotions and instead become more "scientific," unemotional and
OPTIONS SPREADS: Raw Wind,
Cold Iron, Hard Bone - Greg Donio
A money-printing machine in your closet would be great except that it will attract unwanted guests carrying
badges and warrants. Imagine instead a machine enabling you to write paper securities and sell them for
instant cash, with the law on your side.
With spread strategies, option contracts beget other option contracts that sell instantly. They are the gold
ingots that alchemy-like create other gold ingots, not for the vault or for maybe-someday sales but for
same-day money in your account.
Risks? Yes, but the begetting is also a fortification. A fall in silver would, hurt less if silver bars bore
Fabulous thought: If owning stocks and bonds gave you the right to print and sell more stocks and bonds
while still holding the originals. But no, spreads are the domain of futures and options, including my
specialty, equity or stock options.
A few years ago, I took out a short-term trial subscription to Value Line Options (1-800-634-3583) and
gave special attention to the page "Recommended for Covered Call Writing." I bought 1,000 shares of a
recommended $10-a-share mining stock for about $6,500 plus margin. Each 100 shares entitles a
stockholder to write (issue and sell) one "Covered Call" option contract which in turn entitles the contract-
buyer to purchase the stock at a given "striking price" if the shares rise above that price before the contract
Each month, I sold 10 Calls with short-term expiration dates and a striking price of 10. Each time I would
receive a premium of between $750 and $900. The stock fluctuated between nine and a fraction and 10 and
a fraction. Month after month, the 10 Call % expired worthless and I would sell another batch with the
next month's expiration date. One month the stock price rose slightly above 10; the contract holder
exercised' the right to buy my 1,000 shares.
Then the stock dropped to nine and a fraction. I bought back the 1,000 shares at a slightly lower price and
sold 10 more Calls. Glad that the premiums rolled in one month after another, I nevertheless wondered:
Who bought these options again and again, getting nothing in return? I realized that I was in effect a
legalized bookmaker. Those contracts expiring worthless were losers' horse-racing tickets.
I mentioned Value Line and the "Recommended" stocks for a reason. A writer of Covered Calls should
never, repeat never, buy a stock for option-selling purposes unless he would also buy it for its own sake.
Another item apropos at this point: The selling of options, whether by a stockholder or a spread strategist,
is to no small extent a "fleecing of suckers." It is for you only if you can manage a cynical chuckle at the
sight of a pad & pencil roulette-player.
It is estimated that over 90% of all out-of-the money Puts and Calls expire worthless. As a spread strategist
and with limited capital, you can skim an amplitude of that lost money. You can "be the bank" out of your
desk drawer. You can run a de facto gambling house from your den and "gain the house advantage."
Of course, a strongbox-in-the-closet tycoon must know pertinent script and scrollery. When I crossed the
Euphrates from stocks-for-covering to Put & Call strategies, the following was and still is the cuneiform
alphabet. Spreading can be done with either futures or options. You buy one batch of contracts and sell
another either simultaneously or shortly thereafter.
With options, the two batches must be either both Puts or both Calls. Both must connect to the same
underlying stock (equity options) or commodity (futures options). When the batch you buy costs more than
the batch you sell, the money you receive from the latter pays for part or better yet most of the former,
depending on prices. You pay the difference or the "debit," hence the term "debit spread."
Let us say that the options or futures you buy have expiration dates farther into the future than the ones you
sell. This positioning goes by the moniker of "time spread" or "calendar spread." Many "debit spreads" are
also "calendar spreads" because time value makes the farther-into-months-ahead contracts more expensive
than comparable shorter-term or nearer-in-time ones.
Let us say that you buy 10 equity Call options with a June expiration date and a striking price of 40, and
you sell 10 Calls with an April expiration and a 40 striking price. That is a "calendar spread" because of the
different months and a "debit spread" because June 40's cost more than April 40's and your checkbook must
fill the gap.
What else? The identical striking prices make the above example a "horizontal spread" also. On a price &
time chart, the two 40's with different months would appear on the same level with a horizontal line passing
through both, and May forming a gap between them. The bought June's constitute the "long end" of the
spread and the sold April's the "short end."
Getting to the XYZ of it, the short-end 40's are Covered Calls, covered not by stocks or commodities but by
the long-end contracts. If the underlying security were to rise substantially and the April's were exercised,
the spread strategist could deliver and fill the order simply by exercising the June's he owns with the money
that the April contract-holder just paid.
Alas, this would wipe out the debit money that the spread strategist paid and would also require him to pay
commissions. Never, repeat never, let the short-end stay in-the-money beyond the trading day that it
happens. I took several of my best profits by buying back and closing out the short-end, whether Puts or
Calls, while holding onto the fast growing long-end as underlying security continued deeper into the
The above is one way to make a profit. The other, IF the underlying security avoids the strike price, is by
time decay. The difference in price between the batch of contracts you bought and ones you sold widens or
"spreads." The cash you invested in the gap broadens. Molten nuggets in the soil. Also, if the April's expire
worthless in the example given, the holder of the June's can write (create and sell) Mays. The securities-
printing machine in the closet.
This article does not cover credit spreads, vertical or diagonal spreads, or uncovered options because, to
state it plainly, I don't do none of them. Those interested should consult books on the subject. In fact,
anyone considering putting any money at all into stocks, options, futures or spread strategies should read
profoundly. More on books later.
So that the preceding paragraphs not be construed as a sunshine & roses portrait of spread strategies and the
surrounding financial milieu, let us now shine a flashlight into the Black Hole of Calcutta. If you buy
shares in Ford or Chrysler, investor money forms some kind of link-up with car-buyer money. From the
latter comes gross revenues, operating capital, and hopefully, earnings, dividends and upward pressure on
If 1,000 people place $1,000 each in a 10-year, 10% corporate bond issue, that $1,000,000 total brings back
$2,000,000 -- the original investment plus interest. If those same people gamble one grand each at a casino,
the $1,000,000 brings back only about $850,000 -- the original stake minus the house's cut of the pot. This
is what makes gambling a loser's game: Too little gravy in the pot with everybody wanting plenty.
In the early 1920's, Boston promoter Charles Ponzi sold promissory notes which guaranteed investors 50%
return in 90-days. Ponzi claimed that he used the money to speculate in foreign currencies and International
Currency Coupons, then shared the gains with note-holders. The first folks collected, then subsequent ones.
Soon people flooded his offices.
When federal investigators cracked down, they found no currency or coupon speculations. Ponzi had paid
the first wave of investors with money from the second wave, and the second wave with money from the
third. The few who got in and out early made a profit, but the rest? Federal authorities imprisoned Ponzi
and disbursed his seized holdings. Note -holders received only 28¢ on the dollar.
Some investors refused to surrender their notes to the halls of justice, believing that the "financial wizard"
would eventually make good his word. Everybody else was more cynical. During my father's 1920's
boyhood in the Italian neighborhood of South Philadelphia, one kid would say to another, "What are you
trying to do? Pull a Ponzi?" The essence of the Ponzi Scheme: No profit dollars added to investor dollars;
the mere shifting around of capital among the participants. Robbing Peter to pay Paul.
Futures and options are zero-sum games. Somebody must lose a dollar for each person who gains a dollar.
No car-buyer money seeping through to shareholders. No bond interest or C. D. interest making sure that
more money comes out than went in.
More like in a casino. Like in a Ponzi scheme. Nobody calls it robbery, but Peter has to lose a dollar for
Paul to gain a dollar. Actually, these are worse than zero-sum games. The casino gets a cut of the pot by
paying out less in wins than it takes in. Ponzi skimmed and pocketed more than a few note-holder dollars.
Nowadays, brokerage commissions, brokerage house expenses, exchange and trading floor expenses; Peter
always loses more than Paul gains.
Is it any wonder that in turning to options or futures, so many people expect Lady Bountiful and meet
Lucrezia Borgia? Analysis by basic arithmetic reveals plenty of poison in the cup. Plenty of prime cattle in
the royal pasture, but not nearly enough to fill the banquet tables of everyone expecting a fill.
Numbers. What a person overlooks even when they stand as a stone wall he crashes into. For centuries,
men built wings and flapped them, trying to fly like a bird. Overlooked were the plain mathematics. A one-
pound bird has a one-foot wingspan and flaps those wings 72 times a minute to stay aloft. As for the needed
energy, the phrase "eat like a bird" is misleading. A person eats two to three percent of his bodyweight in
food per day, a bird 50%!
Thus a 150-pound man would need a 150-foot wingspan, and would have to flap those wings 72 times a
minute. Try flapping just your arms 72 times a minute. For the required energy he would need to eat 75
pounds of food per day. Such are the absurdities that man gets into when he builds wings, but ignores
mathematics. But is there any more good sense among the huge numbers of futures traders and options
traders who expect a worse-than-zero-sum game to drop a million quickly and easily into all their bank
At New York University, I took a calculus-heavy course in finance and did all right but found the
knowledge of little practical use. Fundamental arithmetic lights up the realities just fine. I am involved in
spreads because here the numbers are far more an ally instead of a big-guns enemy as with most trading.
Case in point: The Options page of the Wall Street Journal, 1/19/96, carried listings for the previous day's
trading. The section called "Leaps --Long-Term Options" posts Puts & Calls with expiration dates one to
two years in the future. The IBM Put with the 90 striking price and the expiration date of 1/97 last traded at
5-¾. The IBM 90 Put expiring one year later 1/1998 last at 8-5/8.
Do you need a neon sign to see the significance? Compared to the 1/1997, the 1/1998 contains 100% more
time, but costs only 50% more! I cite this as an "eye exercise" because the trained eye of a spread strategist
should notice such things. He routinely buys the bargain and sells the overpriced. I do not trade long-term
(year or more) options right now, but I may in the future, using Harrison Roth's fine book LEAPS: Long-
Term Equity AnticiPation Securities.
The point right now is that an intelligently-planned spread strategy is number-friendly, with mathematics
working for it instead of against it. Ergo, the spreader's privilege to "be the bank" and "gain the house
advantage" while other people gamble certainly counts. Also essential to the formula: Bulk quantities of
other people's money. That stacks the mathematical deck in your favor profit-wise; also makes great tank
armor during a worst case scenario.
After repeated profits from Put spreads on software and semiconductor stocks, I gave attention to Cisco
Systems with common shares fluctuating in the high 60's on the downslope from 89 and a fraction. Put
options with strikes of 65 stood too close to the stock price; a bothersome no-trend twitch could put them in
The ones with a 60 striking price seemed better. This was early January and the out-of-the-money January
options had shriveled to fractions due to time-decay. Cisco had no March options so February and April
took center stage, with an already existing spread between them of about 1-¾. I phoned the broker. "A
spread order," I said. "A buy and a sell going in together, each dependent on the other. Cisco option symbol
CYQ. Buy 10 April 60 Puts to open a position. Sell 10 February 60 Puts to open. Debit 1-¾ points. Day
On a 10 and 10 order, the I-¾ point debit translated to $1,750 of my investment capital. But the order was
not executed, so the next day I raised my ante an eighth. I phoned in an identical fugue but with a debit of
1-7/8 points. Order executed, I bought 10 April's at 4-3/8 ($4,375) and sold 10 February's at 2-½ ($2,500)
paying a difference of just under $2,000 with commissions.
This two-masted schooner sails under 3-names --debit spread, calendar spread, horizontal spread. The
money that built it came more from other people ($2,500) than myself ($2,000). A banker's maneuver, one
could say, or a dealer's card advantage.
One strength of construction lay in the time-decay that accompanies calendar spreads. After the close of the
buy/sell day (1/16), the February Puts had 23 trading days until expiration and the April's 69 days. Time for
eye exercise and basic arithmetic. The April's were richer in time than the February by triple, but cost
measurably less than twice as much. Buy the bargain, sell the overpriced.
The moving mechanics of time-decay deserve scrutiny. When the trading day after the transaction day
ended, the February options lost 1/23 of their time but the April's only 1/69. And 10 trading days before the
February expiration, the February contracts will lose 10% worth of time in one day and the April's less than
2% (one of 56 remaining days). Thus the short end (obligation) of the spread shrinks more and faster than
the long end (ownership), expanding both the gap between the two sets of contracts and the money filling it
An option spread strategist should also be a chart-watcher because of that moving asteroid, the underlying
security going up and down. I positioned a Put spread under Cisco shares because I anticipated their
continued decline. If they fell through the 60 line I was prepared to buy back/close out the short-end
options and hold the growing long-end.
Days later -- surprise -- the stock climbed from the high 60's to the mid-70's. Not what I wanted, but it did
serve to test the armor-plating and shock-absorbers contained in spread strategies. Whoever bought April
Puts identical to mine but without initiating a spread was down slightly more than half in the stock rise. Yet
worse, whoever bought those February, I sold was out 75%! The figures: Feb.5/8--Apr. 2-1/8. A 1-½ point
spread and a minus to me of 25%.
Flesh wounds around the bullet-proofing and I could have bled worse. Spreads are protected strategies,
relatively, but never totally risk-free. No more than one-tenth of capital per venture stands as a locked-safe-
embedded-in-concrete rule. As with buffalo-hunting, spread strategies can bring wagon-loads of meat
thanks to an inexpensive box of bullets. Yet we must also endure like the buffalo hunter -- the raw wind,
the cold iron, the hard bone.
Reading Recommendations: The phone number for L&S Trading given in the previous issue of CTCN is
no longer valid due to Colorado's change of area code. Updated: 970-586-6262. Still gold-medal among
their wares: The two books by W. D. Gann in one hardbound volume -- The Truth of the Stock Tape, &
The Wall Street Stock Selector.
Worthwhile option volumes at Barnes & Noble and Walden Books: Listed Stock Options by Carl F. Luft &
Richard K. Sheiner, Option Strategies by Courtney Smith, How the Options Markets Work by Joseph A.
Walker, Options--A Personal Seminar by Scott H. Fullman.
Comments on Swing Catcher System
Part Two - Michael Maldonado
I'm sorry to report that the "Energizer Bunny" finally came to a halt! My winning streak in the T-Bond
market is over, but not before reaching 7 winning trades in a row and putting $5,600 in my bank account!
I'm currently long one contract now and hopefully this trade will start another streak.
Education Received Answers Prayer
I 'm writing in reference to Kent Calhoun and his 5VBTP methodology. The education I have received
from the study of his material has made the difference between stopping trading and improving my
win/loss ratio to greater than 60%. I expect to improve that to exceed 70%+ accuracy in the future as I
develop in my technical analysis skills. I am basically a beginning trader, and had a hideous trading record
before I stopped trading and learned to use the 5 vertical bar trading pattern that Kent discovered.
This approach to trading the markets has been the answer to my prayers. I feel that Kent maintains the
highest standards of integrity in dealing with the public. I attended the KCI seminar in Dallas this year, and
it was a learning experience I will never forget.
The money spent purchasing the KCI trading manual is definitely the best value of any trading material I
have ever received. I should also mention the 5VBTP software that operates seamlessly within Omega
TradeStation. Pat Raffalovich, who wrote the code for the software is extremely professional and always
willing to help and answer questions.
In summary, I think that any other beginning traders out there who are serious about learning to trade
properly would do well to acquire the KCI Stock & Commodity trading manual, enhanced by the Omega
TradeStation and 5VBTP software. The initial capital outlay will be expensive, but compare that to the
amount of money lost in the markets. The truth lies in scientific price analysis, which defines the structure
of the market. When the student is ready, the teacher will appear.
Too Much Money is Spent on Black-Box Systems and Seminars - Don Twist
I'm amazed how many traders purchase these high priced systems. Does anyone realize that it takes only 50
holy grail found people at $2,000 per system for a mere $100,000 in revenue before expenses? I receive
two or more mailings a week from these various vendors who offer outdated, back-tested, not real life
trading systems for a limited number of traders.
I spent one afternoon developing a mechanical trading system for trading gap openings in coffee that made
over $10,000 in one month and never looked at a chart! Traders, spend time using your knowledge and stop
buying everyone else's ideas. You are making this too complicated.
I agree with many of the subscribers that system sellers gave up on trading because of the risk. Let's not
forget the ever popular limited seating by special invitation only seminars for a day or two at a mere
$1,000-$3,000 per person. Let's look at this quarterly cash cow seminar in more detail.
Just 50 attendees at $2,000 per person, less meals, refreshments, meeting rooms, materials, transportation
and setup. It would appear the average 1-1-½ day seminar could net the promoters $70,000 or more after
expenses based upon the initial entry fees of $100,000. Why would they need to trade when you have this
type of income two or three weekends each quarter. We all realize there are other on-going expenses in
development, systems, solicitations, etc. However, this can't be a bad living with the solicitations that
Seminars sell systems, systems may require a seminar to understand how to use these more complicated
vehicles. They feed on each other. Traders, please stop buying systems and do the work yourself. I have
used MetaStock since 1987 and it has all of the popular overused indicators that anyone would need that
seldom work regularly. Everyone must realize that most of these indicators are over used and simply can't
work most of the time.
I believe one of the best indicators in use, but not widely understood is the use of trading bands. When
these bands contract you can be assured there is a large move ahead. When the tightened bands are broken
to the upside or downside it's usually fatal to fade this move.
Many times a breakout will occur but I will wait two more days for confirmation, because the day after a
breakout there's a tendency to go in the opposite direction in a small way. (Trader's Fading the Breakout).
The next day is the key if the breakout is for real. Stock markets tend to move forward and back and fill
which gives many whipsaw actions and are difficult if you are not daytrading. Many of the soft
commodities are true breakout and never look back markets.
In any traders' plan, one must be able to handle the daily rhetoric that the major newspapers provide trying
to explain why the markets did what they did yesterday. Many times articles should be used for exiting or
entering in the opposite direction of news.
Ask any floor trader and they will tell you they trade on the news and it is normally easy money for them.
When a market has a large gap up or down on the open and fails to trade significantly higher or lower, you
know who took the opposite side of the trade.
News reversals outlined in Nov. edition of Technical Analysis of Stocks and Commodities by Laurence
Conners can give anyone a great entry point with a market reversing direction. In fact, you may enter the
trade the next day and still have a nice move.
I was glad to see some articles on selling commodity options rather then buying them. The public has
always been buyers of options, while the smart money has sold them and received a nice steady income. If
you have never sold options try this. Take a market that has a good trend up or down and the sell in the
opposite direction. Look at selling out-of-the-money Puts that are below support in up-trending markets.
Do the opposite in bear trends.
Know the expiration dates as they vary with each commodity, look at selling out at least four to six weeks
before expiration. In rising markets wait until the market pulls back, finds support and starts moving up
again. Do not attempt to ring out the last cent before expiration if your striking price is within reach. Cover
the option and walk away. Volatility is the key to option premiums especially when a market is driven by
news and the public can't wait for the market to open so they can buy or sell. The premiums are over priced
on the open and the smart money once again steps up to the plate and takes these overpriced options and
gladly sells them to anyone. Once you have sold options and realize the erosion factor you will never buy
Think of the soybean market of 1993 and the thousands of call options that were purchased in July for the
November contract. With soybeans peaking in the $7.50 range and calls for November with striking prices
of $8.00 to $10.00, who took home the premium? The option sellers of course. Will this Happen in 1996?
When being manipulated by the press and the shortages in grains this year, look back in history and you
will find these markets will peak before planting or the latest in late June. This year will provide another
golden opportunity to sell puts as the market rises and sell calls after it peaks. (All out of the Money
Options of Course) You need to chart options the same way you do the underlying market you are trading.
Trendlines, support and resistance and volumes will give you new insight in what the smart money is doing
I have used various end-of-day data services since 1987 and have recently changed to Trader's Access.
They offer low prices on everything you could possibly want to chart. When trading commodity options
historical data, it's hard to find at a reasonable price. You can download 300-800 quotes on an 800 number
in a couple of minutes for $14.95/month if you use less then 10,000 quotes. They have other plans for more
data. I have had many of my friends change and find the service and support good. I have no affiliation
with Trader's Access and you will find the ads in Investors Business Daily each week.
How "Inverse Charts" Help Me Overcome Bullish Bias - A. L. Brooks MD
I am a full-time S&P daytrader and would like to share some simple formulas that help me with bear
markets. I am a optimistic person and have a tendency to always see markets as rising.
This causes me to bottom pick during the early phase of a significant sell-off, and occasionally to enter
short trades later than I should. To counteract this tendency of always seeing the market as wanting to rise,
I look at an inverse chart whenever there is a sell-off.
By an inverse chart, I mean one plotted upside down, with the highest prices on the bottom and the lowest
on top. I have enclosed the TradeStation formulas that I use to plot the inverse of a bar chart, Bollinger
bands, and a 17-bar exponential moving average. Incidentally, the 17-bar exponential moving average is
absolutely identical to the middle line in a Keltner 9-bar channel. The Bollinger bands did not print, but
they show on my computer.
I personally use an inverse candlestick chart instead of a simple bar chart, but there are some problems with
the way TradeStation plots it, so I am not providing its formula. One problem with the inverse chart is that
there is no price grid along the right margin (TradeStation just plots a series of 0's). When I look at the S&P
500 5-minute bar chart of 12/14/95, a day when the market made all time highs just after the open, I have a
bias that makes me see the market as trying to form a base from 12:00 p.m. est to 2:00 p.m. However, when
I look at the same price action on an inverse chart, I see that same area as a continuation pattern in the
middle of a sharp rally (the rally is really a sharp sell-off, since this chart is the inverse of the true prices).
This makes it easier for me to short, especially in a very strong market that just hit all-time highs. I know
it's a crutch and I know I should be sufficiently in control of my biases to be able to see a clear bear trend.
However, I find this helpful in dealing with my bullish bias, and other readers may as well.
To plot the chart in TradeStation, create a new window with a multi-data chart. Choose SP H5 as the ticker
for the first and only data (i.e., data 1). Have it plotted in subgraph "none," since you don't want to see the
normal, right-side-up chart. Then select your indicators-the only one needed is the inverse bar indicator.
I also select the inverse Bollinger Bands and inverse moving average. I plot all three in subgraph one. For
the "bar type," I select "left tick" for the open, "right tick" for the close, "bar high" for the high and "bar
low" for the low. You can change the style of the inverse bar chart to obtain a width of bar that is
appropriate for you. I use "very thin" width for the open, close, high and low.
(Note: Charts are not displayed here online edition but are in our print edition)
Fifteen Years of Trouble
Maintaining Discipline - J. E. Moore
I noted with interest, someone mentioned Ruth Roosevelt's program in last issue. I have been trading
commodities for over 15-years and I had the same problem many have which is discipline of my trading.
For the last year I've been an S&P daytrader, which I guess a lot of us come to sooner or later. My best
trades have come from taking trades similar to S.A.T. , that is patience and pivots. But I was never able to
stay with my system until I bought her program and spent time with her on the phone.
Believe me, this lady is a master at what she does in teaching you how to maintain discipline and stay
focused. I should be ashamed at my age and an engineer to boot, that I was not able to keep this under
control. But thanks to Dave Green and his CTCN, I now know I'm certainly not the only one.
One more word about Ruth Roosevelt, when I saw her ad, I realized I had known this fine lady and spoken
with her several times many years ago. She was the commodity trader and advisor for a well-know author
of a very popular newsletter that provided good financial and commodity recommendations. So you can
bet, Ms. Roosevelt knows the commodity business as well or better than most of us.
If anyone would like to talk systems, I've almost tried them all. Call me at 512-244-1313.
The Christmas Stop - P.S. from Alaska
For years I have wondered why the problem of Federal Income Tax on open profits at year-end never came
up in either traders' newsletters. J.S. from California offered one solution in CTCN Issue #3-10. Stop
trading. We have found another partial solution.
The problem is that if a long-term position trader has a large unrealized gain, he must pay tax on the entire
gain at year-end even if the realized portion is subsequently diminished. For example on 12-31, our
unrealized gain is $100,000. The realized gain in February turns out to be only $50,000. We owe $40,000
tax on a $50,000 realized gain.
Our partial solution is to put half of our position in tax free accounts (IRA's and Keoghs). After January 1st,
as we scale out of the position, we use fast exits to lock in taxable account gains leaving slow exits (which
may give back larger portions of the unrealized gain) for the tax free accounts.
If the trend continues, we have a larger gain in the tax free accounts (not a bad outcome either). If your
trading size is small, you could do all of your trading around year-end in tax free accounts thereby
eliminating the problem altogether. This strategy allows us to capture most or all of the taxable portions of
We are well acquainted with the other year-end problem, that of volatility due to thin markets. Check out
the currencies on 12/28 in '92 and '94 and 12/29 in '93. There have been some really great trends in
progress at year-end, so closing positions have not been a good option for traders in our time frame. The
only profitable approach we have found is to keep stops loose and take antacids. I wish someone knew a
Editor's Note: My (limited) understanding from what I have been told or read about the US Income Tax
rules is that commodity traders must "mark-to-the-market" their unrealized gains at year-end, meaning you
must pay taxes on paper profits. Due to the great volatility of futures markets those paper profits could
easily evaporate very quickly after Jan 1st.
For example, what happens if a trader has unrealized gain of $100,000 on 12-31 and the market suddenly
goes heavily against him starting on Jan 2. Within several days he liquidates his open trades at say break-
even, or even a loss!
Does that mean he perhaps has to pay $40,000 or so tax on his unrealized $100,000 Dec. 31st gain on tax
day April 15, in spite of the fact he really had no profits at all on those trades? Is this correct? If it is, how is
it possible such a grossly unfair taxing method could exist?
It seems to me it would be very prudent of the trader with year-end profits to liquidate his trades on Dec
31st, rather than take the chance of paying tax on unrealized profits. Is there an alternative?
Thanks to P.S. for addressing this very unfair issue. Perhaps a trading tax expert (like Ted Tesser) can
address this unfair tax situation.
"I Like (S.A.T.) Tapes & Manuals
Much Better Than A Seminar" - D. M.
Just finished reading the latest issue of CTCN. Enjoyed it as always.
The S.A.T. 's tapes and manual mentioned in the last issue definitely have my interest. I take it that the
video will show S.A.T. daytrading the S&P at his home.
I like this tape-manual idea much better than the seminar. I'll bet the tape and manual will have a pretty
hefty price tag. Well . . . you often do get what you pay for.
Editor's Note: Due in a significant degree to our "falling out" with S.A.T., and also to maintain our "blue-
collar" image, the price tag is actually very reasonable, and far from hefty . . . only $877.00, excluding a
seminar. By the way, the videos show Dave Green (not "S.A.T.") trading CTCN's Real Success
methodology at his home office.
I like your new booklet format. This helps keep the pages in proper sequence and looks more professional.
The Club 3000 newsletter was always a hassle to read due to the pages being folded to fit in a standard
Perhaps a more proper name for your newsletter would be Futures Trader's News. Club ???? Commodity
???? Now, as you know, many of the trading markets are not true commodities and that's the reason many
people prefer the term Futures. Club? What's that supposed to represent? One big happy family?
Editor's Note: Thanks Don, it's correct, a number of markets, like the S&P for example, are not really
Commodities but are more accurately referred to as Futures. Thanks to Don and several other member
comments about our name, we are now thinking about using a sub-title, such as "Futures Traders Club".
Can anyone out there think of a better sub-title name for our group? Any suggestions will be appreciated.
Make no mistake about it, (a Richard Nixon phrase) we are all indebted to you and your CTCN newsletter.
You deserve our thanks and our money. If I ever start a newsletter (don't hold your breath) it would be
exactly as I wanted it and I respect your feeling the same way about your newsletter.
I Both Lost & Made Money Without Knowing Anything About the Markets!
Mark Szymczak from Australia
The CTCN letters are very interesting and I enjoy them very much. I first started to trade Options on
Futures on the ASX Index in Sydney Australia. The broker suggested I trade one contract. But when I
started to lose money, I started trading two contracts and sometimes even six contracts to get the lost
money back, but I didn't get the money back.
I started trading again, this time trading Sydney 10-Yr Bonds and I made back the lost money in a few
weeks, and then I was $12,000 ahead and I have to admit I was a bit tired.
Today when I look at my trading, I can say I made money even though I didn't even know anything about
the markets. Now I'm out of the market, but I still trade, this time on paper. I like to trade and I'm going to
comeback to it soon. P.S. I'd also like to take advantage of the CTCN automatic renewal and save $50. I'm
sorry I'm late in renewing my membership.
How Does S.A.T. Enter The Market
So Successfully? E.B.C. from Dallas
I have a question that is important to many daytraders. S.A.T. has explained many details of his system, but
he hasn't addressed one aspect. I write in hope that S.A.T. will clarify this problem in a future article.
S.A.T. writes that for a buy signal he waits for a pullback from the prevailing trend, waits for price to
approach the mid-Keltner line and then waits for a reversal bar that thrusts back toward the trend. Then he
enters two tics above that bar. I see only two ways to place the order neither of which have worked for me.
What is wrong?
One way that such an entry is possible is to have a resting (market if touched) stop order at the level of
those 2 tics. But when the S&P returns to the trend it usually does it with vengeance and a rapid advance.
The close of the reversal bar is already near the 2-tick location.
I see the thrust bar completed, pick up the phone, dial, give the order clerk my name, number and order, the
clerk reads it back, and then disappears to go to the floor. By this time the price is usually way beyond the
desired entry level. The result Is usually a very poor fill.
On several occasions the clerk came back to report that the floor wouldn't fill my order because the price
had already passed my order before they got It. Then the clerk said; "What do you want to do about It?" By
this time it was too late.
‚ Another way I could handle this is to wait until I see price touch the desired entry level. Then I can start
the process with a market order. I am assured a fill, but same problem prevails; usually a very poor fill.
So, how do you enter on 2-tics above the reversal day? If S.A.T. (or other knowledgeable daytrader) can
help with this practical problem, I will be very grateful.
Editor's Note: Details like those are explained in the hands-on in-depth series of Video Tapes showing
Dave Green actually picking up the phone and placing trades, both real-time and hypothetical trades.
Using The Moon
to Trade Pork Bellies - Dale Johnson
In reference to Harold Uney's article last issue on trading pork bellies by moon phase, I ran into this system
a few years back. I checked it out again from 1/1/93 to date and except for the current 2/96 contract that
Harold mentioned, it lost quite a bit. Once in awhile it will make good profits, usually on a February
contract, but most of the time it loses consistently.
Anyone interested in different ideas of how to trade by the moon or other astro-trading ideas should
investigate publications by Raymond A. Merriman, 810-626-3034 such as "The Sun, The moon, and the
Silver Market", "The Gold Book: Geocosmic Correlations to Gold Price Cycles" and "Geocosmic
Signatures Related to Financial Markets" and publications by Larry Pesavanto such as "Astro-Cycles: The
Traders Viewpoint" and "Planetary Harmonics of Speculative Markets" and "Astro Harmonics."
I attended a one-on-one training session with Larry 3-years ago and it was excellent. Larry trades full-time
using Elliot Wave, Fibonacci, Astro-Harmonics and other elements.
Frank A. Taucher, Market Movements, Inc., 918-493-2897, uses an astro based "Pesavanto Index" in his
annual Supertrader's Almanac.
As John Pierpont Morgan reportedly said, "Millionaires don't use astrology, billionaires do."
My New Computer Needs More Ports & Many Systems To Investigate -
I just set up a computer to start doing my trading and analysis via computer. I purchased the biggest and
fastest computer I could find, but no one ever told me I might have problems trying to attach too many
devices and should get the computer with a "Skuzzy Card." This would have given me more possibilities of
sharing Serial Ports and IRQ Interrupt Results.
All together my power backup, internal modem, printer/scanner, and sound card require more IRQ than are
available in the Windows 95 system. If I had purchased it with a Skuzzy Card, and purchased a
printer/scanner that could run off a Skuzzy card, I would not have had to sacrifice my sound card and
would have had room to add more devices.
I am currently investigating more than 40 different trading software programs, and hope to report on my
At this time I would enjoy receiving opinions from others so as to the usefulness and comparisons of
various IBM compatible software programs specifically for a trading desk/platform/station. A place to
manage trades, portfolios, total equity, and data on a dairy, auto update basis, as well as to integrate various
programs that perform technical analysis studies.
The Times They Are a Changin'
Do you find your discovered head and shoulders patterns failing more often than not? Do your breakout
methods seem more determined to break your bankroll? Reversals not reversing - Seasonals on vacation? In
the world of commodity trading, I believe the times truly are changing, especially for those of us who
employ technical analysis techniques in our trading methodology.
The use and value of time-held chart and pattern analysis remains a forum of great and fierce debate. I am
not interested in this intellectual entertainment; I only want to win in the markets.
To this end, I am a surviving old school chart technician, who was a chart analyst back in the days when
being a chart analyst wasn't cool. Back then, peers liked us to astrologers, and might joke "There's Bob, he's
a head and shoulders with an ascending wedge rising!"
As I have suggested in previous articles, the commodity markets are fluid and dynamic, therefore the
aspiring trader must strive to accommodate change. This article will examine some of our beloved patterns
and offer some suggestions as to how a trader might wish to speculate on them.
To this end, let's hypothecate that some major patterns don't work like they used to. Further, let's assume
the markets just don't seem as friendly (they are not!). It's never been easy, but now there's some real sharks
out there, and they have very deep pockets with which they push and pull on price action, which often
results in whipping the little guy out just before the real move. The fact is, these larger interests know what
you're looking at and can relatively easily identify where your stops probably are both ways (in & out).
I could even proffer some debate supporting that they intentionally feast on our (little guy) stops. But that's
not really the point. The point is, if we chose to speculate, then we better address today's realities, and
always attempt to improve our results.
Let's consider some basic technical tools and their transcendence to current markets. For our purposes, we'll
construct our methodological concepts on the hypothetical that the trading reliability of well-established
chart patterns and technically based signals has deteriorated to a 50/50 proposition.
In actual terms, we'll assume a major trendline break, top or bottom formation, range break, or large
symmetrical triangle pattern . . . whatever . . . has no better than a 50% probability of successful (trading)
resolution. Further, we'll hypothecate that the other 50% of occurrences will result in miserable failure (as
is often the case with a failed major signal).
Under this construct, it becomes clear that to profit, the model user must establish a plan that: 1. gets you in
the trade once a signal is given; 2. gets you out of the trade at a reasonable loss if the pattern/signal fails,
and; 3. enters you in the opposing position (reverses) upon confirmation of the failure. To net financial
gains, the profits obviously have to overcome the 50% failure losses plus the cost of doing business
(slippage, commissions and capital expenditures).
At this point, this scenario emerges as a trading equation resolute on trade and money management. No one
in the business will argue against the importance of these issues. So, what can we do to capitalize on our
theory of 50% pattern failure and the ensuing money management demands?
(Note: Charts are not available here on our webtrading web site but are included in th eprint edition of
Let's walk through some strategies together as an example/suggestion.
1. Trading range breakout, buy original break
2. Pattern failure, loss of capital (break-even or worse)
3. Another breakout attempt, must buy again
4. Failure #2, loss of capital
5. Original pattern/signal - failure and converse breakout - sell at least 1-contract, but I like to double up at
this occurrence - usually a much stronger move, and a road less traveled because of discouraged bulls
In this example, the trading range breakout fails twice; a common phenomena. But, to be on board early in
the event of a potentially substantial move, the speculator must enter on each breakout. However, it's at this
point „ when most traders lose faith in the pattern and shop elsewhere for another tradeable event. Their
departure from this pattern (failure) is sometimes at the potentially greatest reward development . . .
specifically, the pattern failure contrary move.
Occasionally, this is a greater move than the original projected move. A possible reason for this is the
necessary covering of other traders who were also wrong footed. Beyond this, there always lies some
perceived fundamental reason for prices to reverse.
Let's examine one more common pattern and I'll share what I like to do when it fails. My example will be a
symmetrical triangle interrupting an established uptrend. Pattern recognition 101 instructs us that this
pattern usually resolves in the resumption of the trend in the direction from which the triangle was formed.
The ubiquitous "however" of chart analysis in this case is that the triangle can actually turn out to be a top
structure in this uptrend and as such the area at which the trend reverses. Many traders ignore trading this
potentially much more consequential event than the original triangle pattern. As an example, we'll illustrate
the symmetrical triangle, and a normal breakout to the upside - but, we'll depict a failure (it happens!), and
what I like to do about it. Here it is:
(Note: The Charts referred to are not available here on our webtrading web site but are included in th print
edition of CTCN)
The triangle was formed in an orderly fashion and it is reasonable for a trader to enter a trade on an upside
breakout (either side really). For our purposes, we'll illustrate the expected upside breakout, and failure as
1. triangle upside breakout and long position established
2. breakout fails and we are stopped-out at a loss. At this point, many traders abandon the pattern -
HOWEVER: now the failed pattern reverses and a downside breakout occurs.
3. on the failure, reverse breakout I like to double my original position (now short) - WHY? - because now
the odds favor that this was actually a top structure, not a continuation pattern, and thus the potential exists
for a much more substantial move.
This action places the speculator in an advantageous position of already being in as the crowd is forced to
cover their existing positions (in line with the trend), thus exerting opposite pressure (long covering). In
addition, you're positioned at the original area of the trend change which may be very fruitful.
For me, taking opposing action on failed patterns has proven rewarding. Part of the reason for this lies in
the fact that it is a case of the most popular cliché of "contrary" action. Additionally, it must be done when
you are already at a loss in that market with that pattern. This makes it very difficult, even offending (your
ego), and thus most probably the right choice.
In closing, let me add that this type of trading behavior I've expressed in this article is also applicable to
Seasonals and even common short-term patterns, like reversal bars.
In the case of Seasonals, it's pretty common knowledge that the most rewarding moves are contra-seasonal.
Just examine coffee '94, cotton '94, or energies '95/96 to see what I mean. Taking advantage of one of those
contra-seasonal moves can make your whole year.
I suggest developing a method or technique to reverse your seasonal trade may be warranted and prove
worthwhile. All it takes is catching one of the monsters on occasion to more than pay for the inevitable hits
we all must take.
In the case of the reversal bar or bars, the fact is a good many, if not the majority, of classic reversal bars
don't reverse. Check it out, and if you agree with my statement, do something about it. Suggestions would
include stricter standards for qualifying a reversal bar(s) , and a trading plan for failures. "The times they
are a changin," and so should your methods as market dynamics require.
Education of A Trader - Kent Calhoun
There are two types of education: learning obtained from books and seminars, and knowledge obtained
from the experiences that life teaches. Formal education may or may not teach an individual how to trade,
but allows the trader to learn from the mistakes of others. This is a good learning experience, since it would
take the trader a long time to make all the same mistakes. Education from real life trading experiences
teaches an individual survival instincts.
The final step to achieve success is to apply analytical evaluation to the actions taken in step three. This
places emphasis on repeating actions that produce the desired results, and carefully examine closely what
does not work. Once the reasons are clearly understood why some technical actions do not produce desired
results, they should be adjusted, improved or discarded,
This basic approach of how to achieve success may leave the reader with the false impression that trading
success is an easy process. Not so. General George Patton stated, "a warrior's greatest asset is self-
confidence." This demands knowing what should be done, and why it should be done. This will be
presented later, when I will examine the reasons that prevent most people from achieving success, and what
can be done about correcting them.
The importance of a positive attitude, the two most important psychological laws, and the four steps to
achieve success have laid the foundation for understanding the nature of personal change, why most traders
lose money, and actions responsible individuals take to correct losing behavior.
The Three Reasons Why Most Traders Lose - One way to change from a losing t reader to a winning trader
is to change the thoughts that preceded the actions responsible for the losses. It is difficult to alter the
habitual thought processes that have embedded themselves deeply in a trader's personality over a number of
years, due to the powerful influence of three intertwined emotions: fear, anger and guilt.
Fear is an emotional state of anxiety due to the presence or perceived presence of danger. (Stress is often
defined as anxiety from an unknown source.) Each newborn child has only two natural fears- fear of loud
noises, and fear of falling. Most fears produce learned behavior to a specific set of conditions, called
conditional responses. Pavlov pioneered this research with dogs in the 1920's, then B.F. Skinner with
human beings and animals in modern times.
Fear often impairs the rational trade decision-making process by emotionally relating the possibility of past
financial losses to the future. Fear often immobilizes the trader's decision-making process resulting in no
trading decision, or a delayed incorrect trading decision response.
Fear will elicit a trader's "flight or fight" response when he is confronted with methodology's trading
signals. The trader will either take actions as demanded by his trading methodology, or remove himself
from the presence of danger. An acronym for Fear may be "false expectations appearing real." Attitudes
determine actions. Traders with positive attitudes have positive expectations, and take decisive goal-
directed trading actions despite fear.
The winning trader accepts the possibility of losses or mistakes, yet has the self-confidence to take action
despite fear. Winners manage fear, and losing traders are controlled by it. The greatest mistake is to fear
making a mistake. Trading success is based on knowledge of what works and what fails. Managing fear and
accepting mistakes are an essential part of the trading educational experience that makes success possible.
Winning traders learn from mistakes, losing traders repeat them.
Self-confidence naturally develops from self-discipline as a trader learns what actions should be taken from
a given set of technical conditions. The more accurately a trader interprets price action, the better his
trading results should be. Thought precedes both emotion and action, yet thoughts combined with emotions
determine actions. Self-confidence comes from believing in one's abilities, assessing and accepting risk,
then taking actions. The winning trader knows personal or financial growth is impossible without risk
assumption, which is part of an educational process.
Only emotionally healthy traders can adequately assume risks, because losses must be emotionally and
financially acceptable to each individual trader. Each trader must define their own thresholds of pain for
each, and develop the self-confidence to accept them. Fear of being wrong may be more important to a
trader's ego than fear of sustaining a financial loss.
In a similar manner, many traders can't accept financial success, because it does not conform to their
negative self-image as a losing trader. There are various ways fear can be creatively used for financial
destruction by the losing trader, but the one common denominator is allowing fear to control trading
It is important to analyze fear and determine its origin to learn why it is being experienced. Most fear is
based on irrational beliefs adopted years ago. If fear of losing money is causing anxiety or loss of self-
esteem, the trader may wish to simply stop trading until this fear is understood and positively accepted as
part of the trading experience. Traders should never borrow money to trade, or risk money they can not
afford to lose.
While fear may immobilize the trade decision-making process due to financial losses that may occur in the
future, guilt may immobilize the trade decision making process due to financial losses that occurred in the
past. Guilt emotionally associates past financial losses, and any negative emotions experienced with them,
to the present decision making process.
Guilt is a form of self-punishment, a recrimination today for something that happened yesterday. There are
two common trading mistakes that the beginning trader makes that often lead to experiencing quilt:
Incorrect price action analysis before entry, and failure to adhere to trading discipline while the trade was
active. These common mistakes often lead to an unacceptable risk-reward assumption before entry, a
delayed incorrect entry price and/or protective stop placements, poor stop re-adjustments, and taking profits
or exiting losses prematurely.
The most important technical aspect of trading is knowing at what price the initial risk assumption is
incorrect. A trader who does not know at what price his analysis is incorrect does not deserve the profits
even if his trade makes money.
Before a trade is initiated, an acceptable trade risk-reward ratio must be defined by the trading
methodology. A protective stop loss order must be placed upon trade entry, then readjusted according to the
trading discipline until the method determines the trade is to be closed.
A winning trader is a winner before the trade is initiated, while the trade is active, and after the trade is
exited regardless of the result to the degree he adheres to his trading discipline. There is no logic-based
reason to ever experience guilt so long as the trader has executed the actions demanded by his trading
discipline. Once a trader psychologically and financially accepts the worst outcome that may occur and
does all he can to prevent it, fear and guilt become intellectually useless emotions.
Anger is a hostile emotional response either inwardly directed, or outwardly expressed towards others.
Anger may result from confrontation with the guilt or fear aspects of the trade decision making process, or
negative trading results. Rational trading decisions are very difficult to make when the brain is processing
anger, due to physiological and psychological reasons.
A trader may choose to ignore a signal due to a recent loss, fearing another loss will result. If the trade
makes money, guilt and or possibly anger is experienced for not taking the trade. Guilt is a natural response
after anger has been vented. If the trade loses money, the trader feels justifiably rewarded for not taking the
trade thus making it more difficult to execute the proper trading discipline required for his next entry
Does this mean there is no subjective aspect to trading? Burton Pugh, who wrote excellent technical
analysis trading commentary in the 1930's, stated "forecasting prices is a science, but trading is an art."
Only a master trader, who can technically justify reasons for ignoring a trade, should override trading
signals. One of the Calhoun Four Automatic Trading Rules, "always look to buy a market oversold into
support," is expecting a sharp currency move mid-Sep 95, and current system sell signals are not being
Resolutions to Solutions of Fear, Anger and Guilt - Four basic actions allow traders to manage fear, anger
and guilt. First, forgiving one's self for past losses. Second, forgiving others associated with past trading
experiences. A person is mentally healthy to the degree he may forgive himself and others. Forgiving one's
self for past trading losses resolves guilt. Third, asking forgiveness of others who may have been injured
from the trading experiences. Lastly, vowing to take full responsibility for all past and future losses.
The four-step resolution process allows any trader to begin to heal emotionally. By intellectually accepting
the past, traders may view their actions with a new positive perspective. The past can not be changed, but
its perspective must be changed from a negative experience whereby the trader sees himself a victim, to a
positive learning experience that will allow the trader to achieve success. Until a trader positively resolves
his past, he will not accept important learning experiences yet believe he is a person unworthy of success.
Resolving the past demands taking total responsibility for it, and personal commitment to not repeat the
same trading mistakes.
Recognizing a problem exists is necessary before resolutions can be examined. Anger is a financially self-
destructive emotion that exacerbates fear and quilt by obscuring solutions to them, while creating itself as
another problem. There is no such thing as justifiable anger related to the trading process. If a trader can
financially and emotionally accept losses, execute proper trading and self-discipline, the powerful negative
emotions of guilt, anger and fear should not become part of or create trading problems.
The relationship of fear, anger and quilt is a very complex subject matter. The psychological problems of
losing traders can not be expected to be adequately resolved in a cursory discussion of this nature, however
all resolution to a trader's psychological problems must consider the key aspects presented in this work.
Once traders make the critical adjustment from a losing to a winning trader, they often come to realize the
psychological aspects of trading being equally important as correct price action analysis.
A degree in psychology may be more valuable than a degree in economics for a professional trader,
because markets are value based yet emotionally priced. Understanding the psychological perceptions of
market traders correlates directly to the what and how prices are recorded for any stock or commodity.
Preventing Future Psychological Trading Problems - There are many successful trading approaches, but all
of them demand the trader develop a positive relationship with financial risk acceptance. Traders to whom
money represents self-esteem or security suffer unduly when losses are sustained, because they see
themselves as being punished by forces beyond their control. Professional traders do not spend time
lamenting the money they have lost, they express gratitude for the many blessings they still possess. Again,
a positive attitude makes the difference between winning and losing, or some cases even heaven and hell.
A samurai swordsman went before an esteemed Zen master and shouted in the temple he wanted to learn
the difference between heaven and hell. The master looked at the samurai and shouted, "you mean they let
a big, ugly fool like you become a samurai swordsman?" The samurai quickly drew his sword raising it
high above the master's head. The master calmly raised his finger and pointed to the samurai's eyes, and
said "that is hell." Slowly the samurai sheathed his sword, nodding his head as he knelt before the master,
placed his hands together then bowed. "And that is heaven," stated the master.
Understanding and correctly analyzing price action is absolutely necessary before trading success is
possible. Yet even with profitable trading methods, traders must develop a positive relationship with
themselves, others and their trading environment before success may be achieved. The professional trader
recognizes no one else may give him success, he must earn it by careful preparation, proper execution of
trading discipline, and careful analysis of trading results.
Trading decisions based on scientific analysis of price action make statistically accurate price forecasts
possible. Placing a protective stop loss order to exit the market at the price the initial risk analysis is
incorrect is the best psychological asset. Even if the trade loses money, the trader adhered to his trading
discipline. Statistically, a trade 60% accurate with payoff equal to losses may risk 5 percent of the total
capital with only a 0.0085 probability of financial ruin.
Failure is a good teacher only to those who possess a positive attitude to learn the valuable lessons from
their mistake. Accurate execution of trading discipline requires a protective stop placement on order to
avoid failure, and diminish the negative psychological effects of fear and guilt. Self-discipline demands
doing what should be done, when it should be done, whether or not a trader wants to do it. Self-confidence
is born from self-discipline, and makes the risk acceptance process acceptable because potential losses are
Developing a positive attitude is essential for human beings to successfully live life and achieve their
maximum potential, since all other higher human values come from it. Respect for truth, honor, dignity,
honesty, integrity, courage, loyalty, patriotism and wisdom is cultivated by an individual who recognize
these values not only enhance the quality of his life, but the lives of all he encounters. His attitude states
others are worthy of these values, just as he possesses enough self-worth to expect them to be returned.
The Green Bay Packers had three very basic plays they ran over 80% of the time. These plays reflected
Vince Lombardi's winning philosophy and he expressed it very simply. "Son, the only thing you can do is
to get off your ass and stop feeling sorry for yourself and do it! Work out your method. Work out your
system, and execute it." Was Lombardi talking about playing football or trading? This simple philosophy
inspired the Packers to two consecutive NFL Super Bowls. Not bad advice to conclude my "Psychology of
Caveat Emptor (Buyer Beware)
The Lessons Continue - R.E.H.
Being new to commodity trading, I was seeking some seminar/course to gain the knowledge to trade
successfully. In my search, I subscribed to the trade magazines and noticed all the ads touting the systems,
methods, gurus, software, etc. for me to trade successfully.
One of the ads which for some reason I can't explain caught my eye. It stated that this trader will teach ten
top methods and even hold the seminar in a nearby town where I live to make it convenient. Well I sent my
money to Mel Peddy and went to his seminar which also promised free software and a phone number you
call to talk with Mr. Peddy to help you get started.
I got a binder full of systems, but no information on how to use them. I got no software and all my phone
calls went unanswered when I had questions.
I now know and should have known to put the seminar money in my margin account. So if your looking for
a magic seminar to get help or information to trade with don't go looking to Mel Peddy for help, cause it
ain't there. Another adage comes to mind - "If it sounds to good to be true, it probably is."
An Improved Rollover Calendar
J.T. Byatt - Australia
I am enclosing for publication the Rollover Calendar I used in 1995. I found the Calendar suggested by
Rick Lorusso (Vol 1, No. 2) useful, but it did not include enough contract months for my liking. I have
included in my calendar all active months. My rationale is as follows:
I base my daily and weekly analyses on the prices of the actual contract I may trade eventually (for
example February Gold). For monthly and longer analyses, I use a Rollover Contract built from actual
contract prices, i.e., containing all gaps at the times of the rollovers.
There have been many arguments for the inclusion of these inter-contract gaps and for their elimination,
e.g., by backward adjustment, forward adjustment, etc. (to produce what to me can only be contracts
containing sometimes highly artificial prices.) By including all active months inter-contract gaps are kept to
a minimum size.
I feel that for monthly analysis (as opposed to daily or weekly) these gaps then not only become less
significant, but they give charts which show both true support and resistance prices as well as an idea of
seasonality. In any case, my final decision to enter a trade will be on daily analysis of the actual contract
(following favorable weekly and monthly analyses).
My rollover date is decided primarily as the date when the open interest of the current active month
declines below that of the next active month.
However, I also look at the gaps between closes and the High-Low ranges for dates around this time and
use common sense to decide on the actual date I will use for rollover. I then simply alter the contract code
(via my Tech Tools program which, incidentally, I find excellent in every way) so that future downloads
automatically update the continuous contract with data for the new active month.
As can be gathered from the above, I do not trade intra-day as this would not be practicable because I have
a full-time job and live in Australia. Nevertheless I will be retiring, I hope, in about 18-months and may be
able to do intra-day trading then. I have noted with interest the possibility of a seminar on intra-day trading
re: S.A.T. . I would not be able to attend, but if any tapes become available I would be most interested to
receive details of them. I wish all readers successful trading in 1996. Let's all continue to try to help one
another via your excellent publication.
(Note: Charts and graphics are not available here on our webtrading web site but are included in th eprint
edition of CTCN)
Must Pull The Trigger To Successfully Daytrade
Play Time Is Over - Don McCullough
Here we are in a new year and my treating the S&P as a spectator sport will have to come to an end. I have
watched more great trades go by than most of you could ever imagine. I have been receiving real-time data
for about 10-months and now have (and should have) a very clear picture of what I must do in order to
Although I have done little trading over this period of time I have learned a lot. My biggest surprise was
how hard it is to take my daytrading signals. I have known about my major signals for about 3-years, but it
has taken a tremendous -- and I mean tremendous -- amount of time and effort to become totally sure of
these signals. I have found that you not only have to know enough -- you have to be enough!
I can now more fully appreciate why it took many pros 8-10 years before they started trading successfully.
There are several conflicts I have had to overcome (still working on many) and there's probably more to
come. Some of these conflicts are as follows:
1. Fear of losses vs. trusting the "system."
2. Second guessing signal vs. decisive execution.
3. At-the-market orders vs. limit orders.
4. Single time increment chart vs. several charts on the screen.
5. Probability of long-term success vs. individual trade loss.
6. Action vs. fear and danger.
7. Comfort vs. positive aggression.
8. Take every signal vs. being selective.
9. Probability vs. certainty. Probability=trade -- Certainty=hesitation.
10. Too late to trade vs. find a place to enter.
11. Trade one market vs. 10-20 markets.
12. Stress acceptance vs. comfort.
13. Accepting losses gracefully vs. trading little and inconsistently.
14. Confident feeling vs. fearful feeling.
15. Feeling worthy of keeping the money vs. giving it back -- and more!
This is not a complete list and somewhat repetitive. My main point is: Conflicts Disable! Ridding oneself
of conflicts Enables! I have a good sense of how the top pro is free to act. Free of most disabling conflicts
and free of disabling fear. What a great feeling that must be! Actually these truths apply to life in general as
well as to trading.
No doubt the above list of conflicts (and more) have been experienced by most successful traders sometime
in their careers. Not only does one have to rid themselves of conflicts, but also of a great amount of B.S.
obtained from books and the like.
In order to successfully day trade in 1996, I will have to put fear aside and, quite likely, take nearly all, if
not every signal. In fact, taking every signal may be the only way for most beginners to begin trading
consistently. I expect being selective, and hence, refusing to take some signals (even reversing) belongs to
the more experienced trader. I can see where even an experienced trader might decide to take every signal
simply to escape the agony of second-guessing each and every signal. If the signals usually come at
optimum points on the chart and the stop loss is close, this might be the most stress free way to trade. No
hesitation, no doubts, just trade in a relaxed, big money coming frame of mind.
(Note: Charts are not available here on our webtrading web site but are included in th eprint edition of
Up 46% for 1995 Thanks to My Scale Trading Method - S.F. - from Europe
I have been following Scale Trading methods for over a year, and am thrilled to bits with the results. Did
you ever read Robert Wiest's book? Nothing has appeared in CTCN about it since Vol 3-8, where I agreed
with much of what Terry Davis wrote.
I am quite sure that I will one day be tested, as he was, with a large drawdown, but I have seen enough of
this system now to believe that I can survive through it, and maybe even come out the other side stronger
because of it. We'll see!
Like Mr Davis, I have been irritated by Wiest's creation of scales in his newsletters followed by ignoring
them completely in the future. This has happened several times this year. However, this has had the effect
of making me think for myself (never a bad thing) and work out my own scales rather than rely on someone
else to do it for me.
Terry Davis is also correct in pointing out that Wiest will blame anyone on this planet for drawdowns in
The Guarantee Account, and he is also correct in pointing out the blame for losses should stop squarely
with him. It is no use blaming "grey aliens" for losses. However, it is also no use me blaming Robert Wiest
when I suffer losses, so I have learnt to analyze why scales do or don't work, and improve accordingly.
(The Guarantee Account is an imaginary account, which Wiest guarantees will return 25% over a year, or
subscribers to his newsletter get their money back. As I understand it, he has been forced to "cough up"
only once in however many years he's been going. Not a bad record). In the book "You Can't Lose Trading
Commodities" by Robert Wiest.
Finally, in his book, Wiest suggests that options trading should be stopped, as they (options) serve no
useful purpose. I cannot quote verbatim, nor can I find the relevant passage without re-reading the book,
but Wiest also says people have written to him with ways to combine scale trading with selling options. He
claims this cannot work in the long-run, and implores readers not to write to him with suggestions on how
it can. I have listened to this wish, and have not written to him. However, I believe I have found a method
which works, and has yielded good profits to me throughout 1995. Wiest is much older than me, and can
therefore rightly claim to have seen a lot more than me. But if I remain "unbitten" through 1996 as well, I
shall start to believe seriously that I am onto a definite winner.
I am up 46% for 1995. If I had stuck to Wiest's methods, I would only be up 28.5%, so clearly selling
options has been worthwhile. Furthermore, I am happy with my life, and above all my trading life, and my
trading is both interesting and fun. Scale Trading alone is rather boring (which is both a major danger and
prime drawback), whereas options trading is much more fun!
I most certainly do not make thousands of dollars a day, but I seriously believe I shall make at least 20-40%
profit more or less indefinitely. Maybe I am in for a rude shock. However, I seriously implore you to read
the book if you have not already done so.
Mucho Baloney - Don McCullough
Just received some literature from a couple of people and it gave me the "urge" for another article. Wish
someone would send me something I felt positive about. I won't hold my breath.
Mucho means much in Spanish and baloney means . . . well . . . you know what that means.
I mailed a letter to a fellow asking him (only) if I could buy the two books he wrote having to do with
trading the markets. What I received in reply was his student entry fee is $5,000 and he requires access to
me (his students) via Internet or other means.
He tells me I will have access to all he has written about his methods since 1979. He mentions nothing
about my being able to purchase his two books. Well, if I could get $5,000 from a person rather than sell
him a couple of books for perhaps $50 each - l too think I'd go for the $5,000!
Evidently, I can forget about buying his two books - that's all I wanted to do. Now here's a guy who's been
trading the markets since (at least) 1978 still feels the need to give seminars and charge "students" a $5,000
entry fee. Is there an exit fee? Seems that after 15 or more years of trading, a guy should not need students
or be running around the country giving seminars. This tends to give me a pretty good idea of how his
trading profits compare to his teaching profits. The books? Now I know I don't want them.
Another "gonna help me make a killing in the markets" offer I recently received started by telling me I was
one of ten selected to purchase the world's most popular futures trading system. Now what a bunch of bull!
A grade school student wouldn't fall for that baloney. As to the system being the most popular in the world
-- how could he possibly know that?
At his incredibly low price, he tells me he's only "authorized" to sell ten systems at this time. Hard for me
to see how a guy would think potential customers would be stupid enough to swallow this kind of pitch.
Guess I've been lucky. Over the past several years I have received a lot of stuff like this through the mail.
How so many complete strangers can have my best interests at heart and want to help me so much is . . .
well . . . what do you think?
All of you ad copy geniuses can feel free to remove my name from your mailing list. I've been helped so
much, I feel guilty.
Comparing Trading to the Game of Baseball - Don McCullough
Like S.A.T., I too am motivated to write these articles, to a significant degree, to help me clarify the various
aspects of my own trading. If what I say helps others, good. My main concern is the "truth-action-dollar
Suppose you are a professional baseball player and you are "at bat." Further, suppose every time you swung
at the ball and missed you had to turn around and give the catcher $10,000. And, suppose you had to wait
one to two hours between pitches never knowing when the next surprise pitch would come roaring toward
That's a somewhat playful analogy of what daytrading the S&P 500 is like. Let's say the professional
ballplayer makes 2 million a year while the average trader makes $50,000. That would make his $10,000
loss equal to the average trader's $250 loss on one contract. (I am not striving for a perfect analogy in this
article, only a meaningful one).
How successful do you think the pro baseball player would be if he had to play in a game with the above
rules? Can you imagine the negative emotional impact he would experience if he had to give the catcher
$10,000 every time he swung and missed the ball? Can you imagine the negative emotional impact of him
waiting an hour or longer between pitches and never knowing when, during that time, the pitch would
Some of what I've just said might be overstating things somewhat, but there really is some truth to it. The
daytrader watches and experiences the very real loss as it's occurring. His mental goal is to not let the loss
bother him and to be positively ready for the next signal. The daytrader very often has to wait a very boring
1 to 2-hours between trades never knowing what kind of trade it will be or in what way the market will try
to fool him and do the unexpected. The trade you just took may be the sucker trade and the big move may
suddenly be in the opposite direction.
One very big difference between the professional baseball player and the average trader is the ballplayer
has years of actual playing experience while the average trader has very little actual trading experience --
especially when compared to the professional traders. As S.A.T. says, "You learn trading by trading. Real
trading in the real market." How many traders really have the time or the money -- and yes, the
determination to accumulate the experience needed to become successful at daytrading?
There is a very real emotional hurdle to daytrading that has to be experienced to be appreciated. Decisive
action in a very uncertain environment doesn't come easy!
Yes-er-reeeee, I'll bet the batting averages of the professional baseball players would drop considerably if
they had to turn around and pay the catcher $10,000 for every missed ball.
Money Management Method Based on Las Vegas Horse/Sports Betting -
Part 2 - Tom D'Angelo
In my first article, (Vol 3-8), I described how traders can utilize the Profit Center technique of business
organization in developing a personalized money management plan, specifically tailored to his style of
trading. Now I will describe the reports I create and how I use those reports in developing my personalized
money management plan.
In my final article, I will tie all the statistical reports and calculations together into three management
1. The Performance Report
2. The Trading Plan
3. The Trade Journal
The Performance Report is the summarization of all the important statistics for each Profit Center and is
designed for the trader who desires to attain a professional skill level in the discipline of money
The information from the Performance Report is then used to complete the Trading Plan. The Trading Plan
is the trading strategy for the next trade in that Profit Center.
The Trade Journal is an "after the fact" critique of the Trading Plan after the trade is completed.
In my last article, I described how to file these reports so that the trader is managing his trading in
professional, disciplined environment.
Before reading on, be warned that this article is geared for the serious trader seeking long-term profitability
and a professional skill level of trading expertise. Those looking for trading systems or the latest system fad
are best advised to save time and skip to the next article.
I create the following nine reports for each Profit Canter. These reports are created by my software called
The Manager which was reviewed in 3/95 Futures magazine. Each report displays an important money
management concept and contributes to my decision as to: 1. if I will trade that Profit Center and; 2. how
many contracts to trade if I do decide to trade that Center.
1. Drawdown Analysis - $ drawdown and % drawdown is calculated after each trade. Every trader
(successful or unsuccessful) is in a drawdown mode at least 85% of the time. This creates psychological
problems since a successful trader feels he is always losing money even though he is a long-term profitable
trader. Real-time monitoring of the drawdown situation currently in effect for each Profit Canter is a major
factor in overcoming the psychological problems inherent in speculation.
2. Series of winning and losing trades - Calculate the consecutive series of winning trades and losing trades
and the $ won or lost in the series. For example, a trader has the following five trades, +500, +700, +200, -
100, -600. He has a series of three consecutive winning trades and a total of $1400 won in the series
followed by a series of two losing trades with a total of $700 lost in the series.
Having a history of consecutive winning and losing trades is the second most important piece of
information in the trader's money management plan. The trader must have some type of idea what to expect
concerning the worst series of consecutive losers and best series of consecutive winners.
Having this information will assist the trader in preparing for the inevitable future series of consecutive
losers since he will know what occurred in the past and can be psychologically prepared for its recurrence
in the future.
3. Optimum number of contracts to trade - Formula found in Ralph Vince's book Portfolio Money
Also calculate % of bankroll required for margin and % of profits in that Center which will be lost if you
are stopped out of the trade.
Trade close to the optimum in profitable Profit Centers with up-trending profitability (you will also require
graphs to determine the trend of the profitability - see my next article). Trade less than optimum in
profitable Centers with downward trending profitability. Do not trade unprofitable Centers.
This subject requires deeper explanation which I will attempt to perform in my next article. Knowing when,
where, why and how much to trade distinguishes the professional, confident, successful trader from the
95% floundering novices who will inevitably go broke.
4. Pessimistic Return Ratio - Formula found in Vince's book mentioned above. Calculate after each trade
for each Profit Center. Excellent measurement of profitability.
5. Centers comparison - I generate a report which instantly compares any four Profit Centers I select,
displaying the following statistics:
Beginning Capital - Net profit or loss - Current capital - % winners - % losers - Average profitable trade -
Average unprofitable trade - Ratio average profitable trade/Average losing trade - Largest winning trade -
Largest losing trade - Standard deviation - Kelly percentage
Hint - If you establish different trading systems as Profit Centers, you have an excellent means of instantly
comparing four trading systems.
6. Percentage analysis - Calculate total profit and losses in a Center and then determine the % each winner
or loser was of the total profits or losses. For example, a Center has two winning trades, +500 and +300.
Total profits are $800 in the Center. Trade #1 comprised 63% of profits in the Center (500/800) and trade
#2 comprised 37% or profits in the Center (300/800).
Some Centers demand consistency in trading results, winning or losing the same amount on each trade
(example - daytrading system where one tries to obtain the same dollar profit or loss on each trade).
Percentage analysis reveals your success or failure in achieving consistency. If you're consistent, all
percentages will be about equal. Excellent measurement of trading performance for daytraders who attempt
to realize the profit or loss on each trade.
7. Portfolio construction - Sorry, I can't explain this concept in a few words. Basically, I select commodities
in various Centers in which I have a positive Sharpe Ratio and then create a new Profit Center composed of
these commodities. I select the best of the best and put these commodities into a separate Center (portfolio)
and then establish a bankroll for that Center and then trade the Center. This ensures I'm taking trades in
areas where I have been very profitable in the past. Great confidence builder.
8. Statistical Analysis - I calculate the following statistics after each trade for each Profit Canter. The
statistics are eventually incorporated into my Performance Report:
A. % Profitable Trades
B. % Unprofitable Trades
C. Average Profitable Trade
D. Average Unprofitable trade
E. Ratio Profitable Trade / Unprofitable Trade
Risk Management -
A. Unprofitable trade as % of Capital
B. Profitable trade as % of Capital
A. Profit Factor
B. Expected Next Trade
C. Pessimistic Return Ratio (Mentioned above)
Operating Efficiency -
A. Trade Tracker - My simple invention. Divide last profitable trade by current average profitable trade. If
last profitable trade was $500 and the average profitable trade at that time was $250, the Trade Tracker
ratio=500/250=2.0. Perform the same calculation for losing trades. The ratio for profitable trades should
ideally be above 1.0 and increasing. This means you are taking profits greater than you average profit. The
Ratio for losing trades should ideally be below 1.0 and decreasing. This means you are taking losses lower
than your average loss.
Great info when displayed in graph format with 1.0 marked off as the boundary line.
9. Sort trades - I sort my profitable trades from biggest to smallest and print out the report. I can instantly
see the range of my biggest to smallest winners for each Profit Center. I do the same for losing trades. Very
handy info to have.
Some of you may recognize the basic thrust of the Money Management plan is to: 1. distinguish a positive
expectation game (Profit Center) from a negative expectation game (Profit Center); 2. Play only positive
expectation games and; 3. structure bet size (number of contracts to trade) according to trend of
1. Sorry if I couldn't go into depth regarding some of these concepts, but there obviously is a space
limitation. Contact me and I will send you a free book with the reports. Call 1-800-666-3930.
2. Next article, I will describe the money management statistics I graph and how I use the graphs to
determine when, where, why and how much to trade. I will also attempt to tie everything together into the
Performance Report, Trading Plan and Trade Journal.
3. If the above methodology sounds like a lot of work, I felt the same way myself until I realized that
without this type of analysis, the chances of achieving long-term success in speculation is close to zero.
4. If you would like to know the most important ingredient in achieving long-term success in speculation,
read Marty Schwartz's answer to the question "Is there anything to add to that list" found on page 275 of
the hardcover of Market Wizards by Jack Schwager.
5. The concepts described above were obtained from and work extremely well for professional sports and
horse players in Las Vegas. The same techniques apply to speculation. I don't argue with success.
Which Is Best - Omega SuperCharts
or Equis MetaStock?
James Mitchell would like input on whether to purchase Omega's SuperCharts vs. Equis MetaStock. I plan
to download tic data after market hours for analysis and trade ideas. Contact me via CTCN. I would
appreciate input on the most reliable sources for after market hours tic and daily data.
Editor's Note: Many other members have also asked this question. These two products are by far the two
most widely used "toolbox" type programs utilized by CTCN members. That's according to our Member
Response Coupons. It would appreciate if members would also give feedback on these two popular
programs via publication in our next issue.
How To View Omega EasyLanguage Functions - Lowell Huber
Here are some instructions for viewing Easy Language built-in functions at your workstation or PC. Like
Tom Dyste pointed out in the last newsletter, they show many valid coding techniques.
1. Assuming your in Windows, click on the file manager icon.
2. Select (click) on the drive you have your Omega directories or files on - usually C.
3. Click on View, click on Tree & Directory.
4. Click on C:\SC\BIFUNCS in the left half of the window.
5. On the right side of the window you will see a directory with boooo.asc type file names. Each file
contains a built-in function.
6. Click on File, click on Associate
7. Under Associate With: Click on Text File (Notepad-Exe) click on OK
8. Now double click on one of the boooo.asc type files and you will be viewing an EasyLanguage Built-in
function. Note: be very careful not to alter and save any of these functions under the same name unless
you're very sure you know what you are doing.
P.S. Your newsletter is great, keep up the good work.
Help With Trend Following -
Trend following is the basis for many trading systems. ADX, trendlines, moving averages, etc. may be used
to decide whether any market is trending or trendless. Two weekly publications have also been a big help to
me recently in this area. Ken Jechusen's Chart Insight and Glen Ring's Trends in Futures point out that
analysts design systems, but traders like them can help decide which trades to actually enter, exit or reenter
and when. This type of information can make any system work better.
There is a Tech Analysis Assn For
Dallas Area Traders - David Slavik
This is in response to Gerald Barrington's request for info on a Market Timing Group in Dallas, re: CTCN
Vol 3, No 10, p 20.
I belong to a group called The Association for Technical Analysis that has approximately 160 people attend
our scheduled monthly meetings - September thru May each year. In April we hold a seminar that lasts all
day. This past May 95, we had the following speakers at our seminar: John Murphy, Larry Williams, John
Bollinger, Dr. Elder, Jim Paul and Mark Leibovit.
In addition to our regular meetings, we have three special interest groups that meet once a month. These
groups are: 1. Indicators; 2. Mutual Funds and; 3. Psychology of Trading.
The address is as follows: The Association for Technical Analysis, PO Box 121780, Arlington, TX 76012 -
Vice President/Membership is Randy Tareilo 817-265-9243
We have members throughout the Dallas/Ft. Worth area. Our meetings are held at the Harvey Hotel in
Opinions on Ken Roberts, Lind-Waldock, Omega & Developing &
Following Your System - Richard Hollyday
Hey Great Newsletter! It has been a lot of fun to read and learn from. The nicest part is that a broad cross
section of people are represented, so whatever your style of learning and whatever your level of knowledge,
there's bound to be something of interest to you every issue.
I am a new trader. I opened my first trading account this week. I feel that the transition from student (which
all of us are) to trader (which fewer of us are) is significant enough to warrant documentation for the
benefit of "future" futures traders out there that are either afraid to start, saving up to start, or just studying
futures trading as a hobby and may not ever actually trade.
Ten years ago I sent for Ken Robert's "World's Most Powerful Money Making Manual." I read it,
understood it and was hooked. Unfortunately, I had neither the confidence nor the capital to begin trading
then, even though Ken said all you needed was $800.
Just as well because if I had the money, I would have lost it using his methods, but it gave me a basic
understanding of how a futures market works and how money can be made or lost quickly. No activity
occurred for the next 6-years, but the occasional Futures Magazine kept me interested. After getting
married, digging my way out of debt, going to engineering school, and working two years for a high tech
firm, I am finally in an emotionally and financially healthy enough place to consider trading for real.
So, I bought the mags., contacted system sellers and got lots of sales calls and junk mail. I quickly realized
that if not careful, I could be taken. On studying one of the many free price charts I received daily in ads, I
discovered a simple signal on every chart that when developed into a simple system would be the basis for
Developing your own technique is the only way to go. Believe me, your ideas are NOT "too simple," or
"not professional." Your ideas are eventually going to be the only ideas that you will ever really trust with
your own money. You would rather lose all of your money trading your own system than trading someone
else's, right? Especially if you don't even understand what their's is doing with your money.
Your system is good enough, and the rewards for trading it successfully will outweigh the initial
development pains. Testing your own systems are fun, not paranoid as testing a canned system must be lest
you get taken.
I chose Lind-Waldock because they have a good program for beginners called Intro-Account. They have all
kinds of resources for new traders that will make you better, faster. They are also marketed well, with no
typos or misleading statements in their written materials. I know that they're a commission factory, but they
seem very professional and commissions are reasonable ($16/daytrade/MidAmBonds/live quotes).
I haven't placed my first trade. I'm practicing first with my DBC Signal (cable TV), TradeStation, and data
from MidAm. I will trade T-Bonds at MidAm. My trading system is just about breaking even now after 2-
weeks of real-time practicing.
The message I write most often on my scorecard is "follow the system, dummy." It is tempting to "go for"
every little twist of price change on the screen, but you will lose every time, if you divert on a whim.
My system was tested on CBOT T-Bonds tick data, which is a much better market for my system, but I
want to try a few low cost trades, to break even or make a little profit at first. I can make more mistakes per
dollar with MidAm bonds than CBOT. S&P 500 index futures are the end goal for their smooth price
movement (due to high volume), and terrific profit potential per day.
Omega's customer and technical support are still lacking, but the program is awesome (not so with my
previous SuperCharts 2.1 - full of bugs). DBC Signal service and people are perfect. My Gateway 486-
50Mhz is a good computer and I'll buy another Gateway when I need one, not yet. More detail on my
progress will come. Wish me luck! Questions and friendship are welcome: FAX 919-787-6852.
Editor's Note: Judging by the complaints your editor receives, I would have to agree with Richard about
Omega's Customer Support needing improvement. The major problem seems to be simply getting thru to
them in the first place and then getting them to get back to you with the answer to your question. However,
their products are rated excellent by most everyone I have spoken to.
Searching for The Holy Grail - None of the Top-Ten Systems
From 1-Yr Ago Are in Top-Ten Now - Ernest Goldstein
It has been a very interesting and informative year of getting CTCN. Being a system trader I have noticed a
pattern that has developed in the letters written by members that is quite interesting. The greater majority of
us are seeking the HOLY GRAIL system that will give consistent winners and big profits. We hungrily
send for the latest and newest system offered even though all the ones we purchased in the past have not
lived up to expectations or are complete failures. On the Omega Web Site there is a big battle going on
between Dowling & Chalek. Each declaring they have perfected the same system that is the best ever. They
are taking each other to court over the rights to see who can market it. Who even knows if the system is a
viable one and can make the profits they proclaim.
Those who have written in to say that they do have the perfect system end-up with a caveat. They say they
have taken many ideas from other systems and more important than that claimed they have infused their
own personality, philosophy and psychology when they make a trade. It is not a pure system that everyone
doing it will come up with the same answer.
I checked the listings of the top-ten systems of a year ago by Futures Truth. Not one that was listed then is
in the top-ten today. I would like to trade for a living and work as a sideline, but until that right system
comes along I will keep looking along with the rest of you.
How To Capture Signal Data Using CIS Software - Barry Frost-White
In the Oct/Nov95 issue, Mr. George Moldenhauer expressed frustration trying to capture single session data
for multi-session futures using DBC Signal. I received a flyer from Coast Investment Software, located in
Sarasota, FL (813-346-3801), regarding their solution to this perplexing problem.
CIS has developed two programs to help in this area: LOTUP and CAPTURE. CIS states that LOTUP is
designed to update daily historical files from the Signal receiver. You can download prices of tradables up
to twice daily and the process is fully automatic. You select the times you want LOTUP to collect quotes. It
recognizes and ignores weekends, so you won't get multiple entries of the same data. The program works
even if you are on vacation.
The outcome is that you create a time bracket for your instruments and that is what is recorded as open,
high, low and close. Other sessions are ignored.
LOTUP loads the data collections on its own into the Signal receiver. The output is in CIS Microsoft
binary format and can easily be converted into ASCII or the newer IEEE format for many Windows based
CAPTURE monitors tick data and creates batch files in 5, 15, 30 and 60-minute bars. It does not save the
ticks themselves, just the 5-minute and larger bars to save disk space. Again, the user selects start and stop
times for the data collection.
LOTUP and CAPTURE sell for $99 each and discounts are available if other software from CIS is
purchased. I'm told that these programs have been used by traders of futures, stocks, indices and mutual
funds for years.
Thanks "S.A.T." For Your Enlightening Concepts - Ca Ley Wong
I have been following your articles with great interest, and I would like to thank you for making it clear to
me something that I have suspected all along: that success in the commodities market depends entirely on
one's psychological makeup. Thank you for this enlightening concept.
I appreciate you sharing this, even though you stated that you have no tendency to be an educator. I also
appreciate the fact that you didn't market your system, as other gurus or system writer who would take
advantage of the immense market composed of traders with "weak" psychological makeups. S.A.T., you
have told us that the answers are within, that we have to master our own relationship with self!
I'm glad you've taken a long vacation. You surely deserve it and you are an inspiration to us who want to
make it as consistently as you. I was wondering if it would be possible for you to share more about the
psychological makeup of successful trading, because you have great experience in this area.
Can you compare your state of mind of 5-years ago, and your state of mind now that you are consistently
successful? What makes you take the signals now and not before? What did you tell yourself before when
you didn't take the signals and what do you tell yourself now, to take all winning signals?
What did you see before that made you get out of a winner as soon as you saw a little profit, and what do
you see now that makes you get out of a winner with the most profits? What makes you place a stop now,
and what prevented you from using a stop then? What types of self-talk, self-visualization and gut feelings
you had then, and with what kind of self-communication you used to replace those? What specific
differences do you see in your friends (who despite learning your system, aren't successful) and in yourself?
Any other beliefs you would like to share? We appreciate you sharing your valuable experiences.
Editor's Note: These issues are addressed in CTCN's video tape series and our trading manual. We are
now accepting orders for them, but please hurry.
Software Review: CATS
Crossover System - Sam Jackson
This software program, which requires Windows 3.1 or higher, uses moving averages to try and catch
trends. I first learned of it on Prodigy, when the author began posting the trades he planned to do the next
day based on its signals. CATS Crossover System measures the 4, 9 and 18-day moving averages, and
issues buy or sell signals based on the crossing over of the three averages.
While using moving averages to detect trends is certainly not new, it's a method that worked well in
trending markets over the years. What CATS Crossover System does for the user is apply a few simple
price closing rules as filters to the moving average system to cut down on whipsaws, and more importantly
it automates the whole process.
The program will read data in a variety of formats (MetaStock, CSI, Tech Tools, etc), and it has the usual
look and feel of all Windows programs. The manual is well done, and installation is simple. It will compute
signals on any number of markets or contracts you desire.
I have mine set up to check 30 contracts, and it takes about 2-minutes to produce a chart showing whether
to buy or sell tomorrow at the open, and where to place stops. As the trades progress, the program
automatically moves the stops, tells you to remain long or short, or tells you to exit a trade if the trend
seems to be faltering.
From my limited 3-month experience with the program, it has worked well. When a trade isn't working, the
stops seem to be set in such a way as to keep losses relatively manageable (about $200 to $500 or so per
When a trade is working, the stops move up to protect profits, but in my opinion the stops sometimes are a
little tight and should be overridden. It gives on average, about 5-6 signals a week in the markets I have it
check each night. Of those 5-6, I may end up with about one trade a week on average, due to my imposing
an additional optional filter that's mentioned in the software's manual.
For those who desire to have a simple, easy to run moving average system, this is worthy of consideration.
According to the authors, it has back-tested well over the years, even without using any filters. According
to my trading it in real-time during last 3-months, it appears to be living up to its promise.
Jake Bernstein's Seasonal Trader's Bible Review - Harold Uney
Jake Bernstein's "Seasonal Trader's Bible" should be on every trader's desk. Jake has produced the authority
on seasonal trades. The years covered are sufficient to produce seasonal trade information that's as reliable
as seasonal trade information can be.
Jake suggests you use your own favorite system to filter or pinpoint seasonal timing. He is not in favor of
using seasonals on their own as a trading system.
For instance, my proprietary S&P trading system signalled a buy of Dec. S&P's for October 27-Jakes's high
profit/loss ratio seasonals "Buy - Enter 10/26 exit 11/2 stop 200 points." I bought on 10/27 at the opening at
578.60 (used my system stop of 573.00) and sold at 582.00 (market was showing resistance) for a $1,700
The power of Jake's Seasonals is that they are not based on coincidences, like some other seasonal studies,
but on logical pricing at a particular part of the year. I certainly recommend the book.
Advice Addressed To Traders Who Don't Make Money & Help - Steve Benger
I've been a CTCN subscriber since 11/93. Having read numerous articles, I would like to express my thanks
to all of them. Obviously CTCN offers plenty of information which might or might not be useful to reader.
I would like to cover one aspect of this information "pipeline" which has rarely been addressed. At least not
to my knowledge. The following is addressed to the traders who do not make money.
First let us examine your mental framework. I state that you became a CTCN member, because you want to
make money in the markets. In my opinion this should be the driving force behind your doing it all times
when you get involved with them. If you honestly disagree, take my advice: do not even try to trade!
Until you succeed and make money, you will experience pain, feel uncomfortable, and will go through all
levels of emotions you know from your real life. And the most important thing: you will loose real money!
Well, this does not sound very promising, does it? Why would you like to go through all of this? Obviously
it is much easier to listen to someone else's advice. And that is the problem. All of you are looking for the
Holy Grail of trading. The problem lies in the fact that there are numerous ways which will lead to success.
CTCN offers insights into these ways. Unfortunately (for you) it is left up to you to decide which way to
go. Most of you have failed in the past and will fail in the future because of the lack of determination to
cope with the unpleasant and the pain through which you have to go in order to get the conviction that you
It seems much easier to start with a trading strategy being delivered via CTCN or any other source and
change over to another one, if the old one does not work. Your problem might be that you have too many
ways to go, or just too much information and your current knowledge does not enable you to determine
which piece of information is important to you and what you should forget.
Try to take any failure as an investment in your future. Realize that trading is a serious business. Imagine a
business man who is not prepared to invest in a new company, not prepared to put the invested capital at
risk. You have to be prepared to risk something, money and your beliefs!
Be prepared to lose a battle and accept it as normal, you want to win the war. Always realize that you have
to fight for your success. Very rarely it is being given to you as a present. Understand that you have to think
as a trader before you will trade as one. Finally try to make up your own mind about what I am saying here.
Do not trust me, try to assess yourself whether the above makes sense or not. If one of you saves money
because of my article, it has already made sense.
Two Popular Ways To Report Max Drawdown
One Is Much Easier To Take Scott Caldwell
Maximum drawdown is a very important figure which is normally reported as one of the factors in
analyzing a system by historical testing software. It is generally defined as the greatest decrease in equity
at any time during the testing period under consideration and it is usually reported both in terms of actual
dollars and as a percentage.
Only recently have I begun to realize that various testing software programs differ in how they report this
figure. The two biggest variations seem to center around whether or not the maximum drawdown figure is
based on closed trades only or on both open and closed trades.
Open and closed trade calculations: When maximum drawdown is based on open and closed trade equity it
will tend to vary every day that any trades are in progress. The benefit of this figure is that it monitors daily
fluctuation in equity throughout a trade or a portfolio of trades. The limitation of figure is that it counts
losses of open profits as actual losses.
For instance, let's say you are trading a system and you currently have open trades in 4 markets: JY, SF, BP
and DX. All the markets are moving well and you have a current open profit of $5,000 per market or
$20,000 total. Then, as it often happens, the markets move against you and your long-term system doesn't
get you out until you have lost half of your open profit. So, you exit the 4 trades with $10,000 in profit.
This would be common of many long-term systems which allow a market to move a large amount against
you before exiting the trade as a tradeoff for giving the market room to stay in the major moves.
The problem is that these 4 profitable trades will be reported as a $10,000 drawdown since you had a
$10,000 loss in open equity. If this period were immediately followed by an extended period of closed trade
losses totaling $10,000, those total losses would be added to the previous open profit drawdown of $10,000
to arrive at a new figure for maximum drawdown of $20,000. In this case half of the maximum drawdown
figure would represent actual closed trade losses and half would represent decrease in open trade profits.
Closed trade calculation only: When maximum drawdown is based on open and closed trades it will only
vary when your system exits a trade. The only factor taken into consideration is the affect of actual closed
profits and losses.
The limitation of this figure is that it does not tell you anything about open equity when you are currently in
trades. The benefit is that it reports the important maximum drawdown figure only on the basis of actual
Let's look again at our above example where you were currently in 4 trades in 4 currency markets. In that
scenario the system would report a $10,000 profit and 0 drawdown since you actually made money upon
exiting the trades and you did not actually lose any money.
Personally, I am more interested in knowing the maximum drawdown based on closed trades since that tells
me the greatest decrease in capital I could have had if I had started trading at the worst possible time,
although it's true, drawdown figure will change even over the same testing period depending on when you
start the test.
There is a vast difference in going through a drawdown of $20,000 in actual capital and in going through a
$20,000 drawdown in open profits that ultimately ends up as a profitable trade. Also, there is a big
My complaint with reporting maximum drawdown as a percentage is that it is usually based on the greatest
percentage decrease in equity at any time during the testing period. This would often include equity based
on open and closed trades which I have already given my opinion concerning.
The other problem here is that it is a figure that is based on the current equity which begins as the initial
start-up capital and by design it will almost always identify the greatest decrease in equity by percentage to
be in the earlier years of a test. This stands to reason since equity will generally increase over time with a
If you begin with $50,000 in capital and immediately have a $20,000 drawdown, then that number
represents a 40% drawdown. However, if you initially have some profitable trades and ultimately double
your capital to $100,000, the same $20,000 drawdown now only represents a 10% decrease of your capital.
It ends up telling you more about how early in the testing period a drawdown occurred than how large it
Personally, I'd rather see this percentage refer to the same maximum closed trade drawdown period which
the dollar figure drawdown refers to. My own spreadsheet calculations, if correct, indicates a closed trade
max drawdown will often be much less than open trade max drawdown.
One system I compared had an open trade maximum portfolio drawdown of approximately $47,000 and a
maximum closed trade portfolio drawdown of approximately $39,000 or 17% less. Another system had a
open trade maximum portfolio drawdown of approximately $36,000 and a closed trade maximum portfolio
drawdown of approximately $16,000 and represented a drawdown which was 56% less.
The difference in these numbers could make the difference in a trader deciding whether or not to purchase
or trade a system. Also, the method of calculation of maximum drawdown based on open trade equity
might tend to encourage system developers to design long-term systems to exit trades quicker in order to
limit open trade drawdowns which may ultimately be to the detriment of overall profitability.
There are obviously benefits in knowing maximum drawdown based on both open equity and on closed
equity only. So, why shouldn't both be reported by testing software.
Numerous figures of performance evaluation are normally included in testing summaries and it would not
seem hard to include one more that is particularly important. That way you would know both the greatest
decrease in open trade equity at any time during the testing time frame and you would know the greatest
decrease in actual money lost in closed trades.
I would be interested in hearing or reading about the opinions of others relating to this subject. Contact
Scott Caldwell via CTCN.
Here Are The Addresses of Popular Internet Directories - Alex McCallum
Here are the addresses of a number of well-used directories on the Internet, including financially oriented
ones: 1. Every single one of these URLs should be preceded with http:// 2. http:// is the starter for every
Web address, so it has become common usage not to include it in conversation and other interpersonal
communications. 3. Some addresses may have a slash at the end. These are redundant. When you enter the
address, it works whether you put in the slash or not.
Dave, I'm interested, if you are, in carrying a selection of your articles in INO's MarketZine.
Editor's Note: Alex McCallum is affiliated with Investment News OnLine (http://www.ino.com). CTCN is
establishing a Web Site and Home Page with Investment News OnLine. It should be operational soon.
(Update: Our new web site address is www.webtrading.com)
At first, we wanted to go with Joe Esposito's ison.com. In fact, ISON had first contacted us about going
with them. However, it turned out for some odd reason they seemingly did not really want the business.
They failed to answer our letters, did not return numerous phone calls, and when finally reached (after
many attempts), they were not very helpful and again failed to call us back with their pricing.
Perhaps just as well, as we decided to go with ino.com. We are glad we did as they appear to be much
bigger and better than ison.com. In addition, they are much more helpful and friendly, and have a much
larger clientele of well known futures industry firms. They have clients like Lind-Waldock, the number-one
discount broker, five commodity exchanges, and dozens of other Web Sites related to Futures Trading.
Did D.B. from Australia Really Walk The Talk (like S.A.T. ) or Talk The Walk?
J. Trevor Byatt from Australia
I have read with interest the article by D.B. of Australia (Vol 3 -10). If he is who I think he is (I leave it to
you, Dave, as to whether or not you print this name), then I am hardly surprised he is concerned about the
possibility of flack.
I do not doubt that he has made 4 or 5 million dollars using Gann, but I suggest this was primarily from
selling his interpretations of Gann principles. Now I suppose there is nothing wrong with this per se, and I
admit he did not actually say outright that he made all of this money from trading, but to me he certainly
implied that he did.
It is true from what I have read that he made some impressive and correct predictions, but boy oh boy, did
he cash in on these in the form of very (in my opinion ludicrously) expensive seminars and tapes! Again, I
suppose there's nothing wrong with this if people were prepared to pay his price - I certainly was not, but
that was my decision.
So come on DB, be absolutely straight with us. Tell us your name and let us know (with confidential proof
to Dave) how many megabucks you made from actual trading. There is no need to worry about flack, if you
just tell us the truth.
Ramblings From A Rookie Trader
My first introduction to the futures market was in 1990, when thinking I could get rich quick, I allowed
myself to be persuaded to purchase a silver call option for which I paid an obscene commission. I really
had no clue about how it all worked, I just knew that silver had to go up and that I was going to make some
Of course, my option expired worthless. So for the past 6-years (other than that option experience) I have
been watching the futures markets from afar, always knowing that I would give them a try again. I finally
opened an account in April 1995, and have done about 10 futures trades. My account is slightly in the red,
but so far, I consider my education to have been relatively inexpensive.
What got me off the sideline and into the game was when my uncle purchased one of Ken Robert's courses.
I looked it over and decided to open an account and try trading tops and bottoms, sideways channels, and
some other technical formations.
Well, as you might have guessed, I haven't made a million yet, so I am trying to regroup and adjust my
tactics. I decided relatively quickly that I, personally, would not experience any long term trading success
just by looking at charts and making a subjective bet about which direction the market might go.
The last couple of months I've been researching various methodologies and mechanical trading systems
that, hopefully, will be in harmony with my own psychology and allow me to systematically enter and exit
the market. I intend to follow a system and only apply personal market biases to my money management. I
do not have any desire, at least at present, to day trade, and it would not be possible even if I did because of
my full-time job.
I anticipate that I would be most comfortable trading a statistically based, trend following system, but at
this point, I am still doing research. Another consideration is that I will only be trading about a 10K
account, so I can not afford too many large, sequential draw downs. If at all possible, I would prefer to not
have to "reinvent the wheel," maybe just tweak it a little. Hopefully, I can find an existing system that I can
trade in this manner.
Anyway, that is enough of my ramblings, but I do have some questions that perhaps some of the readers
would be address in future issues of CTCN, and, additionally, I would appreciate it if they contacted me
Is CSI a good data service to get futures and options data from?
Editor's Note: Your Editor has been using CSI for 13-yrs and has found their end-of-day data retrieval
service as close to flawless as possible. In 13-years of continuous daily access, there have been (from what
I recall) not even a dozen or so days when I had any difficulty, or even a minor delay in getting my daily
download via modem. In addition, data errors have been extremely rare and negligible. Also, because it
works so flawlessly, and due to the nature of my fixed portfolio, there's really no need to ever contact their
customer support dept., except in very rare situations.
For your information, you should know Commodity Traders Club has its own downloading portfolio at
CSI. You can download up to 100-markets each night for only $19 per month (pre-paid). As a client of
ours, you too can download our Trendx Portfolio. Call CSI direct at 1-800-274-4727, or 1-407-392-8663,
and mention you heard about this from CTC and Dave Green. Ask for the CTCN Portfolio, also known as
Also, If you make your own trading decisions, is there any benefit or advantage to a full service broker or
broker assisted account over a discount broker? Are the fills any better? Are fills really that different
between brokerages (and FCM's)? Does anyone know where I can obtain a book which I believe is called
The Traders Window by Ed Seykota (or anything else that he has written)? Ed Seykota was the trader that I
most identified with when I read Market Wizards and I am interested in any information that may be
available concerning his philosophies and trading methodologies (for that matter, Ed, if you read this and
have ever considered being a mentor, I would be honored to be considered as a protege).
I am also interested on the pros and cons of granting or selling options as well as any good books and
software programs (is any one familiar with OptionVue)? I would also like to see some members write in
with there opinions on various analytical/charting software such as Omega SuperCharts, Windows on Wall
Street, InvestoGraph, and MetaStock.
Any opinions or observations about Keith Fitschen's Aberration would be appreciated. Finally, I have been
looking for information about the Currency Breakout system that is or at least was marketed by Jurassic
Trading. I have tried to contact Jurassic Trading by mail and by telephone (which is disconnected), but
have been unsuccessful. I believe that they are out-of-business.
Anyway, any thoughts. suggestions, or responses to any of the above subject matter would be welcomed
and greatly appreciated. Contact via CTCN.
Odd's n' End's From C. J. Casebeer
I sure do like your newsletter (booklet) format. Sorry I was late in renewing my membership.
In the Oct/Nov issue there was a lot of tidbits of valuable information from various members.
I would be interested in George Harrison's approach that is based solely on market action. But maybe it's
Terry R. Davis is on the right track to test a system with soybeans. What a dog to trade is sure true to me.
I guess I did a bum job in spelling Trend Master author's name. It is Ken Zinke, not Friske. I have a habit of
putting a dash through the Z, to emphasize it is a Z rather than a 2. Now for comments on the Dec/Jan 96
Even though S.A.T. is a daytrader, he sure has come to many of the conclusions I have had over the years.
He tosses out 99% of the many signal generators common to writers and traders. And also adopts single
chart patterns, MA's and trend lines. Exactly what I have done for years. Again KISS!
Specializing in one market maybe one of the best ways as S.A.T. suggests, but those patterns crop up in
many markets and can be taken advantage of, it seems to me. "Search for simplicity" says it all in his last
paragraph, trading "can be that simple."
Don says "the S&P is really where it is at." Most daytraders do trade the S&P. But I believe in the caution
of Joe Severa in Vol 3/9 where he says "Most plungers lose eventually and if Mr. Meadors only trades the
S&P, he'll find that out when he least expects it." That market is for the brace at heart, although I have
traded it years ago. It seems to me the S&P is more treacherous as time goes on. So, not only "new comers
beware" but all traders that trade the S&Ps.
Editor's Note: Once you see why the "S.A.T."method only daytrades the S&P, as discussed in CTCN's
Video Tapes, you will no doubt be agreeing with the reasons. Believe me, there are some extremely valid
reasons. However, the Real Success methodology will also work in a number of other markets but on
average, not as well as S&P 500 daytrading.
In addition, you should know the methodology also works well on daily charts and overnight position
trading, not just daytrading. However, the method probably is more suited for daytraders, but it's not
limited to just day trading.
On Harold Uney and the moon cycles. This is pretty old stuff. If I remember correctly, Larry Williams'
How I Made One-Million Dollars Trading Commodities book had it on silver. Other writers have reviewed
it. Sometimes it's right, sometimes the markets goes opposite or simply ignores those cycles.
Don McCullough agrees on KISS!
John S.A.T. Piper, Robert Miner and anonymous have good bits of information. The latter says a mouthful
in his final statement. I still have several thousand dollars to make back and the S&P500 just dropped a
For all the W.D. Gann advocates, Greg Donio quotes a classic from Gann, "Discover the trend and go with
it." Again KISS! Keep up the good work!
Knowledge, Stops and Ratio Trading
Reading the articles in Commodity Traders Club News reminds me of a lonely hearts club. Oh, if I could
only be successful. What I wouldn't give for that. You need to ask yourself - what would you give? If I had
only used stops. Folks, this is basic knowledge - not rocket science. Instead of (K)eep (I)t (S)imple
(S)tupid. . . How about (D)on't (B)e (S)tupid.
There are quite a few good systems on the market that do work. I have several of them that I have
developed. Instead of tooting my own horn, I would direct you to the grandaddy of them all: Commodex.
It is consistently successful nearly every year. Instead of searching for a 100% correct system, why not just
learn to follow Commodex all of the time.
Most traders cannot follow any system no matter how good. If it has 5 losses in a row it must not work,
right? You should know that statistically speaking any system that is 55% accurate (that's a good system)
over a 10-year period may have 12-20 losers in a row before turning around again. That will happen. Not
maybe, but will!
Three of my systems are being published (with my permission) as individual fax services available to the
general public. They all (knock on wood) continue to perform well. They generally make new highs every
month. Some months the accuracy is 60% and some months the accuracy is 38%. Does this bother me? Of
course it does! Does it keep me from taking the next trade? Absolutely not.
Good systems continue to perform day in and day out. They make money consistently. If you follow a
system (that performs well) and don't take all the trades you are a fool. If you pick and choose the trades
that you like you will always pick the losers and let the winners go by. The same goes for individual
markets. you say you don't like to trade lumber. (D)on't (B)e (S)tupid. If the system gives the signal, take
the trade. My favorite saying to software buyers is "take the damn trade."
I don't feel comfortable risking more than $500 per trade. On most markets I risk much less. Bonds, Notes,
Yen, Franc, Pound and Coffee are the only markets where I risk $500. If you are risking more than that you
are using the wrong trading methodology. Don't be stupid. I have small drawdowns because I don't have
big losses. Cosmic, Huh? If someone tells you, you must risk more than that then perhaps you should look
a little further for your trading methodology.
After speaking to various people on the faxline, it amazes me what questions they ask. I would like to see a
history on the system. I un-politely inform them that the only time I can trade is now . . . not in the past. We
have been faxing out our signals since 2/95 and continue to do well. What do I care what the system did in
1992. The only time my broker will let me take trades is now! If you have one that will let you trade in the
past, I would be very interested in talking to them.
There is a great deal of interest these days in "fixed ratio trading." Ralph Vince's books have really got us
all thinking. That is great! I have found the easiest way for me to use fixed ratio trading is just to multiply
my account size by a fixed percent. That way if you lose or win it automatically adjusts the amount of
contracts you can trade with. This is extremely conservative trading.
Let's look at an example. Since all of my trading is done with fixed risk per commodity, it is very easy to
calculate. Let's say you have a $10,000 account and want to risk 5% on each trade. That amounts to $500
per trade. If you are trading corn and the risk is $150, then you can trade three contracts. If I am trading the
Yen and the risk is $500, then I can only trade one contract. By multiplying 5% times your account
balance, you always know the amount of contracts to take.
You should remember that every trade might fulfill your wildest dreams. In 1988, oats went limit up for 18-
days in a row. This is the simplest way to accomplish multiples trading that I have seen. give it a try. If you
have questions, contact me via CTCN.
Editor's Note: At the time we went to press with out last issue, your editor was checking out various
seminar sites in Nevada, California, Arizona and Chicago. Of course, that was a waste of money and time
as S.A.T. and your editor later disolved our partnership and went our separate ways and cancelled seminar
Due to being on the road at the time, I ended up putting CTCN together via the telephone and FedEx to my
secretary in Wisconsin. As a result I neglected to put in our last issue Part 2 of Terry Davis's excellent
article on the Elliott Wave. We put in Part-1 which was a minor section of the article and said we would put
in Part 2, which was the major work section in our Dec/Jan issue. Naturally, Terry was not happy over the
exclusion, even though it was an error and oversight. Consequently, Terry said we were not allowed to
publish Part 2 in this issue or even as a Special Report, which I had hoped to do. Since Terry's Elliott Wave
article was so good we are hoping Terry can somehow be persuaded to authorize our publishing it in our
Face Up To It, No One Twisted Your Arm
You Are Responsible - J. T. Byatt
I refer to the letter by 'Anonymous' in the last issue. You have a lot to learn, as indeed I freely admit I still
Firstly tell us your name for heaven's sake. Those who have had much longer experience dealing in Futures
than you will, if they are honest, freely admit to having made both losses and mistakes in the past and to the
possibility (indeed probability) of making more in the future - there is no shame in that. Where the shame
does lie is in your whining like a spoiled 10-year old about your broker being responsible for the losses you
- yes you made.
I do not doubt that you have been a very successful businessman. However, I modestly refer you to my
articles in Vol 3 - 8 and Vol 3 - 9 - the results of countless hours of reading - and in particular immediately
to points 2, 3 and 4.
You have already learned (and indeed as most of us have 'bought') the vital lesson that, as you so correctly
put it, "The only way to make money in commodities was to become knowledge, self-reliant and call my
own shots." Now read at least Market Wizards and The New Market Wizards (both by Jack Schwager).
Then take a look at yourself and grow up in the trading sense.
I am not a broker nor do I have any connection whatsoever with the broking fraternity, but I have always
found the vast majority of brokers to be both conscientious and competent in doing their job, which in my
opinion, is taking and executing orders - not giving trading advice.
They will of course out of courtesy, give advice, but it is my opinion that they are too close to the market
and hence thinking in the wrong time frame for most people. In any case, they will by necessity be
jumping from market to market as they place various orders (many both long and short in the same market
depending on the time frame in which the particular customer is thinking) and may well, indeed most
probably, not have a reasonable amount of time to analyze fully your particular situation - but that is not
If you decide to seek their advice, then that is your decision. You placed the final orders didn't you? I'm
sure your broker did not threaten you or twist your arm. So face up to it, your $230,000 loss was your fault
and your responsibility -- nobody else's -- certainly not your broker's.
I am willing to bet that if you said to the broker, who you claimed lost you money, that in the future you
would require no advice and for him solely to execute your orders he would not only accept this, but do so
gladly. Not that I recommend this -- in fact, I suggest you start afresh with a different broker, only because
you stuffed up your first broker relationship.
I do not wish to appear unkind or patronizing. Indeed my sole wish is in the spirit of CTCN to try to help.
Many traders, myself included, have made the same mistake as you. If I have been able, perhaps by being
rather blunt to persuade you and maybe other readers that this is not an easy business -- indeed it is an
extremely difficult one requiring unique and special techniques and psychology -- then I believe I have
been of service.
Trading Thin Markets During Holidays May Mean Losses - New Member "Will"
Thanks to J.S. from CA for his comments on the Christmas Stop, when prices are subject to sudden drops
and exaggerated moves the last 2- months of the year. Too bad I did not know this before my last trade. My
experience relates to his comments.
Oats were in an uptrend so I entered the Mid-Am at 2.12 and was making profits. Moved the stop several
times. Was doing so well, I decided to buy another contract and double my profits. Bought at 240 and
watched it go to 242+ then drift back down.
At the approach to Christmas "it" happened. The price dropped suddenly from Wednesday's close of 235 to
next day's open of 228 on Thursday the 21 st. right through my stop of 234. Stopped out, good bye profits!
The double contract loss wiped out my profits plus doubled the commissions.
I did not expect a dramatic move from Mid-Am Oats. Next year I will trade from the short side only or get
out for the holidays.
"The Trader's Tax Survival Guide"
Ah yes . . . it's that time of year again folks, and I thought some comments on Ted Tesser's book might be
I purchased the book last summer and found it mildly interesting. It did however, prompt me to begin
thinking about my tax situation from a perspective I hadn't considered before. But in mid-summer, who
concentrates on taxes?
But now, with the Internal Revenue Service salivating at the door, I am surprised at how much more
interesting Mr. Tesser's book has become. He takes a very tedious, tiresome subject, and makes it as close
to enjoyable reading an one can get with a very depressing subject. His approach to "Trader" status is
sound, logical, and I thought easy to understand. However, Glenn Skirvin - 4/95 CTCN, seems to have
missed the main point of the book entirely, and this was correctly pointed out by Jim Bunyan in the Dec
95/Jan 96 issue of Commodity Traders Club News.
I sent the book to a CPA who's opinion I respect for his evaluation of Mr. Tesser's work. His only
cautionary comment was "I would take some of his comments (regarding audits) with a grain of salt. IRS
auditors are not an easy to deal with as he portrays." I must admit, I never arrived at that conclusion, but
thought it was worth mentioning.
I recently had a conversation with a person fielding questions in Mr. Tesser's office regarding his book. I
was interested in finding out if Mr. Tesser was still of the same opinion regarding audit avoidance
strategies, as he was when he wrote the book. Namely, filing an late as possible. The response was "yes."
File for an automatic extension to 8/15 using Form 4868, then in a timely manner file for another extension
to 10/15. There is probably no objective way of evaluating if this technique will have the desired effect or
not, being that a certain number of audits are pretty much of a crap shoot anyway.
I would recommend this book to anyone who has not filed his tax returns an a "Trader" (also see Ted
Tesser - 3/95 CTCN). This will be my first filing on Schedule C as a Commodity Trader, and it does make
for a significant savings on my tax bill. I will just have to wait to see how smoothly it goes, but the savings
makes it worth the effort. I always remember; Every dollar earned is only worth about sixty-five cents.
Every tax dollar saved is worth a dollar.
I would very much like to hear from anyone regarding filing as a "Trader." Comments, thoughts, advice,
etc. Contact via CTCN.
Trading Psychology & Van Tharpe
John Piper from England
Thanks for another action packed issue.
I endorse all the comments within CTCN on psychology. However, I would be interested in hearing from
traders' experiences with "Trading Psychologists." I know of Dr. Van Tharpe and I understand there are one
or two others. Tharpe does not trade himself, but claims to have modeled, in true NLP style, the crucial
elements that make the best traders the best. Such people do not exist in the UK - what has their success, or
otherwise, been in the US.
I have studied Tharpe's "Peak Performance Course" and have found it excellent, as far as it goes, albeit it is
fairly expensive (compared to what? Tharpe would say). However, the seminars and consultancy start to
get into "funny money" and I would welcome feedback on such services.
"Adaptive Moving Averages
Make Sense" - Adam White
Here's a "food for thought" trading strategy idea. It's another one of those things I can't test because my
testing software isn't flexible enough, but it makes sense to me.
Adaptive moving averages change their period's (and thus speed) based on the market's volatility. (Or the
market's noise actually, a slightly different measure than volatility.) When the market is noisy, a longer
moving average is preferred because it creates more space between the moving average and the market,
thereby reducing whipsaws. Conversely, when the market is less noisy a shorter period should be used
because it reduces the lag between the moving average and the market.
Here's my idea: use the above construction for entries, but the reverse construction for exits. An "inside
out" adaptive moving average would be fast in noisy conditions and a slow in less noisy conditions. Ideally,
a trend-following strategy should have a selective entry and a sensitive exit. This new approach really
amounts to a noise filtering system because participation during noisy periods is minimized. In high noise
markets it would be difficult to enter but easy to exit, whereas in a low noise market it would be easy to
enter and difficult to exit.
"Profit Centers" Will Pinpoint Strengths & Weaknesses - Tom D'Angelo
In other articles I have written in an attempt to describe some of the more sophisticated techniques of
money management that I have incorporated into my trading and included into my pro-manage money
I stressed that the profit center concept of trade segregation would enable the trader to conduct his trading
activities in a manner similar to a successful business, instead of falling prey to the disorganized and often
chaotic practices of the vast majority of traders.
Proper organization of trading results into profit centers will enable the trader to instantly pinpoint trading
strengths and weaknesses. In addition, having instant profitability analysis of profit centers will greatly
enhance the trader's battle against fear, uncertainty, loss of confidence and greed since he will know the
profitability and key money-management information of any trading system, future, stock, option or
The type of knowledge provided by profit centers instills confidence and diminishes fear and uncertainty.
The trader can now manage the market instead of having the market manage him. These are the concepts I
embodied into my pro-manage money management software.
In this brief article, I will present two additional tools the trader may wish to adopt in order to run his
trading as a successful business and not in the "open an account, wire funds to a broker, buy a trading
system, make some trades, pray for the best syndrome followed by 95% of all traders.
Every successful business, whether giants like IBM or small entrepreneur owned firms establish goals and
compare these goals with actual results. You will rarely, if ever, find a successful company or individual
who does not establish some type of goal measurement scheme.
The table below illustrates a report generated by the goal program of pro-manage software. It compares the
goals that the trader has set for a particular profit center with actual results. The first four items, $profits,
$losses, commissions and net profit or loss are financial goals. The remaining items are operating goals,
that is they are key money management statistics.
As an example, the trader established a goal of $300 for the average profit per trade. He actually obtained
an average profit per trade of $650. The actual of $650 divided by the goal of $300 means that he achieved
216.7% of his goal (650/300=2.16)
Pro-Manage instantly and automatically performs these calculations for you, but a similar work sheet can
obviously be set up on a lotus spreadsheet. The proper way to use this information is the following:
1. Goals should be set up on at least a monthly, quarterly and yearly basis for each profit center.
If the trader is active, weekly goals should also be established.
2. At the end of each selected period, weekly, monthly etc, the trader should analyze and constructively
criticize the variance between the goal and the actual results of his trading performance.
For example, assume the profit center is a trading system he developed after back-testing it over a 10-year
period and he was expecting an average loss per trade of $600 and % losing trades of 45% based on 400
hypothetical trades over this 10-year period.
The trader starts trading the system and enters all trades into the profit center which only contain trades
from that system. After 3-months of trading, he finds that he has 57% losing trades and an average loss of
$800 per trade.
What went wrong? Is it his fault or is this an early warning sign that the system can not perform as well in
real world trading as in the hypothetical world?
Has he been following the system or has he been changing the stops losses prescribed by the system and
taking larger losses than expected? How can he improve performance? Should he stop trading the system?
These questions are identical to the question faced by managers of IBM or General Motors:
1. Are we meeting the goals?
2. If not, then what is the problem why we are not achieving our goals?
3. Once the problem is identified, how do we eliminate the problem?
4. If we are over achieving our goals, why are we overachieving and how can we obtain the same success
in other profit centers?
As an accountant for 15-years, I can assure you that this is how successful companies and individuals run
their businesses. Trading is a business. And as a trader, your approach should be to emulate and model
yourself after success.
The second money management tool I have added to pro-manage software and would like to share with
you. This pro-manage report accesses any profit center and computes the total profits and losses in that
profit center. Then it divides each individual profit by total profits and each individual loss by total losses.
For example, report 1 lists all profitable trades in the TSBO profit center (TSBO signifies a trading system
based on a break out signal). This profit center has 10 profitable trades which if added up will total $7,000.
Likewise, on Report 2, there are 7 unprofitable trades in the TSBO profit center which total $4,300 in
By dividing each profitable trade by total profits, we can see the percent each profitable trade contributed to
total profits. The same approach is applied to losing trades.
For example, we had an unprofitable trade on soybean meal which lost $900. Dividing $900 by total losses
in that profit center of $4,300, we will find that the meal trade contributed 20.9% of total losses in that
profit center. Also, we see that the $900 loss was 8.6% of the capital in the profit center at that point in
This is a simple, but very informative method of quickly seeing if a few trades are making an inordinate
contribution to total profits or losses. You can then go back and analyze those trades and attempt to
determine what you did right or wrong and try to improve your trading techniques.
I feel that the trader should strive to keep all the percentages as nearly equal as possible. If the trader has
each trade contributing roughly the same percent to total profits and losses, he will significantly reduce his
psychological stress since he will be fairly confident that he is not dependent on any 2 or 3 trades to
contribute the largest % of profits or likewise worrying when the 2 or 3 trades which contribute the largest
% of total losses will bury him.
Similar percentages signify consistency and a disciplined trading style. Consistency brings forth
confidence. Confidence reduces uncertainty. All these factors enable the trader to greatly reduce the
pernicious psychological problems which haunt most traders and contribute to the large percentage of
traders who fail.
A similar technique on Report 3 is to divide the profits or losses for a particular future by total profits or
losses in that profit center. Table 3 shows that the 7 profitable trades for beans totaled $5,700 which
represents 81.4% of total profits of $7,000 in that profit center. These profits totaled 44.4% of capital. A
similar approach is used for analysis of losses. This analysis will inform the trader in which futures he is
strong trading in and in which he is weak.
Please keep in mind that the analysis described in this article has its most beneficial effect when applied to
profit centers. For a discussion on profit centers, please refer to past issues of Technical Traders Bulletin.
Managing the markets instead of trying to beat them will enhance the success of most traders. Feel free to
call 1-800-money30 if you have any questions on money management or would like further information on
the techniques I have incorporated into pro-manage and pro-graphics software.
(Note: Charts are not available here on our webtrading web site but are included in the print edition of
The Trades S.A.T. Did Not Take Are Most Important
Message From Chart - Nick M.
It's difficult to understand why people always think that there is an easy way to make money in the
commodity markets. Referring to the S.A.T. article 6/95, a novice looking at the chart and the signals
would think how easy it is to make money. They start dreaming that in 3-months time they will be able to
duplicate what S.A.T. is doing . . . well good luck.
The most important message that S.A.T. gives on that diagram is not his indicator or how he trades them,
but the two trades that he mentions experience, that is the key word.
People say that you have to treat trading as a business. How true, but no help to 80-90% of new businesses
who fail and close down.
People run to buy the top performing systems (the easy road to make money) to find out that it does not
work after a while. There is no easy money to be made in any business, it's hard work. Trading like any
business is in perpetual change, so you have to change with it.
I have seen times when S&P was moving in 50-pt per tick and SF would drop 200 pts in 3-ticks. Gold was
moving $10-15 per day in slow days. Do you think any system that was created in those days would work
for Gold today?
When I started trading, a trader told me that if you survive 5-years in this business (like most businesses)
you will do O.K. S.A.T. and all the successful people in this industry have learned how to live with the
It comes with experience and unfortunately nobody can teach you. (S.A.T. says that he trades couple of
hours in the morning, then comes back and trades couple of hours in the afternoon. This shows his
understanding of today's markets, S&P is trendless in midday and it is not worth trading most of the times).
Gary Smith knows that if we go in a bear market, his system may not work, but I am sure he will still make
money by adapting to the environment. I wonder how many mutual fund managers will adapt to a bear
market. They have not even heard of it.
Nobody can teach you how to become successful, but the advice I got 25-years ago is still valid.
1. Be flexible and change with time.
2. Find a couple of commodities that you like to trade and stay with them.
3. Find the time-frame that you are comfortable for each commodity. (S.A.T. (apparently)uses 3-5 min for
S&P time-frame with stop 70-pts and wins of 100-125-pts, don't expect 60-min time-frame to work with
4. Don't be greedy - if you trade 3.5 min S&P today, don't expect 300-pt wins. It may happen once, but
5. All the commodities trend most of the time in different time-frames. Shorter, more trend.
6. Don't look for a super indicator, all are the same. Find how to use the one you like in that time-frame.
Spending 20% Of Net Profits On R & D, & Here's Two Items of Value - Ray Barros
I am always looking for ways to strengthen my trading plan - a firm believer in the precept "if It ain't broke,
fix it." Twenty percent of my net profits goes to Research & Development. Most of the stuff that I come
across is a waste of time and money. However, in my travels on the net, I came across two items that I
found of value.
The first: "Dynamic Gann Levels", a manual with fourteen mini tutorials. Cost is US$85 and is available
from Don Fisher. Contact via CTCN. (no relation to Peter Picks' Ganntrader).
I first came across "DGL" through Don's posting of the levels in the "misc.invest.futures" group. I noticed
that very frequently the market turned on the levels published. Finally, I asked him for details on 12/15
when on the 13th he said that a substantial fall In the S&P's was imminent.
I was pleasantly surprised at the cost and even more impressed when I subjected DGL to my testing. DGL
is a mathematical formula that determines support and resistance levels from which a market can turn. In
determining these levels, it incorporates time as well as price.
I do not use DGL in the manner Don does. Nevertheless, the test and trade results have been impressive. I
investigated DGL as I was looking for a reliable indicator of price levels that would augment my
termination price patterns in the time-frame I am trading. I found the "normal" methods not up to the
standard of reliability that I seek. DGL is the first forecast approach that gives me that reliability.
I found Don very generous with his time as far as questions are concerned. He also places you on his e-mail
list for regular updates.
In terms of value for money, I'd give it a 9.6 out of a scale of 1-10.
The second item: The Undeclared Secrets of the Stock Market by Tom Williams. Cost is US$99 plus
postage and is available form Larry Levy, 1-800-260-8095, the number is routed through Europe so please
allow a full minute. I'm told that it's disconcerting to hearing nothing for a minute as with US phones you
hear the connection almost immediately. Fax is 34 71 700965. E-mail address is Ilevy@ibm.net. There is
also a web page at "http://www.ocea.es/vsa/vsa.htm"
Tom has a Wyckoff approach to the markets. I came across Wykoff's ideas about 6/7-years ago when I
completed SMI's The Wyckoff Method of Stock Market Method Analysis. Tom's work is not as detailed as
SMI's in dealing with the various stages of the market and in defining what is accumulation or distribution.
Both concepts are extremely important to Tom's "secrets" which are a very clear description of the volume
and price patterns to look for when looking to decide if trend is likely to continue or if there is going to be a
major change in trend. Tom's strength lies in this very clear description.
If you have your own method for determining structure and price patterns to answer the questions:
continuation or change In trend? then Tom's work will provide invaluable assistance.
The web address serves as a valuable support module. Tom is giving end-of-day assessments for the FTSE,
DOW and S&P.
Tom also sells real-time and end-of-day software, but I have not evaluated them. In a rating from 1-10, I'd
give Tom's work 7.
Like To See Higher Swing Low or Lower Swing High & Divergence - J. T. Byatt
I share Ashley Howes concern about the reliability of oscillators in predicting tops and bottoms (Vol 3-10).
I looked at a few relevant charts and Ashley's confirmatory signal appears to work - thank you, Ashley. I
will certainly be using it in the future, but together with many other invaluable confirmatory signals I
learned from Tom Bierovic.
I went to a seminar in Sydney, Australia at which Tom spoke about Synergy and to say that I was most
impressed is indeed a gross understatement. Tom also made himself freely available to speak individually
with attendees and I took advantage of this. I found Tom to be absolutely genuine and 100% honest.
I have done some research on the use of Tom's Synergy principles and they seem to work extremely well
and to suit me ideally. Indeed, I have just taken my first trade using a situation which to me satisfied his
Synergy criteria - Long at 1276 in March 96 Cocoa on January 16.
I have in fact been trading for well over 10-years and of course like every other trader made my share of
mistakes and losses - with more to come I'm sure. Nevertheless, I feel sure that the application of Tom's
Synergy will both vastly improve my profitability and reduce my losses and number of losses.
I strongly recommend contacting Tom at Synergy Futures, 519 Riva Ct, Wheaton, IL 60187. Phone: 708-
682-3768. Fax: 708-682-3915. I hasten to add that I have absolutely no connection whatsoever with Tom
Bierovic or Synergy Futures - I am just a very satisfied customer.
I like to see a swing following a divergence between price action and oscillator extremes. For example,
after a bullish divergence I wait for a confirmatory swing low which is higher than the lowest low price of
the divergence before going long and after a bearish divergence, I wait for a confirmatory swing high
which is lower than the highest high price of the divergence. In both cases both the market and the
oscillator should be moving in the same direction after the divergence.
My Opinion on Curtis Arnold's
PPS System - Scott Caldwell
Since this article is of a negative nature against Curtis Arnold, he should be given a chance to respond to it.
A copy of this letter has already been faxed to him. Enclosed you will find copies of pages of 18 and 19
from the PPS Software brochure which I refer to in my comments.
PPS Concerns - Some time ago I purchased the PPS software system from Curtis Arnold. While I do not
believe that vendors are in any way responsible for the future profitability of their system, I do believe they
are responsible to practice truth in advertising. This is the focus of my complaint.
A brochure sent to me by Curtis Arnold indicated that he had studied 30 commodities for 10-years and
researched over 1,400 price charts and ultimately discovered that certain chart patterns were effective in
certain market scenarios. He then related that one of his student's translated the rules of his 200-page
training manual into SystemWriter Plus and proved for himself that it worked.
"In late 1990, unbeknownst to me, one of my students, using Systemwriter Plus, began laboriously
translating the rules and conditions set forth in the 200-page training manual into computer code." (page 18,
PPS brochure) Mr. Arnold then notes that he then hired programmers to translate that code into another
computer language that anyone could use. "The next logical step would be to translate that code into
another language so that the system would run on anyone's computer." (page 19, PPS brochure).
It was my understanding from these excerpts in the PPS software brochure that the software which was
being marketed was in fact a computer translation of the 200-page manual which was the conclusion of Mr.
After purchasing the software, I incidentally had a conversation with another purchaser of the PPS software
who had also paid extra for PPS training. He commented that the rules in the manual he received were not
the same as the software. Later, others seemed to indicate that this was in fact the truth.
I contacted Mr. Arnold's office and expressed my concern that I had purchased the program with the
understanding that it was a translation of the written manual relating to Mr. Arnold's research and now I
had reason to believe that it was actually something different than advertised.
The response was you couldn't really translate all of the rules into computer code and I shouldn't be
concerned since the software was such a close approximation that any differences were negligible. I
requested a refund on the basis that I had been misled by false advertising and was told that such was not
possible. I believe I was offered a free manual if I wanted, which I declined.
The above summarizes some of the facts relating to my concern as well as my conclusions which I draw
from the facts. My request to you, CTCN members, is to provide me with feedback in regards to my
conclusions and, if applicable, to respond to the following questions:
1. If you purchased the PPS software system, were you partly induced to do so because of a personal
understanding, based on PPS marketing information, that it was a computer translation of Mr. Arnold's
200-page manual which was the result of his research?
2. Is my logic reasonable and do you agree that the marketing information on PPS appears to promise the
software is a computer translation of the rules in the manual and is it, in fact, not true?
3. For those of you with legal backgrounds, do you believe that this constitutes misleading advertising and
does the delivery of such through the mail constitute some form of mail fraud?
4. If you believe you are the victim of misleading advertising communicated through the US Mail, are you
interested in participating in some form of class action response?
Paul Wagner writes "Please encourage D.B. from Australia (last issue) to write a follow-up letter
explaining how he uses Gann's methodology in his trading. D.B. says he doesn't need the flack, but I doubt
his critics are smiling as much as he is when they go to the bank." Keep up the good work Dave, CTCN is
Tom Feldberg from England is interested in the article by Sam Jackson that the Supreme Court had decreed
that books and software belong to the purchaser and that the purchaser may give it away or loan it to
whomever. Could you cite the reference for this ruling via CTCN, since it seems contrary to the restrictions
and disclosure requirements that most software vendors seek to impose upon purchasers.
Ron Kuchmek is interested in a number of systems and would like to speak with members about George
Angell, Fontanills, and Insight Trading.
Julian Braun says "There is a widely advertised system named System 2000." Is this system any good or is
it just another boondoggle? J. Wojciechowski and several other members are looking for info on Dave
Wright's Cherry Picker system. Please reply via our next issue.
New member JDW wants to know if there is a broker out there who trades Trendx Trading Co.'s Swing
Catcher system. Reply via CTCN.
Any who has had dealings with John Stenberg, I'd appreciate it if you would contact Alex Alexander c/o
Who has experienced the letter from Rebecca Nolan, Hong Kong, Financial Astrology. Please write to W.
Troppmann, 37, av. des Grands Prix, B-1150 Bruxelles, Belgium.
Don Wilson would like to talk to S&P daytrading students of the Profitunity Trading Group. Contact via
CTCN. I have experience with and opinions on several other S&P daytrading methods.
Charles Meyer would like to hear from members who have experience/information on Ellery Coleman's
Fax service. Contact via CTCN.
James Footer is looking for comments on the Ken Roberts courses and the Craig Stevens Company courses.
Jack would like to know if anyone has attended George Fontanills seminars or purchased his manual.
Contact via CTCN.
Having been a successful investor with various CTA's and CPO's over time, I would welcome opportunity
to mutually share knowledge, experiences, and ideas with other CTCN member investors. Networking
could be good fun and perhaps serendipitously rewarding. Contact via CTCN.
I would like information from anyone who has traded David Wright's Lil Gapper or his Cherry Picker
system or any of the systems put out by "Market Research." Please contact via CTCN.
Neil Sterritt wants to buy a Lotus enhanced black box receiver (FM - 9600 baud, 1200 symbols). Please
contcat via CTCN.
F. Verschoor would like info on following companies via CTCN: Alaron Trading, 822 W. Washington
Blvd., Chicago, IL, and on Greenstreet Discount Corp., 109 N. Green St., Chicago, IL.
Eddie Shaw would like members' opinions on the following: 1. Wilder's book The Delta Theory or Secret.
The hype is hard to believe; 2. Gary Wagner's video from Traders Library on Candle Stick Charting; and 3.
Craig Steven's Commodity Trading course.
Charles Meyer would like information on the RPM S&P Daytrading Method. If you have experience with
this product or have been a subscriber, please contact via CTCN.
Successful OEX traders: I'm looking to contact other successful OEX traders to network, help each other
and exchange data. I'm generally in the market 1-3 days, rarely exit same day of entry. He also is interested
in Optionetics by George Fontanills. Who is actively trading with this information, successfully or not?
I'm thinking of attending his 5-day advanced workshop March 24-28 in Chicago and want some real-time
feedback. Also, workshop cost is $4,995, but 50% each if two sign up. Would you care to attend and share
the cost? Contact Marc Mitchell via CTCN.
In our last issue, I said "watch your mail during January for a special offer. (Re: Real Success
methodology). As explained in detail in our "FREEDOM" brochure, S.A.T. and your editor have
unfortunately had a "falling out." That falling out, by an odd coincidence occurred on the very day we were
preparing the brochure mailing (in late January) and accepting orders for the planned seminar. That falling
out delayed our own video tape & trading manual announcement (until now) and cancelled our joint
seminar plans. Please read our comprehensive "Freedom" Info-Guide for all details and your ordering
opportunity to get CTCN's own Real Success tapes and methodology, produced by CTC.
Many of you have been impressed by CTCN member Robert Edwards, who has written several informative
and well received articles for us. Bob has started his own newsletter titled "The Short Bull." It appears to be
very well researched and most importantly written by someone I consider extremely knowledgeable,
especially as far as selling or writing commodity options is concerned. I am sure Bob will send you at least
a free sample upon request. Contact The Short Bull via CTCN.
Unfortunately, Futures Truth did not send their rankings in time for this issue. We called them several times
but never received their fax and could not delay our print schedule any longer.
In all likelihood we will change our publishing schedule, in part to avoid the problems getting the Futures
Truth reports in time in the future. Our planned new schedule will also be more in-tune with other future
industry publications and also make more sense as far as the calendar is concerned. We are planning an
extra issue on about April 1. After the special April bonus issue, the next issue will be May/June, sent out
This issue is a record setting 39-pages long, jam-packed with knowledge for you. We are constantly
making CTCN larger to accomodate all the excellent contributions you are making.
This action might not be possible to undo. Are you sure you want to continue?